Posted on 29 Aug 2023
China’s construction steel demand is expected to be subdued through the end of 2023 because of a weak property industry and constrained infrastructure sector growth in the wake of some local government debt problems, industry sources said Aug. 24.
Domestic excavator sales, a crucial indicator that shows upcoming construction activity, were likely to reach 5,300 units in August, up 3.7% from July but down 41.7% on the year, according to an estimate by China’s Construction Machinery and Equipment. Domestic excavator sales over January-August were seen tumbling 43.9% on the year to 61,443 units.
Lower excavator sales indicated that weakness in the construction sector and its steel demand could persist in the foreseeable future, industry sources said.
China’s property home sales, a major channel to fund new projects, were likely to continue in a downtrend in August, industry sources said, after National Bureau of Statistics data showed July home sales declining 46% month on month and 24% year on year.
According to China Index Academy data, Chinese home sales in 50 major cities over the first two weeks of August fell 16.2% on the month and 29.3% on the year.
While China’s new home construction starts, a key steel demand driver in China, could fall further due to poor home sales, growth in infrastructure steel demand was unlikely to gain much traction given local government debt issues, industry sources said.
China has recently planned allowing 12 debt-beleaguered local governments to raise about Yuan 1.5 trillion ($206 billion) through special refinancing bond sales to repay their hidden debts, S&P Global Commodity Insights reported earlier.
“I think China’s fiscal policy in 2023 is mainly focused on addressing local government debt risks and cushioning slower economic growth (not stimulating). That means infrastructure investment, funded mainly by local governments, can only increase modestly,” a Shanghai-based financial market source said.
The growth rate of infrastructure investment in China slowed to 4.6% year on year in July, from 9% over January-February and 9.4% in 2022, data from the National Bureau of Statistics showed.
“Steel demand in new energy and transportation related infrastructure sectors has been good this year, but overall construction steel demand has been poor and is unlikely to improve substantially for the rest of 2023,” a mill source in eastern China said.
Given the weakness in the construction sector, Chinese domestic rebar sales profit margins have averaged just 40 cents/mt over January-August, down sharply from an average of $32/mt in the same period in 2022, S&P Global data showed.
Source:Platts
