Posted on 14 May 2025
China's recent measures to further ease its monetary policy and introduce a financing system to support the property sector are potentially insufficient to bolster new home construction starts, which are anticipated to decline further in 2025, according to steel market participants who spoke to Platts in the week of May 12.
Platts is part of S&P Global Commodity Insights.
New home construction starts are a crucial steel demand driver.
Some of the participants noted that China's property sector, in its current state, may not be able to mitigate the negative impact of trade tensions between China and the US.
Additionally, as steel demand is projected to decline, especially in the second half of 2025 when the iron ore market might transition to a surplus, even reductions in steel output may not be sufficient to sustain steel prices, the participants said.
China's property sector, accounting for about 26% of the country's total steel consumption, has yet to show signs of recovery.
In April, the value of new home sales by 100 major property developers was 16.9% lower year over year, expanding from a 10.6% year-over-year decline in March, data from property data provider China Index Holdings showed.
Over January-April, the value of new home sales by 100 major developers fell by 10.2% year over year to about Yuan 1.12 trillion.
The year-over-year decline over the first four months was slower than the 30.6% drop in the full year 2024. Some market participants said the moderate year-over-year fall was primarily due to a low base effect and suggested that additional stimulus measures are necessary to stabilize home sales.
China cut several key rates on May 7, including the benchmark interest rate and interest rates for personal housing provident fund loans.
"I expect more stimulus measures to be introduced later in 2025, as the 0.25 percentage point cut [in housing loan rate] is still not enough to shore up home sales," said a steel market participant.
"But even with more stimulus, while home markets in large cities with more population inflows may witness some improvement, home sales in lower-tier cities could still face significant challenges amid population outflows, weak fiscal conditions and high housing inventories."
Since new home sales serve as the primary funding source for both ongoing and upcoming property projects, the persistent downward trend in home sales suggests that the recovery of new home construction starts still has a considerable distance to cover.
Furthermore, with the government prioritizing the stabilization of home prices, certain measures aimed at supporting home prices could potentially negatively impact new home construction starts. The government work report delivered by China's Premier Li Qiang on March 5 at the National People's Congress emphasized the importance of controlling the land supply for property development as part of the efforts to stabilize the housing market.
Recent market discussions have indicated that China could be contemplating promoting the sale of ready-to-move-in housing as a strategy to gradually phase out the pre-sale model, aiming to rebuild home buyers' confidence in the property market.
The current housing pre-sale model allows developers to sell new homes before they are completed, resulting in an oversupply of homes and high leverage for developers.
A property market observer noted that due to the substantial contraction in housing sales since late 2021, the risk of cash-strapped developers failing to deliver pre-sale homes on time remains elevated as of 2025, thereby continuing to undermine home buyers' confidence in purchasing pre-sale homes.
"I think selling completed new homes will gradually replace the pre-sale mode, which will help restore home buyers' confidence," the property market observer said. "But this move could further tighten the cash flow on developers, denting their willingness and ability to launch new home projects, and leading to a further decline in the sector's steel demand."
The property sector's steel consumption is anticipated to fall by 8% to 219 million mt in 2025, after declining 11.5% in 2024, according to data from Commodity Insights. The drop may moderate to 6.9% in 2026.
Rebar, extensively utilized in home construction, has been significantly impacted by the declining property sector since late 2021, when China's property market reached its peak.
Domestic rebar consumption over January-March fell to around 44.45 million mt, down 1.6% year over year and about 22.8% lower than during the same period in 2021, according to S&P Global data.
The Platts-assessed domestic rebar prices averaged Yuan 3,206/mt ($445/mt) in 2025 as of May 13, down 13.5% from a year earlier and 33% lower than during the same period in 2021.
"The Chinese steel market in general will come under greater pressure in the second half of 2025, not just because the falling property sector will continue to be a drag on construction steel demand, but also [due to] the adverse impact from the escalation of US import tariffs [which could] begin to dent China's steel-intensive manufactured goods from June onward," said a market participant.
A trading source said China's steel production, including rebar output, is anticipated to slow in the second half of 2025 due to weaker steel demand, even in the absence of government output cut orders. However, steel output reductions might not be sufficient to stabilize steel prices if demand declines too rapidly.
Some trading sources anticipate that the iron ore market will transition into a surplus in the second half of 2025, as a decrease in China's iron and steel production coincides with a relatively stable iron ore supply.
Commodity Insights analysts estimate iron ore prices at an annual average of $98/dmt for 2025, down from the 2024 annual average of $109.44/dmt for the Platts-assessed 62% Fe Iron Ore Index.
Source:S&P Global Commodity Insights
