China announces Half a Trillion (586 Billion US$) Economic stimulus package
BEIJING — The Chinese Govt. have announced a $586- billion stimulus package on November -9 to protect the financial system and to minimize the impact of the Global credit crunch.
A statement on the government’s website said China’s Cabinet had approved a plan to invest 4 trillion yuan ($586 billion) in infrastructure and social welfare by the end of 2010. This money is planned to improve rural infrastructure and hence will be a boon to builders and associated business. The Asian markets surged on Monday following the news and the steel sector has almost gone 8% up. This indicates that the demand for steel in China will be on track again in 2009-2010 which is good news to the steel Industry. The question is will this increase the demand for steel impact the scrap industry? If so, to what extent?
Analysts believe that the sudden surge in the stocks may not reflect immediately in the market price of steel or scrap. It had been a bloodbath on the steel sector and European steel mills have postponed the contracts of steel supply. Most of the mills around the Globe have cut their production from 20 to 40% of their maximum output. The scrap lying in the yards is more than sufficient for the next couple of months for the mills.
The Chinese money is expected to flow into the system gradually in the next two years. One may expect a steady rise in demand as the construction projects take pace. Asian steel mills will have a certain impact of the Chinese money while Japan seems to worry with more bad news. The best strategy here is to keep the fingers crossed for the next couple of months and see how the dust settles in.