China's structural steel demand is expected to be subdued until the end of 2023 due to a weak real estate industry and limited growth in the infrastructure sector due to some local government debt issues, industry sources said.
China's Construction Machinery and Equipment estimates that domestic excavator sales, a key indicator of upcoming construction activity, are likely to reach 5,300 units in August, up 3.7% from July but down 41. 7% compared to the same period last year. Sales of excavators in the domestic market in January-August fell by 43.9% compared to the same period last year to 61,443 units.
Declining sales of excavators indicate that the weakness of the construction sector and demand for steel in may continue for the foreseeable future, industry sources said.
China's real estate home sales, the main channel for financing new projects, are likely to continue to decline in August, industry sources said after data from the National Bureau of Statistics showed that home sales in July were down 46% m/m and 24% year on year.
According to China Index Academy, home sales in China in 50 major cities in the first two weeks of August fell 16.2% month-on-month and 29.3% year-over-year.
Although the start of new home construction in China, a key driver of steel demand in China, may still fall more due to poor housing sales, growth in infrastructure steel demand is unlikely to receive much support given local government debt issues, industry sources say.
China recently planned to raise about 1.5 trillion yuan ($206 billion) through the sale of special refinancing bonds to pay off its hidden debts, S&P Global Commodity Insights previously reported. (and not incentives). This means that infrastructure investment, funded primarily by local governments, could only increase marginally,” a financial market source in Shanghai.
China’s infrastructure investment growth rate slowed to 4.6% in year-on-year in July from 9% in Jan-Feb and 9.4% in 2022, data from the National Bureau of Statistics showed.
“Steel demand in new energy and transport infrastructure sectors this year was good, but overall demand for structural steel has been weak and is unlikely to improve significantly until the end of 2023,” a source at a plant in eastern China said.
According to S&P Global, given the weakness in the construction The Chinese domestic market in January-August averaged only 40 cents/t, which is sharply lower than the average of $32/t for the same period in 2022.
