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Uncertain Chinese Resources Demand: The market was uncertain about the future demand for steel and other resources in China following the Golden Week holidays. Golden Week is a national holiday in China, and market participants often assess economic conditions and demand trends after this period.
Financial Concerns and Restructuring: There were concerns about financial issues in China’s real estate sector, particularly involving major developers like Evergrande and Country Garden. These concerns included the potential for liquidation and debt restructuring. The restructuring efforts by these companies raised fears of financial contagion and had an impact on steel demand, especially in construction projects.
Impact of Financial Troubles on Construction: The financial troubles faced by property developers had already led to disruptions in construction projects, with some developers halting work on uncompleted or planned projects. This disruption in construction activities can reduce the demand for steel, a key input in the construction industry.
Iron Ore Sourcing: Chinese steel mills sought to reduce input costs by increasing their purchases of cheaper Indian iron ore. This shift in sourcing for iron ore contributed to lower input prices for steel production.
Manufacturing PMIs: While there were concerns about the real estate sector, some positive sentiment was reflected in manufacturing Purchasing Managers’ Index (PMI) data. Improved sentiment in the manufacturing sector can support steel demand, particularly for infrastructure projects.
Infrastructure Building: JPMorgan (NYSE:) noted that despite concerns in the residential real estate sector, China continued to invest heavily in infrastructure projects. This ongoing infrastructure development could help offset weaker confidence in residential property sales and support steel usage.
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