Chinas rate cut boosts steel, iron ore firms but not prices
China’s surprise cut in benchmark lending rates on Friday 21 November should have positive effects for iron ore miners, steelmakers and the crucial real estate market; What is more, any further cuts would increase this positive impact, analysts tell Kallanish. However, prices seemed to show little reaction to the news after an initial boost to sentiment.
The People’s Bank of China cut its benchmark lending rate by 0.4 percentage points to 5.6% and its deposit rate by 0.25 percentage points to 2.75% on Friday, marking the first broad rate cut in over two years. The move appears to be designed to boost the economy through increased lending, while reducing non-performing loans and maximising competition among banks ahead of a planned deregulation of lending rates over the next two years.
The cut should also help indebted companies, which will have an opportunity to draw down their interest payments and are less likely to default on loans, analysts note. Heavily leveraged steelmakers and steel traders, as well as small struggling real estate companies, should therefore find it easier to pay off their debts.
The prospect of further cuts has already been raised, with news agency Reuters quoting unnamed sources as saying the move could be repeated.
However, steel futures and iron ore prices saw little upside other than a boost to sentiment on Friday afternoon and Monday morning, and continued to languish around historic lows (see separate article).
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Anonymous
Very good overview of the weekly steel market.
Anonymous