China's new 4 trillion yuan plan or difficult to stimulate iron ore prices

China plans to invest 4.7 trillion yuan (about 720 billion U.S. dollars) in 303 transportation infrastructure projects in the next three years, but in an oversupply market, these investments may not be enough to significantly increase commodity prices.

Despite the recent fall in iron ore prices, iron ore prices have risen by 86% from the historical low in December last year on the strength of infrastructure construction and strong real estate expectations.

Some analysts believe that if you are optimistic about the recent rise, you will be wrong because investors gradually realize that because of the slowdown in China's growth, the supply of iron ore is still too much.

IHSGlobalInsight Chinese economist Brian Jackson believes that although the number of government infrastructure investment looks very large, "in recent years this data has actually been greatly reduced."

After all, China only invested more than 4 trillion yuan in similar traffic infrastructure projects in 2015. Therefore, the recently announced three-year infrastructure construction plan is equivalent to reducing nearly two-thirds of the total transportation investment. If you do not add items later.

“As China has always done, its economic volume is so large that any expenditure data looks very alarming. But for itself, this data is used to assess macroeconomic growth, or even to assess the growth of a certain sector. Limited value," Jackson wrote in a May 13 report.

Annalisa Jeffries, an analyst, believes that although iron ore prices may bottom out at $50 a tonne in the short term, the price will be around US$40 per ton in the long term as large quantities of iron ore supply come.

FMI's research group BMI Research said in the report that even the rise in steel prices this year is likely to be fleeting.

Iron ore is used to produce steel.

BMI analysts wrote in the report, "The recent rise in steel prices is a response to several factors, including the replenishment of supply by Chinese steel users, the government's stimulus to the real estate market, the improvement of the construction sector, and the positive investor sentiment. However, China’s demand is still weakening due to the oversupply of the market and will push down steel prices in the coming quarters.”

Annalisa Jeffries, the analyst, said on CNBC's "The Rundown" on May 16th that any revenue from this huge infrastructure budget project will take time to verify.

Jingshun Investment’s analysts wrote that, indeed, a report in the People’s Daily last week quoted “authoritarians” as saying that China no longer promoted economic growth through monetary and fiscal stimulus.

The long-term slowdown in the construction sector is in line with China's 2016 Government Work Report.

According to Jackson, “Although China has to maintain a large number of infrastructure projects in order to promote the growth of the labor market in some regions and to stabilize the needs of the materials sector, the current government’s infrastructure plan is gradually decreasing over time rather than expanding. ."