China expands economic stimulus ahead of 2020

Market: Metals
24/12/19

China is likely to inject more money into its economy in the coming weeks, adding to other policies announced this week to shore up growth in 2020.

Beijing will implement measures including more cuts to the reserve requirement ratio (RRR) for banks, both across the board and targeted at smaller lenders, to reduce financing costs and make more funds available to businesses, Chinese premier Li Keqiang said on 23 December.

China's state council, the country's highest governing body, confirmed Li's comments, two days after it announced China would open up more sectors of the economy to the private firms.

Steel market participants expect the next RRR cut to be made around 1 January, possibly on a Friday night as is typical for the release of liquidity around the new year holiday. The RRR cuts will have limited impact on physical steel trade, which has already gotten a boost from earlier measures.

The finance ministry last month brought forward 1 trillion yuan ($140bn) in 2020 provincial government bonds, requiring localities to use the money as soon as possible so that results are seen early next year. The accelerated bond issuance and loosened real estate cooling measures have extended steel demand late into this year.

Chinese hot-rolled coil (HRC) export prices have risen by $55/t, or 13pc, to $482/t fob China since early November. Shanghai prices have risen by 390 yuan/t ($55/t), or 11pc, to Yn3,900/t over the same period.

China's finance ministry yesterday said it will cut import tariffs on 859 items to support growth. The tariff cuts will have limited impact on steel markets, with only hot briquette iron (HBI) among the categories included.

The state council issued guidelines on 22 December aimed at opening up more sectors of the economy to private firms that have been dominated by state-owned companies. Among the measures are lower tax rates and increased access to financing. China is seeking to expand its oil and gas pipeline networks with private-sector participation. Additional steel pipe demand would support HRC prices.

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