Chinese economy and steel market have remained subdued during an effervescent summer. Malignant EU zone has kept the seething dragon crouching since Q3 2011. However providence was defied and so was tradition when post Lunar Holidays and balmy summer turned out a dampener.
Steel prices and economic growth plummeted with impunity raising eyebrows about a repeat of 2008. If it was the recalcitrant EU debt crisis an equally stubborn government was steadfast in anti-inflationary overdrive. Lending rates remaining high and export demand sulking industry had double whammy.
After a mere 8.1% GDP in Q1 lowest in post recessionary era and the governments overdrive to rein inflation in the final year of Prime Minister’s tenure having populist connotations there is barely any shred of economic pragmatism .
Ever so impudent steel mills in China blindly reared ahead with their production agenda anticipating seasonality panacea. Resultantly inventory levels surmounted furthering the agony.
As the market oscillated between hope and desperation activity touched nadir having impacting the finished and iron ore market as well which dipped by 5% and 8% over 2 months.
Miss-happenings galore state reacted with half measures by cutting CRR by 100 basis points in two tranches. Predictably economy and market reacted tepidly sputtering quickly. International crisis was unable to provide the outlet for volumes leading to backlash in domestic market gravitating it further.
HSBC Markit PMI in May fell to 48.4 compared with April 49.3 and the May preliminary reading of 48.7 reflected the contracted activity.
With cry getting shriller for some inducement investment and buying as the inflationary monster at had been reined at 3.2% April. A need for relaxation in lending rates and economic package was overdue.
Even though indications of economic package of CNY 2 trillion have been indicated by the government but streak of reluctance is not giving confidence to the market.
Cosmetics have been attempted this week with PBOC cutting borrowing costs for the first time since 2008 and loosened controls on banks’ lending and deposit rates.
1. 1 year lending rate declines by a quarter percentage point to 6.31%
2. 1 year deposit rate drops the same amount to 3.25%
However impact has been more than muted in arresting the fall let alone any rally. With Spain harbouring on the brink of default after Greek and the ECB remaining ambivalent rescue measures the cloud of uncertainty remains as dense. Greek elections on 17th June would give some clarity on the course of EU zone crisis and the global economy. Meanwhile such guarded measures are unlikely to provide and relief.
To know exact prevailing steel prices in China on daily basis, subscribe to services of SteelHome by sending a mail to admin@steelprices-china.com
Source - Steel Price China
(www.steelguru.com)
