Infrastructure development in China will provide sustainable support for steel demand

China is accelerating its approval of infrastructure projects this year in an effort to bolster an economy still affected by the coronavirus pandemic, with most projects starting in the second half of 2020, boosting steel demand.

In January-June, China approved 13 airport projects with a total investment of 103.96 billion yuan ($ 14.71 billion), equivalent to 57% of the total number of approvals in 2019, according to an analysis by S&P Global Platts.

Meanwhile, 19 rail and urban rail transport projects were approved during the same period, with 12 more projects expected in the near future. The total length of these projects is 4,638 km, which corresponds to 77% of the total length approved last year, according to the analysis of Platts.

Platts estimates that 23.8 million tonnes of steel will be needed to build the facilities, which will mostly run from 2020 to 2025.

China is also increasing its financial support to speed up infrastructure construction.

It plans to issue 3.75 trillion yuan of local government special bonds in 2020, up from 2.15 trillion yuan in 2019. For January-June, about 60% of the annual quota was released.

Special bonds should be invested in infrastructure and not in real estate projects. About 64% of the special bonds issued in 2019 hit the real estate sector and thus failed to accelerate infrastructure growth. According to industry sources, this year the Chinese government is getting more and more strict.

Infrastructure construction has already triggered strong demand for steel since April due to improved financial support and as developers and builders rush to catch up in February-March, when the country found itself in a closed position.

Construction is expected to be completed by June, but continued financial support and a sufficient number of new approved projects will ensure sustained strong demand for steel in the infrastructure sector in the second half of 2020.

Some steel market sources expect infrastructure investment in China to increase by about 10% year on year in 2020, from minus 6.3% in January-May. Consequently, steel demand from infrastructure construction is likely to grow even stronger in the second half of the year than in the second quarter of 2020.

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