Chinese stimulus measures prompt mills’ price rises

A recent rise in Chinese steel prices encouraged steelmakers in other parts of the world to push ahead with their own increased offers.

The uptick followed a series of economic stimulus measures that were announced by China’s National Development and Reform Commission (NDRC) ahead of the Golden Week holiday period (October 1-7). The main aim of the measures is to drive growth in the domestic property sector.  

The People's Bank of China (PBOC) reduced interest rates by 0.2 percentage points as downpayments for second home buyers decreased from 25% to 15%. Local governments will also receive funding under the measures, allowing them to buy unsold homes and convert them into subsidised housing. Furthermore, plans were drawn up to improve credit liquidity, in both the banking sector and the stock market.  

The economic stimulus package provided an instant and much-needed boost to the domestic steel industry. This resulted in a spike in Chinese futures trading for both hot rolled coil and reinforcing bar. 

Significant price rise 

MEPS respondents in traditional export markets for Chinese steelmakers reported that price quotations rose “significantly” during pre-holiday negotiations. China’s steel manufacturers announced list price increases of USD60-70 per tonne in many export markets, including Vietnam.  

Steel producers in many parts of the world were keen to capitalise on the rise in export offers by raising their own list prices. 

In Europe, ArcelorMittal raised its coil offers by EUR40 per tonne, with other regional steelmakers followed their lead in an attempt to boost their profit margins. At worst, the recent mill initiatives appear to have created a price floor across the continent. 

In contrast, the majority of steel manufacturers in East and Southeast Asia adopted a “wait and see” approach during the October National Day holiday. Many MEPS respondents expect that these producers will also lift their price quotations in forthcoming negotiations.  

Are price increases sustainable? 

Participants in the global steel market assessed by MEPS have expressed doubts over the long-term sustainability of any uptrend in Chinese prices, however. Many steel buyers – facing low market demand in their respective countries – have strongly opposed the sharp price rises announced so far. Very few orders were placed at the new asking prices. 

Some Asian research partners expect Chinese steel prices to correct downwards in the post-holiday period. They say that the size and speed of the recent price hike had reduced the likelihood of the elevated values gaining traction. 

Furthermore, there are signs that the scale of China’s latest stimulus measures may not be enough to fix the challenges facing the country’s economy. There has been a pullback from the country’s stock market investors in recent days. They question whether China’s 5% GDP growth target will be achieved this year.   

Concerns are also growing about whether September’s stimulus measures – which have been followed by a further pledge of CNY200 billion for investment projects, in recent days – will provide a long-lasting boost to the Chinese steel sector.