On Monday, September 30, the last day before the week-long holiday in China, the steel market has witnessed one of its sharpest price hikes in over a year. This happened after a fresh package of stimuli to support the real estate market was announced by the Chinese government on Sunday, following the easing of monetary policy last week.
The PBOC has ordered banks to cut mortgage rates for existing home loans by not less than 30 basis points below the Loan Prime Rate (which is 3.35 percent for one-year loans and 3.85 percent for five-year loans) by October 31. This is expected to result in a decline in existing mortgage interest rates by nearly 50 basis points on average. This has been assessed my market analysts as a strong measure to support homeowners and stimulate weak domestic consumption. Some large real estate developers have already reported an increase in inquiries from buyers. Also, the PBOC will extend supportive measures for real estate developers, including trust loans, until the end of 2026.
In addition to this, one of first-tier Chinese cities, Guangzhou, has lifted all restrictions on home purchases. Two another major cities, Shanghai and Shenzhen, will ease restrictions on purchases by non-local buyers and will lower the minimum downpayment ratio for first home buyers to no less than 15 percent from the previous 25 percent. This is expected to increase sales in these first-tier cities, but the home inventory burden in smaller cities - third and fourth-tier (the most important to new construction) - will likely continue and analysts expect only a stabilization of the market.
These measures are a result of the aim voiced last week by Chinese President Xi Jinping “to halt the real estate market decline and spur a stable recovery”.
Though these measures together with the cut in the RRR last Friday have been assessed as strong measures, the response of the steel market has been unexpectedly impressive. Local rebar and HRC prices in China have surged by RMB 390/mt ($56/mt) and RMB 300/mt ($43/mt), respectively, on average on ex-warehouse basis, according to SteelOrbis’ data. “Let’s hope the market will return [from National Day holiday] with the same positivity and that buying will resume at higher prices,” a representative of a Chinese mill commented. Rebar from the first-tier Chinese mills has been offered at $540-560/mt FOB today, rising by $40/mt on average from Friday. HRC prices from the large Chinese mills have increased by a sharp margin of $57.5/mt on average to $520-540/mt FOB.
In most of China’s export markets, trading has halted following the sharp price increases. But other global exporters will attempt price increases too, especially during the Chinese holiday period. For instance, after the ex-China reference price for billet rose by $17.5/mt on average to $480-490/mt FOB, with most offers at the higher end of the range, the leading Indonesian mill also announced offers at $480-485/mt FOB, while last week a deal was done at $450/mt FOB.
There are still doubts about sustainability of the uptrend as “sharp increases are usually end with sharp falls,” one Chinese trader commented, but he also added that today’s performance is a very good sign as the market will restart after the holidays at a much higher level than expected.
$1 = RMB 7.0074