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Column: China’s massive stimulus talks do little for metals as confidence fades: Russell

By on July 11, 2022 0

A worker walks past rolls of steel at the Chongqing Iron and Steel Factory in Changshou, Chongqing, China August 6, 2018. Picture taken August 6, 2018. REUTERS/Damir Sagolj/File Photo

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LAUNCESTON, Australia, July 11 (Reuters) – It is perhaps indicative of market sentiment in China that reports of a massive stimulus package have barely changed the prices of key industrial metals.

Iron ore, steel, copper and aluminum all rose a little after a July 7 Bloomberg News report said Beijing was considering a plan for local governments to sell 1.5 trillion yuan ($220 billion) of special bonds in the second half of this year.

If the new bonds are issued, they will bring available funding to levels similar to the stimulus that helped the recovery from the initial outbreak of COVID-19 in 2020. This is a strategy enshrined in increasing infrastructure and construction spending to stimulate the economy. .

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China is also expected to relaunch a 500 billion yuan infrastructure investment fund in the third quarter, two people with knowledge of the matter told Reuters last week. Read more

Reports of more stimulus spending were accompanied by high-profile words, with Premier Li Keqiang quoted in state media last week as saying the economic recovery was not strong and more effort was needed.

While the infrastructure spending rollout playbook is familiar, what’s different this time around is the apparent skepticism among market players.

It would be hard to find an analyst who thinks China is on track to meet its annual economic growth target of 5.5%, and there are doubts about whether enough stimulus can be applied to quite a fast pace.

Bursts of inflation in the Western world and accompanying interest rate hikes have also raised fears that China’s export-oriented economy could suffer as many countries slide into recession, or at least towards much slower growth.

News of the renewed stimulus lifted the spot price of iron ore slightly, with a benchmark of 62% ore for delivery in northern China, as assessed by the commodity pricing agency. raw Argus, rising 3.4% to $115.30 a tonne on July 7.

However, it then fell back to $114.15 a tonne on July 8 and is down 29% from its 2022 high of $160.30. The peak was reached on March 8 following supply problems after the invasion of Ukraine by Russia on February 24, the world’s fifth largest exporter of steel raw material.

China’s domestic iron ore futures showed a similar trend to the spot price, gaining 5.2% on July 7, before falling back to trade roughly around 733 yuan per ton early Monday. in Asia.


Shanghai steel rebar contracts rebounded a modest 1.1% on July 7 but have since fallen 4.8% to 4,023 yuan a tonne in early Asian trade on Monday, while copper futures were also down 2% in early trade.

Aluminum futures were at 18,205 yuan a ton early Monday, down 1.6% from the July 8 close and the lowest since April 2021.

Aluminum is now trading very close to the 18,000 yuan per tonne level which industry experts AZ Global Consulting say is the full cost of production, meaning producers are barely making a profit and increasing the risk of reduction in production.

Overall, the picture for major industrial metals is that the stimulus measures likely to be rolled out are not enough to trigger higher prices and the demand outlook is still far from rosy.

As Shanghai reported 63 new COVID-19 cases on July 10, up from 52 a day earlier, the risk of further shutdowns under Beijing’s strict zero-COVID strategy is also likely to dampen any enthusiasm in the markets. metals.

Confidence in China’s economic momentum is eroding and Beijing will likely need to take stronger action to restore it.

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