Construction projects help maintain demand for steel

Construction of real estate and infrastructure in China, which accounts for more than 55% of total steel consumption in China, rose sharply in May, providing strong support for the domestic steel market at a time when the country’s steel production reached a record high …

China’s daily steel production increased 5% MoM and 4% YoY to 2.98 Mt /d in May, but strong demand from construction sites pushed the average margin of domestic rebar in China to $ 71 /t in May from USD 56 /ton.

Real estate and new properties sales area increased by 9.7% and 2.5% year-on-year in May, marking the first positive growth in those numbers in 2020.

During the construction period, steel consumption tends to be strongest in the first three to five months. The strength of new properties is positively correlated with the trend in property sales.

For January-May, property sales and new properties declined 12.3% and 12.8% year-on-year, but this was stronger with declines of 19.3% and 18.4% year-on-year compared to January-April, respectively. …

Meanwhile, investment in fixed assets in infrastructure improved in May, falling just 6.3% in Jan-May, compared with an 11.8% drop in Jan-Apr, NBS data showed. Some steel observers say FAI’s infrastructure increased by about 8% in May, from 2% growth in April.

Market sources had expected steel demand due to infrastructure construction to remain strong in the second half of 2020, driven by supportive fiscal policies such as an increase in local government special bonds.

However, sentiment regarding the July-December property sales was mixed, with some expecting a weakening in the money supply to provide strong support, while others were more cautious.

One source said the strong recovery in property sales in May was due in part to a delay in some purchases in February-March, when China was in a lockdown. The peak of construction is starting to make up for lost time, fostering strong new beginnings.

If property sales fail to maintain strength in the coming months, China’s record steel production and growing steel inventories could pose a real challenge to domestic prices, he added.

New home prices in China rose from the previous month in May in 57 of the 70 Chinese cities. Prices fell in 11 cities and remained unchanged in two.

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