Posted on 03 Jan 2022
Data from China’s National Bureau of Statistics revealed that from Jan-Nov’21, the country’s real estate sector showed a y-o-y decline. M-o-m estimates also show a steady decline in real estate investment, sales and new construction. Since real estate construction is the largest downstream consumer of steel in China, any change or upheaval in this sector has a direct impact on steel demand.
From Jan-Nov’21, investment in real estate development increased 6% y-o-y, but was down 1.2 percentage points compared to Jan-Oct’21. The y-o-y decline in real estate investment in November narrowed 0.7 percentage points from October.
The sales area of commercial housing and newly started construction have shown a y-o-y decline in recent months. The y-o-y decline in November has been narrower than that in October.
The sales area of commercial housing has been negative y-o-y for five consecutive months. In November, the decline narrowed because of the release of suppressed demand that preceded the month. However, it remains to be seen whether the subsequent improvement can be sustained.
Realty will take time to rebound
China’s Central Bank, a few days ago, cut its lending benchmark prime lending rate (PLR) for the first time in 20 months to kickstart the world’s No.2 economy as it laboured under the impact of the real estate crisis and Covid. With easing of policy measures, the real estate financing situation has improved.
According to the National Bureau of Statistics, from Jan-Nov’21, the y-o-y growth rate of funds in place for real estate development continued to decline. According to data, the funds in place in November fell 7% y-o-y, and by 2.5 percentage points compared to October.
Policies mostly unchanged
The Central Economic Work Conference has sought exploring of new development models. These include promoting construction of affordable housing; support to the commercial housing market; meeting of housing needs of buyers; and implementing urban policies to promote healthy development of the real estate industry.
Recently, the Central Bank and China Banking Regulatory Commission jointly issued a notice” to encourage high-profile developers to increase mergers and acquisitions of real estate projects.
A national conference pointed out that in CY’22, preparations for real estate tax pilots should be made.
The marginal easing of real estate controls is more of correcting some rigid demands that were suppressed in the previous implementation. The policy is still focused on stability.
“The general direction of policy regulation has not changed. As the sales of commercial housing continue to decline and the credit risks of developers have not been fully exposed, the demand-side policies may be gradually adjusted to reduce the downward pressure on the market,” said a report from Lange Steel.
Will realty bottom out again?
In addition to policy regulation, there were other reasons for the downturn in the real estate market:
The short-term policy correction cannot fundamentally reverse the real estate market trend, and the market may bottom out for the second time. At present, the expectations of developers have changed. Evergrande has proposed to drastically reduce the scale of real estate development and construction. Companies with diversified business that had entered real estate development are gradually withdrawing. Enterprises will become more cautious of investing.
China’s production of the two main construction steel items, rebars, and wire rods is expected to decline by 2.6% on year to reach 408.8 mn t in 2022, with the production of rebars dipping by 3% on year to 264.3 mn t, according to Mysteel.
Outlook
The real estate industry has bottomed out. In November, all major indicators showed negative growth. In particular, the y-o-y downward trend of commercial housing sales did not reverse.
Construction industry demand accounts for more than 50% of total steel demand, of which real estate development and construction account for about 35%.
In the current scenario, if interest rates are eased, sales of commercial housing will rise and release capital flow to developers, but it will take some time. With the easing of interest rates, sales of commercial housing will recover weakly and may continue to improve in the short term.
Thus, demand for real estate construction steel will likely decline in CY’22.
However, steel producers and traders need to adopt a cautious strategy where construction steel business is concerned. Steel demand rises and falls with seasonal changes. Thus, producers and traders should keep inventory storage ready when the demand upturn happens in spring and there is an improvement in infrastructure investment. Buyers should also store up when prices correct.
Source:SteelMint
