Metals market to play ‘decisive role’ in Chinese economy

Chinese metals market participants gave a cautious welcome to the release of a detailed summary of the conclusions of a key policymaking conference that took place last week. Beijing will allow the market to play a decisive role in the economy, instead of a fundamental role, the government said.

The market will determine the allocation of resources, including land, fuel, mines and utilities, the government said. “Any price that can be affected by the market must be left to the market,” it said.

Beijing has imposed a tight timescale of reform, with “decisive outcomes” in important areas of reform expected by 2020.

But electricity, gas and transportation liberalisation will lead to upward pressure on input costs for steel mills.

Interest rate liberalisation could mean an increase to the deposit rate ceiling, which could help depositors, according to South African Standard Bank commodity strategist Melinda Moore.

The likely extension of carbon emission trading as China seeks to develop a market for environmental protection will have far-reaching consequences. And the policy outline lacks detail on key areas affecting the metals and mining industry such as fiscal and tax reforms and tackling overcapacity in the steel market.

"In the shorter term the market is more focused on the weak financial situation of steel mills and that would weigh on iron ore prices. But in the longer term, many of the policies could boost investments in the economy and spur demand," a trader for a large Chinese mill said.

Beijing intends to extend a property tax nationally by 2014 or 2015, after reviewing the results of regional trials in Chongqing and Shanghai. This measure is intended to curb local governments' reliance on land sales for revenue raising and reduce speculative pressures on house prices.