China’s Property Woes to Weigh on Steel Prices Through Next Year

Chinese steel prices are likely to drop through 2024 as demand growth weakens and excess capacity weighs on the market, according to Capital Economics Ltd.

The protracted crisis in China’s property sector is the biggest burden on prices, the London-based research firm said in note on Tuesday. But Beijing’s efforts to stimulate the economy after a weak recovery from the pandemic are unlikely to do more than just stem declines in the housing market. 

Although infrastructure spending should put a floor under construction-related demand, housing sales are in “long-term decline due to demographics and slower rural-to-urban migration,” Capital Economics said. Meanwhile, growth in steel exports “could slip as developed markets flirt with recession.”

Real estate accounts for 37% of China’s steel output, according to ANZ Group Holdings Ltd., while broader building and construction consumes around 60%. In a note last week, the bank said it expects steel demand from property to fall 22% this year to 275 million tons. Although some growth from infrastructure will offset that, ANZ forecast overall steel demand to contract by 5% to 910 million tons.

China’s construction steel prices have stabilized in recent weeks after peaking in March, while production has shown signs of strength as mills prepare for the seasonal lift in building activity that occurs after the summer. Steelmakers could also be raising output ahead of government-mandated curbs later in the year.