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More than expected rate cuts will help stabilize the second half of the steel market

On May 20th, the People’s Bank of China authorized the National Inter-bank Lending Center to announce that the latest LPR (loan market quoted interest rate) is: 1-year LPR is 3.7%, unchanged from the previous month; The five-year LPR was 4.45 per cent, down 15 basis points from 4.6 per cent last month. This is the first time since the LPR quotation mechanism was established in October 2013 that the 1-year LPR has not been lowered, while the 5-year LPR has been significantly lowered, and the 5-year LPR has recorded the biggest drop. So, exceed expected rate cut to domestic steel city will produce what kind of impact?
First of all, the 5-year LPR was significantly lowered separately, which can be seen as the central bank’s policy support for the current weak real estate market sales level. Data from Lange Steel Network show that since March 2021, the growth rate of investment in real estate development and the growth rate of new construction area have been declining. Since June 2021, the growth rate of real estate construction area in China has been declining. Entering 2022, the real estate industry is still facing great downward pressure, and real estate investment has entered a situation of negative growth. In the first four months of this year, investment in real estate development nationwide reached 3,915.4 billion yuan, down 2.7 percent year on year, with residential investment reaching 2,952.7 billion yuan, down 2.1 percent year on year, according to the National Bureau of Statistics. In addition, since the beginning of this year, the real estate market has been in a state of negative growth in both sales area and sales amount for three consecutive months. In the first four months of this year, the sales area of commercial housing reached 397.68 million square meters, down 20.9 percent year on year. Commercial housing sales reached 3.7789 trillion yuan, down 29.5 percent year-on-year. Overall, ‘dismal’ is a good word to describe this year’s housing sales.
Five-year LPR slashed alone, superimposed on May 15, the central bank, silver insurance regulatory commission issued the first set of housing business loan interest rate lower limit is adjusted for not less than the corresponding term loan market quotation rate minus 20 basis points, not only good rigidity and improve housing demand, and reduce the stock of mortgage holders of the mortgage costs, help to promote consumption. At the same time, the author believes that the move also played a stable investment, consumption and the role of the macro economic base, so as to promote the real estate market stable healthy development, to help real estate enterprises stable cash flow, alleviate the pressure of the real estate enterprise funds, to ensure effective progress in real estate enterprises existing construction projects, and promote the real estate in steel demand to speed up the recovery.
Secondly, the significant reduction of 5-year LPR alone can guide the flow of funds to medium – and long-term loans, and form a stronger financial guarantee for the transformation and upgrading of domestic manufacturing industry. At present, in the face of the actual situation of rising costs and falling orders, the profits of domestic manufacturers are obviously squeezed, the operation of enterprises is beset with difficulties, and the demand for effective financing is obviously weakened.
But from another point of view, the profit decline will force manufacturing enterprises to accelerate the transformation and upgrading. Due to the cyclical characteristics of manufacturing enterprises’ transformation and upgrading, their corresponding demand for medium – and long-term loans is also large. The five-year LPR alone significantly reduced, will effectively reduce the cost of capital manufacturing enterprises in the process of transformation and upgrading, so as to ensure the long-term stable release of manufacturing steel demand. In the short term, the recovery of manufacturing steel demand, mainly rely on the acceleration of the implementation of the fiscal tax rebate policy.
At present, the short-term impact of the epidemic on the manufacturing industry is obvious, but China’s manufacturing industry still maintains strong resilience, and is making all-out efforts to resume work and production. With the results of epidemic prevention and control, the delayed release of manufacturing steel demand is expected to be made up in the second half of this year.
In general, the five-year LPR alone significantly lowered, will promote the steady and healthy development of the real estate industry and guarantee the transformation and upgrading of the manufacturing industry will play a role in two aspects, help stabilize the real estate industry steel demand and guarantee the long-term manufacturing steel demand, conducive to the stable operation of the steel market in the second half of this year

Post time: May-25-2022