China's new $526.8 billion infrastructure plan poised to boost steel, diesel demand

          China has laid out plans to issue Yuan 3.75 trillion ($526.8 billion) of new local government special bonds this year, up from Yuan 2.15 trillion in 2019, to boost infrastructure construction, which will benefit diesel and steel consumption.

          The announcement came during Premier Li Keqiang’s address to the National People's Congress on May 22, when he said there would be no GDP target for China in 2020 due to uncertainty caused by the coronavirus outbreak.

          Li said the emphasis would be on maintaining employment levels and living standards, rather than significantly boosting economic growth. While this may have sent out weak signals regarding commodities demand—and, indeed, iron ore futures declined initially—the focus on infrastructure should generate strong demand for steel and raw materials.

          The new local government special bonds, which are designed to support infrastructure construction, could boost infrastructure investment growth from 3.8% in 2019 to 7%-10% in 2020, some market sources said.

Cautious optimism

          Some iron ore market sources were cautiously optimistic about the outlook for the rest of this year.

          “It’s a positive policy as the bonds are higher than last year,” one source said.

          A steel analyst said given the growing pressure of unemployment, traditional infrastructure was the best way of boosting investment and keeping employment at a decent level. He believed railways and urban rail transport system projects would receive most fiscal support among other traditional infrastructure projects.

          A pick-up in infrastructure project activity could also provide a boon for oil product prices.

-- Analysts Jing Zhang and Oceana Zhou