Home » Cadence Minerals (KDNC) » As Gold Plunges, Chinese Investors Find New Haven in Steel Rods

As Gold Plunges, Chinese Investors Find New Haven in Steel Rods


Investors in China have found an unlikely new hiding place from the chaos engulfing financial markets.

The price of steel reinforcement bar, the somewhat unglamorous but ubiquitous commodity used to strengthen concrete, has risen almost 5% over the past month in Shanghai. Over the same period, gold — the traditional haven amid turmoil — has dropped more than 5% as investors sell to cover losses in other markets.

Rebar’s unexpected ascent as a financial sanctuary comes as Chinese investors bet that Beijing is going to embark on a massive bout of stimulus to help prop up the country’s economy in the aftermath of the coronavirus, boosting demand for raw materials used in construction.

“We are calling rebar, ‘rebar gold’ these days, as it has became a haven asset during this global crisis,” said Wu Yijie, an analyst at Shanghai Dalu Futures. “We believe the Chinese government will greatly bolster infrastructure spending as they did post-SARS to boost domestic consumption.”

Chinese investors may also be drawn to steel futures because they can only be traded in China, making them more reflective of what’s happening locally and less exposed to the same forces that are ravaging more global markets like copper. China also has greater influence over pricing, Wu said. The country produces and consumes about half the world’s steel.

While the economic outlook for the U.S. and Europe worsens by the day, there’s growing optimism that the slowing rate of new infections in China points to some level of containment and fueling expectations the government will announce a raft of measures to boost growth.

Chinese stimulus has so far included injecting more liquidity into the financial system, but expectations are growing there’ll be infrastructure investment that will aid steel demand.

Record Inventories

Haven demand may explain why steel is managing to defy a deluge of supply that would normally be hammering prices. China produced a record amount in the first two months of this year despite its extended shutdown to get the virus outbreak under control and rebar stockpiles sit at the highest ever…

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