China increases investment for new railway projects

China has increased its investments in new railway projects this year, with more of them slated to begin construction before the end of 2013.

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This is expected to provide support to the steel market in the short term.

State-owned China Railway Corp has raised its investment in new projects by 13.3% from 416 billion yuan ($67.8 billion) to 471.3 billion yuan ($76.8 billion) for this year, comprising 47 new projects, including nine that were recently added.

Construction is set to begin by the end of the year, Chinese state media reported on Monday November 11.

This is in line with the State Council’s decision in late July to raise railway fixed asset investment in 2013 from 650 billion yuan ($106 billion) to 690 billion yuan ($112 billion) for 2013.

Market participants expect the increased investments to accelerate railway construction, with there being less than two months to go before the year-end.

According to data provided by China Railway, the country has invested 369.7 billion yuan ($60.3 billion) in railway fixed asset in the first nine months of 2013, accounting for just 53.6% of the annual plan.

In response to the news, railway-related shares listed on the Shanghai Stock Exchange surged on Monday, including those of train manufacturer China CNR Corp Ltd and Jinxi Axle Co Ltd Shares of both companies increased by more than 8%.

“The winter season is traditionally a weak season for steel consumption, but now more people in the market believe that more price increases are possible. Companies purchasing materials for the manufacture of trains will boost steel demand,” a Shanghai-based trader said.

“Given mills’ lower inventory levels and output, and combined with the policy stimulus [in railway], steel prices will stay strong in the short term,” a Beijing-based analyst said.

China produced 2.0984 million tpd of crude steel in the last 11 days of October, down 0.4% from the preceding ten days, according to estimates by China Iron & Steel Assn (Cisa) last week.

Cisa member mills’ inventory totalled 12.876 million tonnes as at October 31, down 912,000 tonnes or 6.6% from October 20 levels.

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