China unveils $587-bn stimulus package: Impact analysis

China will unveil a USD 586 billion economic stimulus package by 2010, which will be spent on upgrading its infrastructure, land reforms and social welfare projects.

Commenting on the package, Martin Hayes of BaseMetals.com, said the Chinese stimulus package is just a short-term boost to the base metals. He added that the markets would ultimately fall below the marginal cost of production. “Packages of news, packages of potentially supportive developments are providing some short-term relief, triggering some short covering, and once that happens it gathers some pace.”

Hayes said that except for China the world was moving into global recessions, and that these factors would ultimately dictate the medium and longer-term direction of metal prices.

Daniel McCormack, Equity Strategist at Macquarie Securities, said the stimulus package has certainly been talked about in the weeks leading up to it and it’s hugely important. "The question is over the timing of it in terms of how quickly they can get the spending up and running," he added. However, the numbers they are talking about largely will have a material impact on demand particularly in the material space, that is for cement and steel stocks, and they are all up today, he added.

McCormack said the question mark really is how quickly they can get that up and running and he think other countries will also follow suit.

David Buick, Partner, BGC feels that investors and market participants are reviewing the Chinese fiscal stimulus package. “Markets are open somewhere between 2-3%. In London it’s a question really of the mining stocks rallying quite quickly on the back of positive outlook. Also, the fact that people who thought that either China or India would no longer have requirements for base metals were way short of the mark. They still have got a huge internal economic agenda which will need filling in the fullness of time,” he said.

Source: Moneycontrol