As reported by SteelOrbis previously,
China's central bank - the People's Bank of
China - raised RMB benchmark lending rates of the financial institutions, effective from April 28. The loan interest rate with a maturity of one-year was raised by 0.27 percentage points from the current level of 5.58 percent to 5.85 percent, and interest rates of loans with other maturities were adjusted accordingly.
The loan interest rate adjustment was implemented with a purpose to consolidate achievements of the macroeconomic management, maintain the good trend of the sustainable, rapid, balanced and healthy development of the national economy and limit the overheated direct investment. In the 1st quarter of 2006,
China's national economy grew too fast: Bank's new loans balance added up to RMB 1.26 trillion; fixed asset investment increased by 27.7 percent from a year earlier. Influenced by rapid growth of the fixed asset investment, the 1st quarter's GDP growth rate reached 10.2 percent, surpassing the 9.9 percent in the 1st quarter of 2005.
Continuous overheated investment on steel capacity should inevitably do harm to the healthy development of
China's steel market. The increase in RMB lending rates' and the control on loan scale by central bank will restrict the growth of domestic demand for steel and the price trend will turn downwards by a certain degree. The higher cost of funds brings more pressure on steel sales and prices.
Currently, although the steel prices still keep increasing with small margin, the balance relation between supply and demand is becoming more fragile than before. But it's not necessary to feel panic now just because of the raised interest rate. This measure was forecasted by market players several months before, therefore the impact on market can be welcomed and there will not be a strong response from the local market. More attention should be paid to the basic factors of the market and their changes, even subtle changes.
Here is another issue worth paying attention. According to the message from chief official of
China Iron & Steel Association (CISA), among over 80 big and middle-sized metallurgy enterprises in
China, nearly one third of them are suffering loss now. Exactly one year ago, only about 10 enterprises faced up such bad situation. In the 1st quarter, total net profit of the 80 enterprises was only RMB 8.2 billion, down 68.9% year on year. This time, the adjustment on lending rates' can partially be owed to the work of CISA. CISA is making efforts to cut surplus steel capacity in
China and recover steel-makers' losts. For the purpose of healthy development of
China's steel market, the issuing of more strict policies and measures to restrict steel capacity is just a question of time in near future.