Sentiments in the weak steel market finally received tangible support today, August 21, after Chinese banks approved financial support totaling RMB 1.4 trillion for ‘white list’ real estate projects, with this financial boost being far above market expectations. This has resulted in steel futures gaining 2-4 percent today, and local spot prices together with some export offers from China have also improved, though at a slower pace.
On Wednesday, August 21, China's commercial banks approved 5,392 real estate projects under the ‘white list’ with the financial support for the projects totaling RMB 1.4 trillion ($196.3 billion), according to Liao Yuanyuan, an official at the National Financial Regulatory Administration. The ‘project whitelist’ mechanism was launched in late January this year, when financial support amounting to $17 billion was issued to real estate projects which had passed reviews.
Moreover, according to market reports, at least 10 cities, including Changsha, Xiamen, Changchun, Taizhou, Quanzhou, have adjusted the rules for housing purchases. Also, there are strong rumors that local governments will be allowed to purchase existing residential housing for sale, not only commercial buildings, as was the case before. As a result, they will be able to use funds raised from special bonds for house purchases. Currently, local governments’ special bonds are used mainly for infrastructure projects.
As a result of all these new developments, on August 21 rebar and HRC futures at Shanghai Futures Exchange gained 2.5 percent and 3.79 percent, respectively, while iron ore futures at Dalian Commodity Exchange increased by 4.58 percent, compared to the previous day. Spot steel prices have been rising at a slower pace, as they are still impacted by the ongoing slow real demand, but the news has definitely started to change market sentiments. “Mills raised local prices a few times today and rebar sales have improved [locally]. Furthermore, the price gap between HRC and rebar has expanded, which is healthier,” a Chinese trader said. The gap between local HRC and rebar prices fell to RMB 32/mt on Monday and increased back to RMB 75/mt today, according to SteelOrbis’ data. Local average ex-warehouse HRC prices have jumped by RMB 80/mt to RMB 3,265/mt, while the rebar price gain has been moderate, with an increase of RMB 17/mt to RMB 3,190/mt ex-warehouse.