Chinese steel prices have fallen after senior officials signalled that growth will be sacrificed to reduce pollution and that real estate taxes will be imposed after 2019.
Domestic steel billet and rebar prices have dropped by 6-7pc since 22 December. Mills reacted by cutting export offer levels by $30-40/t. Slow sales weighed on prices last week, but declines accelerated on 23 December when a senior communist party member said China is willing to sacrifice economic growth to reduce pollution.
“If we say pollution controls affect economic growth, then this part of growth is not what we want. We will not loosen haze governance in the coming three years,” Yang Weimin, deputy director of the Office of the Central Leading Group for Financial and Economic Affairs, said at an economic forum in Beijing.
China only needs to average growth of 6.3pc in 2018-20 to reach its goal of doubling the size of its economy by 2020 from 2010, Yang said. That is lower than the minimum growth target of 6.5pc/yr in the 2016-20 plan. China is transitioning from high-speed to high-quality development, while keeping its monetary policy stable and continuing supply-side reforms, he said.
China’s national audit office on the same day warned local governments that Beijing will not bail out hidden debts.
“This illusion should be resolutely dispelled — that the central government will pay for local governments’ debts,” it said. Local officials who have been eager to advance careers have borrowed too much for construction projects in an attempt to grow GDP, but central authorities will now tighten financing rules and reject construction projects that are not properly funded.
Tangshan billet prices have fallen by 230 yuan/t to Yn3,650/t ($558/t) ex-works since 22 December. Prices declined by Yn30/t after the 22 December timestamp, Yn70/t on 23 December, Yn40/t on 24 December, Yn70/t yesterday and Yn20/t today.
Rebar warehouse inventories in major cities have increased for the first time since mid-October, rising by 3.94pc to 3.177mn t in the week to 22 December. Shanghai rebar prices have fallen by Yn320/t since 22 December to Yn4,330-4,350/t. Hot-rolled coil price declines were more a modest Yn50/t in Shanghai over the same period, after inventories rose slightly last week.
Negative price outlooks have also shifted attention to the threat of real estate taxes slowing construction steel demand as soon as 2020.
Legislation to authorise and phase in real estate taxes should be completed by 2019, finance minister Xiao Jie said. China has sought to implement a real estate tax to provide a more sustainable tax base for local governments, which are heavily dependent on land sales for revenue. But progress has been slow, and even when it is implemented the tax is still expected to be imposed gradually to limit its impact on housing prices.