European and Asian markets started the week with China welcoming steel dumping. China’s 1 billion yuan liquidity dumping to moderate some of the effects of the price of essential commodities in the steel sector may be the most important event this week. China’s central bank has invested a total of 1 trillion yuan ($ 154 billion) in dumping to reduce the banks’ reserve requirements, known in economics as the index (RRR). In the following, we will examine Metal Bulletin’s view on this issue. Please be with Artan Press.
*** The arrival of China with the game of dumping steel raw materials
While many steelmakers are happy with China entering the market as a dumping agent, at least for the short term, fast-market analysis shows that not all sectors will benefit from these measures. The National Bank of China announced last Friday (July 9th) that the RRR for commercial banks – excluding those with RRRs of 5%, such as city banks, rural credit unions and rural banks – will increase by 0.5% from July 15th. Will decrease. Reducing bank profits and forcing money to enter the market may not be an issue for some investors in the current situation.
The weighted average RRR for most commercial banks will be 8.9% after the final announcement. In an interview with Fast Market, some market participants said that part of the 1 trillion yuan released by reducing the RRR will be used by commercial banks for medium-term loan facility services granted to them by the central bank.
*** Facilitation of Chinese manufacturers by the National Bank of China
China’s entry into the steel market with the role of dumping has not been just to provide facilities to its domestic producers. Sources say that some funds to compensate for the competitive flow of capital in the second half of 2021 will be due to the centralized corporate tax. Companies usually pay taxes such as VAT and corporate income tax in the middle and end of the year. Years pay. Continuation of this trend will cause producers to make huge profits. Because the raw materials of the steel sector in this country will be obtained by the Chinese government at cheaper prices from the market.
*** Reduce bank reserve rates with the aim of moving the markets
According to analysts who have published information in this regard with Metal Bulletin, it has been concluded that “lowering the RRR rate is to counteract the adverse effects of rising commodity prices on businesses.” This is why businesses can get more loans from commercial banks to continue their business. The attractiveness of these loans is that their interest rates are much lower than other loans offered to artisans. “This is a good thing for the Chinese manufacturing industry. It can partially offset the damage caused by Corona and keep stockpiles reasonable for the winter,” said a steel trader in Shanghai.
*** The role of reducing bank reserve rates and rising steel prices
Medium steel prices – the main commodity in the manufacturing sector – hit an all-time high in May, lowering profit margins, sources said. This has even led to the loss of downstream industries, especially small and medium-sized enterprises. China Manufacturing Purchasing Managers’ Index (PMI) for May was 51 points, down 0.1 points from April and 0.9 points lower than March 51.9. All these indicators show that the marketers were waiting for the timely support of the National Bank of China from the steel market. It should be noted that an index above 50 indicates growth and below it indicates a recession in the market.
*** Fast Market Evaluation of China Hot Rolled Price
Fast Market price assessment for domestic hot-rolled coil, in China, on May 12 increased between 6,680-6,710 yuan per tonne, of which 2,130-2,140 yuan per tonne (47%) of 4 , Price increased from 540 to 4,580 yuan per tonne in January. This is the highest rate since the assessment in August 2004. Losses in the steel industry will lead to lower employment rates. Then, people’s incomes decrease and this weakens the consumption. It seems that reducing waste on the production line is opening up in China’s industrial literature. China’s perhaps the biggest challenge today is industrial waste.
*** Evaluation of China’s economic indicators in the shadow of RRR decline
It is not bad to take a look at China’s economic indicators. The manufacturing PMI was 48.9 in May, down 0.7 from April, reflecting rising unemployment in China in recent months. But sources are bullish on flat steel prices because of their optimism for the manufacturing industry in the second half of this year as a result of the RRR decline. The Chinese government remains concerned about investing in the housing sector. This can pave the way for employment growth in this country. It should be noted that the reduction in RRR does not create any major budget flows in the real estate market. China’s central government has tightened regulations in the housing industry to prevent sharp price increases and speculation.
*** China Red Line for Construction Companies
Since 2020, Beijing has set three red lines for housing companies to reduce their financial risks. The debt ratio of their assets (excluding prepayments) should not exceed 70%. Their net liability ratio should not exceed 100%. And their cash to debt ratio should not be less than 1. A research institute
China’s housing industry reported that financing domestic and foreign bonds of real estate builders in the first half of 2021 amounted to 548 billion yuan, down 16 percent from the previous year. This analysis shows that commercial banks receive high liquidity flows from the RRR reduction. Therefore, they may expedite the approval of mortgages, but this will not be enough to challenge the sharp rise in housing prices. China’s initial mortgage rate (LPR), which is the reference rate for mortgage rates, is likely to be affected by the RRR downgrade. .
*** The re-growth of rebar prices in the Chinese market has started again
Following the news of the RRR downturn, more rebars were sold at higher prices on Monday, but do not expect the uptrend to continue as July is part of the country’s low-consumption steel season. China is considering a number of tax changes for its steel industry, including cuts in export rebates. This is a strategy to overcome the environmental crisis and China’s ambitious plans to become the world’s largest economy. It remains to be seen how this trend will change the bargaining power of other global steelmakers.
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