On August 1, the People’s Bank of China (PBOC) announced a cut in China’s one-year loan prime rate (LPR) by 10 basis points to 3.45 percent, while keeping its five-year LPR stable at 4.2 percent.
The PBOC’s move aims to reduce the cost of short-term funding, which may stimulate domestic demand and consumption. This move by the bank was widely expected by the market after cuts in medium-term lending facility (MLF) rates and in the seven-day reverse repo operation rate announced last week. The looser lending flow is expected in general to support the economy in the short term, but it has not boosted steel and iron ore futures today as the steel market remains impacted by poor fundamentals.
In particular, the awaited steel production cuts at major mills in the provinces of Hebei, Jiangsu and Shandong have been smaller than expected, according to sources, and a number of mills are planning to cut outputs significantly only in the last few months of the current year, so they will meet the seasonal demand in September and October, and still fulfil the government target not to exceed the production levels seen last year.
As for now, demand has not improved, so both futures and spot steel prices have remained under pressure. Rebar and HRC futures at Shanghai Future Exchange lost 1.4 percent and 0.8 percent compared to last Friday, coming to RMB 3,666/mt and RMB 3,879/mt.
At the same time, iron ore futures at Delian Commodity Exchange have increased a little, by 0.9 percent or RMB 7/mt to RMB 777/mt, mainly amid future hopes and still stable demand, again linked to the lack of severity of steel production cuts, at least for now.