China’s Steel Market Faces Persistent Challenges Despite Stimulus Measures

China’s Steel

Chinese steel prices experienced a modest rebound from multi-year lows in late September, spurred by a series of government stimulus policies. However, the steel market's long-term outlook remains uncertain due to sluggish domestic demand, weakening real estate investments, and global trade barriers.

Steel Prices Rebound, but Demand Stays Weak

Steel prices in China bottomed out in late September, with the People’s Bank of China reducing the reserve requirement ratio (RRR) by 0.5% and lowering mortgage rates. Despite these measures, real estate investments for January-September declined by 10.1% year-on-year, according to the National Bureau of Statistics (NBS). The area of new construction projects dropped by 22.2% over the same period, underscoring a lack of recovery in demand.

Domestic steel demand remains heavily tied to new construction and infrastructure projects. However, China’s shift in focus toward existing housing rather than new builds has limited the effectiveness of stimulus policies.

Steel Production Increases Amidst Price Rebound

Chinese steel mills responded to the price recovery by ramping up production. Profits rebounded from losses of Yn150-200 per ton in early September to Yn200-250 per ton by early October. Weekly rebar output reached 2.4 million tons in mid-October, the highest since late June. Blast furnace and electric arc furnace operation rates also hit two-month highs during this period.

Despite increased production, market participants anticipate a dip in construction steel demand from mid-November as northern cities enter the winter heating season.

Steel Exports: A Mixed Bag

Chinese steel exports surged by 21.2% year-on-year in January-September, totaling 80.71 million tons. However, this growth is under threat from rising anti-dumping measures in countries such as Turkey, India, Vietnam, and South Korea. With major overseas markets slowing operations during the Christmas season, export bookings are expected to taper off in December.

Stimulus Measures: Limited Impact on Real Estate

China’s Ministry of Finance (MOF) has announced significant fiscal measures, including a Yn1 trillion issuance of ultra-long special treasury bonds and an increased financial expenditure of Yn180 billion for 2024. Additionally, the Ministry of Housing and Urban-Rural Development (MHURD) plans to rebuild 1 million apartments in shanty towns and dilapidated areas. However, these measures are relatively mild compared to the peak of 6 million units rebuilt annually from 2016 to 2018.

To further stimulate the housing market, most cities, except Beijing, Shanghai, and Shenzhen, have lifted purchase restrictions. Despite these efforts, the market remains constrained by long-term structural issues.

Market Outlook: Cautious Optimism

Shanghai hot-rolled coil (HRC) prices declined by Yn230 per ton (6.3%) from 7 October to Yn3,420 per ton as of yesterday. Market analysts suggest that while steel prices may not return to their September lows, downward pressure is likely in November and December.

As China continues to navigate economic headwinds, the steel sector’s recovery appears contingent on significant new investments and sustained domestic demand growth. The global context of anti-dumping measures and trade barriers adds another layer of complexity, potentially capping export growth prospects in the near term.