Chinese rebar and hot rolled coil futures surged on Tuesday on China's economic stimulus package and further monetary easing, Kallanish notes.

On the Shanghai Futures Exchange, the most-traded January 2025 rebar contract closed at CNY 3,217/tonne ($457/t) on Tuesday, soaring CNY 130/t from the prior trading day. The same contract for HRC gained CNY 133/t to CNY 3,300/t.

First, on the macro level, the People's Bank of China (PBoC) decided to reduce the deposit reserve ratio by 0.5 percentage points. This move will inject about CNY 1 trillion in credit into the market. In addition, the PBoC said the rate may be further reduced this year, depending on the market liquidity situation.

To support consumption, the PBoC will reduce the interest rate of existing mortgages to the level of new mortgage rates, which means a reduction of about 0.5pp. The PBoC estimates annual national interest expenditure will be reduced by about CNY 150 billion. This could help to loosen household budgets.

For the real estate sector, the down-payment ratio for second home buyers will be reduced from 25% to 15% across the country, bringing it in line with first-time buyers. This is to support groups that are able to purchase second homes or invest in property.

The PBoC will also now 100% fund the CNY 300 billion policy to get local governments and SOEs to purchase commercial housing for use as subsidised or social housing. This is up from 60% previously. Progress on this policy has been slow because local governments have struggled to raise funds. Investments are not expected to make a short-term return. This change allows the central government to bankroll the project, and take on the financial burden.

This policy package and further stimulus measures for the stock market significantly boosted economic and steel market sentiment on Tuesday, pushing up steel futures. The market has some confidence that the positive sentiment will continue in the remaining four trading days before the National Day holiday in early October.