CONF: Uncertainties lurk for Chinese steel demand in H2

Posted on 26 March 2021

Chinese steel demand will be supported by steady economic recovery and high levels of infrastructure investment among local governments this year, according to Wang Yingsheng, deputy secretary general of the China Iron & Steel Association. However, demand during the coming July-December half still faces some uncertainty, especially from the property and manufacturing sectors, he warned Thursday.

Wang was addressing over 1,000 delegates at the 2021 International Iron Ore Market Seminar in Qingdao, East China’s Shandong province on March 25. “Steel demand may suffer downward pressure from the property market and (the decline in) direct and indirect exports in the manufacturing industry,” Wang remarked. This is despite the fact that the coming April-June quarter might be a “hot” season for domestic construction and the manufacturing sector will continue to rebound, he noted.

Beijing’s tightening controls on the property market under the policy that “houses are for living, not speculation” is having its effects, according to Wang, and this threatens to reduce demand for steel.

Over January-February, the total area of starts on new property projects totalled 170.4 million sq metres, Wang said, quoting data from the National Bureau of Statistics. Though the total was up 64.3% on year – due to the low basis of 2020 amid the outbreak of COVID-19 – the total had actually declined by 9.4% compared with the same period of 2019.

Meanwhile, land leased by property developers totalled 14.5 million sq m over the two months, declining 6% from January-February in 2019, though gaining 33% on year due to the low base, Wang pointed out.

The construction sector, including both property and infrastructure construction, accounts for over 55% of Chinese steel consumption and the proportion was around 58%-59% last year.

Hence, such developments in the property market “may strongly affect the trend of steel (demand and prices),” Wang stressed.

Infrastructure projects commenced last year will continue this year and so lend support to steel demand. Yet, a problem deserving the steel industry’s attention relates to the funding of such projects, he warned.

“The budgets for many of these projects were set in H1 last year, and whether the budget is still sufficient to continue or complete the projects, after steel prices have soared (from last year to date) is the issue,” he remarked.

As of March 24, the national price of HRB400E 20mm rebar assessed by Mysteel stood at Yuan 4,764/tonne ($732/t), up Yuan 1,123/t or by 31% on year, according to Mysteel’s data.

Steel demand from the manufacturing industry, which takes up over 40% of steel usage, faces challenges during the coming half as well. In the first quarter, orders received by Chinese manufacturers were sufficient, but the question is whether this remains the case, even in Q2, Wang maintained.

Chinese finished steel – and steel-containing home appliances – served as a strong supplement in international markets when overseas supply fell amid the COVID-19 pandemic. However, with overseas supply gradually catching up, the need for Chinese goods to meet the shortfall will diminish, according to him.

In the domestic market meanwhile, manufacturers’ production costs have been climbing, because of the rising prices of input materials such as steel, non-ferrous metals and plastics. “If such incremental cost rises cannot be passed along to end users, manufacturers might be forced to scale down production, which in turn would reduce their demand for steel,” Wang said.

A flat steel trader from East China attending the conference echoed this view. “Currently, the high prices of flat steel are meeting strong resistance from downstream manufacturers. Very strong resistance. So, the sales are not as good as many may think,” he told Mysteel Global on the sidelines of the seminar.

Source : Mysteel Global