CCM believes it is good news for China's coating industry and Titanium Dioxide (TiO2) industry that China's central bank lowered the benchmark deposit and lending rates and cut the reserve requirement ratio at the same time. It will release more liquid capital into the market and the realty market as well as the stock market will regain momentum.
At the end of Aug. 2015, China's central bank announced that it would lower the benchmark deposit and lending rates by 25 basis points beginning on 26 Aug., 2015, hoping to further ease companies' debt burdens and curb expanding downward risks. After the adjustment, the one-year deposit rate for financial institutions fell to 1.75 percent, and the lending rate fell to a record low of 4.6 percent.
The bank also cut the amount of money banks must hold, or the reserve requirement ratio (RRR), by 50 basis points for all financial institutions, starting on 6 Sept., 2015 to ensure sufficient liquidity in banking and keep a stable growth in credit.
It was the fifth drop in interest rates and the fourth cuts of reserve requirement ratio since November 2014.
Chief economist from Bank of Communications, Lian Ping, said that the across-the-board RRR cuts and the targeted RRR cuts will release about USD101.96 billion (RMB650 billion) to USD125.49 billion (RMB800 billion) to the market which will improve the real economy.
CCM believes that the interest rate cuts and the RRR cuts will boost many industries in China and the realty industry and the stock market will receive the greatest benefits. As a result, China’s coating industry and TiO2 industry also can gain benefits from it.
1. To stimulate demand in realty market
After five drops in interest rates since Nov. 2014, homebuyers will save a large amount of money. Monthly mortgage repayments for 20 years and 30 years are reduced by 10.70% and 12.70% respectively compared to that before the fifth drop in interest rates. This will stimulate demand for housing in China.
Besides, cuts to the RRR also help realty developers to gain more loans and then sequentially, developers will make more investment into the realty market.
Vice president of B.A. I Love My Home Group, Hu Jinghui, predicted that the rate cuts will propel the housing market to further warm up in Sept. and Oct., China's traditional peak season and the turnover of housing in 2015 is likely to reach a three-year high.
Many domestic coating companies also disclosed that though turnover showed a downward trend in H1 2015, the realty market began to recover in July 2015. The rate cuts and the coming of the traditional peak season will further boost the market and then the demand for TiO2 and coatings will be increased as a result.
2. To support the stock market
Since 11 Aug., 2015, China’s stock market again dropped constantly. As of 1 Sept., 2015, the Shanghai securities composite index has dropped by 19.38% within 20 days. For example, stock price of Henan Billions Chemicals Co., Ltd., a leading TiO2 player in China, dropped by 39.31% from USD6.35/share (RMB40.50/share) on 11 Aug., 2015 to USD3.86/share (RMB24.58/share) on 1 Sept., 2015; stock price of CNNC Hua Yuan Titanium Dioxide Co., Ltd. even decreased by 49.57% from USD2.89/share (RMB18.40/share) to USD1.46/share (RMB9.28/share).
According to the National Development and Reform Commission, the interest rate cuts and the RRR cuts will benefit the China’s stock market from the following three aspects:
- With the increase of liquid capital in the market, it is expected that more capital will flow into the stock market;
- Companies’ financing costs will be reduced and this will be conductive to the development of the real economy and then benefits the stock market;
- Speculators’ confidence in the stock market will be boosted.
According to CCM, after the adjustments to the interest rates and to the RRR, more and more money will flow into the stock market which means that financing ability of China’s coating companies and TiO2 companies will be further improved. The inflow of liquid capital will accelerate the process of industry integration of the coating industry and the TiO2 industry. Therefore, there might be more mergers and acquisitions in the China’s coating and TiO2 market in Sept. 2015.
If you need more information about the TiO2 industry, you could have a look at one of our products: Titanium Dioxide China Monthly Report.
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CCM provides global companies with the reliable intelligence they need to succeed in China's agricultural, chemicals, food & ingredients and life science markets. We use our 15 years' experience and wide network of contacts to give clients a clear picture of what is really happening in the Chinese market through our market data, industry reports and newsletters, and consulting services. Our clients include Monsanto, DuPont, Shell, Bayer, and Syngenta. CCM is a brand of Kcomber Inc.