According to the last research S&P Global Platts Analytics, China's efforts to cool its overheated the real estate market in 2021 may lead to a decrease in demand for steel in this sector for the first time in six years.
China has tightened monetary stimulus measures and limited funding to the real estate sector since mid-2020. Beijing insists that real estate should not be used for speculative purposes. The main objective of his 14th Five-Year Plan is to channel more money into the hands of citizens to increase domestic consumption, and one way to achieve this is to reduce the share of the real estate sector.
Platts Analytics has presented two scenarios for steel demand dynamics in the Chinese construction sector, both of which indicate no growth in this sector.
The last time the demand for steel from the Chinese real estate sector declined was in 2015. Real estate accounts for 30–35% of total steel consumption in this country.
S&P Global Ratings predicts that China's GDP will grow by 7% this year, the number of new commissions and sales in 2021 will decrease by 6.4% and 2.8% year on year, respectively.
According to Platts Analytics, if China sees GDP growth of 8% or more, new property sales and sales will grow 0.4% and 4.6% year over year.
Achieving 8% growth will require softer credit conditions and even some relaxation of restrictions in the real estate sector.
But the best-case scenario for steel consumption - an additional 6.1 million tonnes in 2021 - is negligible compared to an increase of nearly 23 million tonnes in 2020. Platts estimates real estate steel demand in 2020 was 322.1 million tonnes, up 7.6% from 2019.
The real estate sector has played a vital role in increasing the production of liquid steel in China in 2020, while maintaining high profitability in steel production.
China's steel production rose 5.2% year on year, or 52 million tonnes, to 1,053 million tonnes in 2020, surpassing the 1 billion tonne mark for the first time. This despite the fact that most of the first quarter of China was isolated and construction work was suspended.
According to Platts Analytics, the return on sales of valves in the domestic Chinese market fell 25% year-over-year, but still averaged $ 46 per tonne.
Rebar production margin in China
China's production capacity will continue to grow in 2021 to 1,285 million tonnes per annum, up from 1,257 million tonnes per year at the end of 2020. The country's steel production is projected to grow 2.8% year on year, or 29 million tonnes per year to 1,082 million tonnes in 2021.
Analysts are concerned that demand for high-quality steel is unlikely to bottom out. This could lead to a resurgence of excess steel production capacity in the long products market, especially in the second half of 2021. This, in turn, could lead to a reduction in steel production or an increase in steel exports.
Urbanization has been a major driver of real estate development and steel consumption in China for the past 20 years. But urbanization tends to become less intense, especially after it exceeds 60%.
By 2030, China's urbanization will reach 70%. This indicates that its domestic demand for construction steel may be close to its peak, or may even have already reached it.