Posted on 15 Nov 2021
Owing to the plunging real estate market in China, domestic steel demand in the nation has fallen and forced steel mills and traders into the export market. The real estate market has been the key sector driving the country's steel demand for the last two decades, Kallanish notes.
“Directly and indirectly, real estate related activities reportedly contribute around 25-30% to the Chinese GDP and around 30% to the Chinese domestic steel demand,” says rating agency ICRA senior vice president Jayanta Roy to local media. "Therefore, with the Chinese property sector accounting for around 15% of global steel demand, the ongoing readjustment away from a property driven model of growth in China is likely to have an adverse impact on the steel industry for an extended period. This could signal the start of mean reversion for the commodity, with spreads gradually starting to gravitate towards long-period median levels."
The ripple effect of the distressed Chinese property market was first felt by Australian iron ore miners, who witnessed a drop in iron ore demand by Chinese steel mills, says ICRA.
“On the export front, in the fiscal year ended 31 March, 2021, out of nowhere, we saw that China emerged as the single largest importer of steel from India. Exports from India reached a high-watermark of over 5 million tonnes, supported by the strong demand undercurrents flowing through key steel-consuming sectors,” says ICRA. “However, in the current fiscal, with the Chinese steel demand growth waning down, the share of steel exports to China by Indian mills have plummeted to just 8% in H1 FY2022 from 30% in FY2021. This...suggests that competition in the export markets between Indian and Chinese mills would intensify going forward - especially if China’s domestic steel demand suffers in the aftermath of the ongoing property market turbulence."
Source:Kallanish
