China steel futures jump on central bank optimism

Steel futures prices in China jumped late Tuesday and Wednesday after the country's central bank, the People's Bank of China (PBOC), announced additional measures to boost liquidity.

At a press conference on Tuesday, Liu Guoqiang, deputy governor of the PBOC, indicated that the central bank will use more monetary policy to ensure market liquidity stability and economic development.

Tuesday's announcement came after the central bank on Monday cut interest rates on one-year medium-term loans (MLF) to financial institutions by 10 basis points to 2.85% from 2.95%, Mysteel Global said. The seven-day reverse repo rate was reduced by the same amount to 2.1% from 2.2% previously.

Both the timing and extent of the cuts exceeded market expectations, but the NBK said monetary policy decisions need to be made early in order to "react to market concerns in a timely manner."

Liu also pointed out at the conference that "there is still scope" to further reduce the reserve ratio - the minimum amount of money commercial banks must hold in liquid assets - in order to release more liquidity into the market. However, volume has already narrowed, Liu noted, after two PBOC cuts last year in July and December, respectively, by a total of one percentage point.

However, the central bank's statement on Tuesday spurred sentiment on the Chinese steel market, market sources said.

At some point on Wednesday, the most traded May rebar futures contract on the Shanghai Futures Exchange reached 4,744 yuan per ton ($747.1 per ton), the highest since October 25 last year, SHFE data show. The contract ended the afternoon session at 4,713 yuan per tonne, up 3.02% from Tuesday's settlement price.

Meanwhile, May's best-selling hot-rolled coil (HRC) contract also rose 2.88% from the same figure to 4,815 yuan/t.

“Market sentiment used to be bearish, but thanks to positive central bank signals, the market has become more confident in demand after the Chinese New Year (January 31 to February 6),” said Zhuo Guiqiu, senior iron and steel analyst. with Jinrui futures.

“The money will be mainly used to build new infrastructure and new energy projects that will support the demand for steel,” Zhuo said. "At the same time, it will help improve the situation in the real estate market," he said.

China's real estate sector, by far the country's largest consumer of steel, faced severe financial difficulties last year and saw a significant slowdown due to tighter controls, Mysteel Global reports. But since last September, the situation has been improving thanks to moderate credit easing.

"The worst period has passed and the future still looks promising," Zhuo commented, expecting steel futures prices to strengthen at a high level for at least the first half of this year.