Worry over tighter monetary policy drives down ferrous futures

SHANGHAI, Mar 9 (SMM) – Ferrous metals futures fell across the board on the morning of Friday March 9, with iron ore leading a 4.6% slump. Rebar and coke dropped close to 4%, hot-rolled coil slid over 3% and coking coal fell 2.6%. This plunge is mainly due to the anticipation of interest rates increase and sluggish demand, SMM believes.

Zhou Xiaochuan, director of the People's Bank of China (PBOC), said at the National People’s Congress that the time of loose monetary policies and low interest rates globally is over and that China will also have corresponding policies.

His comments rattled the market as participants worry over a much tighter monetary environment. However, SMM believes China would keep its monetary policy neutral as the country chooses to be more flexible in response to different market conditions. This means that the assumption of a much tighter monetary policy against the backdrop of deleveraging may prove to be wrong.

In addition, China’s consumer price index (CPI) in February recorded a new high since November 2013, up 2.9% on a yearly basis. This suggested a higher-than-expected inflation, which added to the anticipation of interest rates increase.

In the physical market, demand failed to meet the expectations and remained weak. We see steel inventories jump as output rose on the back of high profits. Operating rates at downstream industries stayed low due to labour shortage post-Chinese New Year.

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