Biden "money" impact steel market geometry?

New U.S. President Joe Biden entered the White House with a $1.9 trillion economic stimulus plan.The package includes direct checks to millions of Americans, an increase in unemployment benefits, a more than doubling of the minimum wage, aid to state and local governments, and funding for the Novel Coronavirus vaccine and test.If approved by the United States, the plan will have a major impact on the global economy, including the Chinese steel market.

First, the scale of the "money" plan is too large, or there is a risk of high inflation.Biden's stimulus plan, in effect, is a massive "drop of money," totaling $1.9 trillion.Because the US government has serious fiscal deficit, lacks of "real money" in its pocket, and the current US debt issuance is suppressed by the selling, it is difficult to raise such a huge amount of money only by "borrowing", and ultimately a large part of it can only be solved by the Federal Reserve's printing money.If the Fed's massive money printing in the past did not immediately spark serious inflation, it was because of China's huge capacity, offset by a steady flow of cheap Chinese manufactured goods to the US and around the world, and by China's huge purchases of US Treasuries.Now, the situation is very different.It is not just that the US has imposed huge tariffs on Chinese imports, raising the price of goods sold in the US.It is not just that the US has imposed arbitrary sanctions and sales bans, disrupting the global division of labor system and distorting the industrial chain, forcing major economies to operate in their own systems of processing and manufacturing and shifting to higher costs, thus raising the total cost of global production.It is also because China and other countries are buying fewer Treasuries and dollar assets, making it harder for excess liquidity to be absorbed.In such a scenario, a sharp rise in global prices is inevitable because of the combination of sharply higher costs and massive excess liquidity.

Second, under the environment of serious inflation, the price of steel smelting raw materials is easy to rise and difficult to fall.It should be said that under the situation of serious inflation or even serious inflation expectation, global commodity prices will rise to varying degrees, and the commodities with more or less financial attributes are especially the first to bear the brunt.For a period of time, the prices of minerals, metals, energy, chemicals, food and other commodities in the international market have risen substantially.Although the price of imported iron ore is already at a relatively high level, if serious global inflation occurs in the future, the price of iron ore in the international market can not be ruled out further increase.Not only that, in the context of serious inflation and serious inflation expectations, domestic and foreign prices of coking coal, coke, steel scrap, oil and gas and other commodities will also rise accordingly.

Third, smelting raw material prices rise, pushing up the cost of steel, and thus forming steel price support.Since last year, the price of iron ore, scrap steel, coke and other smelting raw materials have risen sharply, causing steel and steel production costs to increase, become an important support factor for the rise of steel market price shock.Monitoring data from Langer Iron and Steel Research Center shows that as of the middle of January 2021, the cost of carbon billet without tax calculated by the current raw materials is 3,888 yuan/ton, up 771 yuan/ton compared with the end of October last year, an increase of 24.7%.In this case, rebar ton price can be lower than 4000 yuan.If Joe biden, mainly through the printing press $1.9 trillion stimulus package, due to the serious inflation in the future period, within the year iron ore smelting, steel scrap, coke and other raw material prices will rise to fall, the national steel and finished products of material production and further improve the logistics cost, in other words, sustaining efforts in 2021, China's steel prices will continue to increase.

Fourth, foreign capital into China, to strengthen China's steel demand.As China's economy improves, the higher yield on RMB assets is bound to trigger international capital flows to the Chinese mainland.In 2020, against the backdrop of a sharp decline in global cross-border direct investment, China's absorption of foreign investment rose and surpassed the United States to become the world's largest foreign investment destination.According to the estimates of the United Nations Conference on Trade and Development (UNCTAD), in 2020, China's actually utilized foreign investment will increase by 4% year-on-year to reach US $163 billion, and the inflow of foreign investment will hit a new record high.China's share of global foreign investment has risen sharply to 19%.Inflows into China are expected to intensify after Mr. Biden's massive stimulus package.This intensification of inflows will stimulate China's steel market demand in two ways: one is to stimulate demand from the real economy, such as inflows into manufacturing and fixed asset investment;Second, to stimulate financial purchase demand, such as the futures market.

Fifth, the "money transfer" plan stimulates US import demand and strengthens China's export substitution effect.On the one hand, Biden's massive stimulus plan will boost the consumption demand of all kinds of goods in the United States to varying degrees after dropping money.On the other hand, the more severe epidemic, and the US manufacturing industry suffered a heavy blow, it is difficult to fully meet the stimulated consumer demand.In this case, the stimulated consumer demand for goods in the United States can only be met by imports from China.This strengthens China's export substitution effect, especially in the indirect export of steel, such as container, household appliances, medical equipment, home office supplies and other steel consumption will be strengthened.