Steel stocks at highest in years, thanks to China
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Steel stocks are trading at the highest since 2011 and it’s mostly thanks to the industry’s biggest menace in recent years: China.
Demand in China, which produces half the world’s steel, has been surprisingly strong this year and the country closed some plants to ease a glut that had spread across the globe.
That’s led to a steep drop in exports, helping steel prices extend a recovery and pushing a Bloomberg gauge of global steel stocks up 45% in the past year.
Less supply coming out of China has helped prices in Europe and the US jump about 75% in the past 18 months.Bloomberg
Monetary easing not a silver bullet
Expectations that the Reserve Bank of India will cut its benchmark rate at its forthcoming policy meet in August are getting cemented everyday with incremental inflation data tipping the scales for a cut.
However, such a reduction is unlikely to make a material impact on growth, according to DBS Bank Ltd.
In a research note the bank said that what makes an impact is transmission.
Further transmission of policy rate reductions onto bank lending rates depends squarely on how bad loans are resolved.
Since this is a long-drawn process, immediate transmission should not be expected. Nevertheless, the abundant liquidity will maintain short-term rates low, said the note.
Strong growth prospects for consumer durables
Quite predictably, a surge in middle-class households will imply higher consumption and discretionary spends.
A report by Edelweiss Research forecasts a rise in penetration levels for consumer durable goods like air conditioners (ACs), washing machines and refrigerators.
From 27.3% of the middle-class market, the penetration of refrigerators is likely to be the highest among durables, by calendar year 2026 at 47.5%.
Reasons that may fuel growth are improving income, need for comfort among working class and easy financing schemes.
According to the report, this has led to truncated product replacement cycles and evolving lifestyles where consumer durables like ACs and refrigerators are perceived as utilities.
The projections, of course, hinge on the forecasts made by the National Council of Applied Economic Research, that India’s middle-class population will double between FY16 and FY26 to 547 million.