China’s efforts to address its housing crisis by stimulating
home buying may not provide the boost that the steel market needs. While
property accounts for nearly 40% of Chinese steel consumption, the government’s
initiatives to cut interest rates and loosen mortgage rules will take time to
translate into new housing construction, which is the main source of steel
demand. Additionally, the stimulus is primarily targeted at larger cities, such
as Beijing and Shanghai, which account for less than 3% of commercial housing
sales. This limited focus, coupled with high leverage ratios and negative
market sentiment, suggests that further policy support will be necessary for
substantial growth in steel demand.
However, there are some positive indicators in the steel market
beyond the property sector. Construction activity typically rises in the
autumn, and local governments have increased borrowing for infrastructure
investment. Steelmakers have also reduced production, with volumes dropping in
late August to the lowest levels in seven months. These measures are in
response to Beijing’s cap on annual steel output. Despite the challenges in the
housing sector, these factors may contribute to improving steel prices in the
near future.
The upcoming data releases in China are expected to shed more light on the state
of the economy. August’s activity data is anticipated to show signs of
production stabilizing, although growth in the services sector may continue to
slow. This suggests that deflationary pressures in China have eased slightly,
and there may be a pickup in credit demand. Overall, while the housing measures
may not fully address the steel market’s woes, there are indications of
potential improvement in other sectors of the Chinese economy.