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The four trillion yuan (585.98 billion U.S. dollars) economic stimulus plan of Chinese government will create 100-million-ton steel demand, according to some market analysts here.
Chinese iron and steel shares jumped 8.73 percent on Monday, spurred by the government's stimulus package. Of the 32 listed iron and steel shares, 25 rose to their daily limit.
In the past five consecutive trading days, China's top three steelmakers, Wugang (600005.SH), Angang (000898.SZ) and Baosteel (600019.SH) rose by 19.03 percent, 13.93 percent and 12.97 percent respectively.
"Essentially, how much the shares will rise still depends on the profits of steel plants," said Liu Yanqi, steel analyst from Haitong Securities.
However, the steel spot market on Monday still went downhill, with the price of hot rolling steel plate dropping to the level of 2005.
In the government's stimulus package, three parts like low-income housing, rural infrastructure and transport will arouse demand for steel products. About a half of the 4 trillion yuan investment will go to infrastructure construction, which may create an estimated steel demand of about 100 million tons, said analysts.
"But the stimulation doesn't mean an enormous increase in the steel demand next year," said senior analyst Xu Xiangchun from MySteel.com,
"considering the negative influences from the sliding industries of real estate, automobiles and machinery, the steel demand may increase within a moderate degree."
"The economic package won't affect the steel market in a short period. Traders are reluctant to corner goods because they are not sure about the prices next year. And major steel plants will reduce prices due to their capital shortage," said Li Zhao, manager of Lan Ge Steel Information.
Li also said the newly launched projects stimulated by the economic package will mostly start construction in the first quarter next year instead of this coming winter. As a result, steel prices may bounce after the Spring Festival.
Analysts generally believe the economic package will help recover investors' confidence, but it still takes some time for the influence to come out. In addition, influence will mainly be exerted on prices of building steel, not high-level steel.
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