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China Macro & Metals: tighter credit conditions will weigh on metals markets

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Sentiment in China’s metals markets was buoyant in July and August on easy credit conditions and expectations of further stimulus flowing to infrastructure. But September saw a distinct change of tone as cash flows tightened, demand waned and metals prices came under pressure, leaving the market hoping for better after China’s Golden Week holiday. Paul Bartholomew discusses what could happen in coming months.

Money’s too tight to mention

Beijing unsurprisingly opened the monetary sluice gates to support the economy as China emerged from the lockdown in late March. This had two notable effects on the steel and metals sector: It meant traders were not obliged to hurriedly destock inventories that had built up to a huge extent when there was no downstream consumption; and it induced a sense of “things can only get better” among market participants.

“The government will keep stimulating infrastructure”, was an oft-heard comment. China’s steel market was so strong that it became a net importer of steel for the first time in a decade over June-August. In fact, sentiment was as bullish as this correspondent can remember in 12 years of looking at this market.

But things changed markedly in early September, as the impact of

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