While it provided a boost to the steelmaking ingredient, market
participants remain concerned over the overall steel outlook amid falling
mills’ profitability, declining steel production as well as weaker than
expected pre-holiday replenishment. Furthermore, the decision by the
People’s Bank of China (PBOC) to withdraw 80 billion yuan in net liquidity
on Wednesday could be seen as a “warning to public” to cool expectations.
The move came as Beijing has been considering fine-tuning some of its
temporary support policies enacted last year amid growing fears among some
policymakers that excess liquidity might lead to asset bubbles. It caught
the market by surprise as the PBOC traditionally adds large sums to banking
system before the Lunar New Year so banks can meet rise in demand for cash
during the peak spending season. “Stimulus (in China) will, at some point,
be eased back, as the economy stabilises in 2021” Daniel Hynes and Soni
Kumari, analysts at ANZ Banking Group Ltd, wrote in a note.
The bank sees
further pressure on prices in the short term but does not expect it to
develop into a sharp selloff. Some analysts have argued, however, that it
is too soon to start such a policy shift as the fragile and uneven nature
of the recovery was highlighted by the sharp decline in official and
private sector PMI data this week.
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