Steel prices in China are falling

Chinese steel prices fell after senior officials said growth targets would be sacrificed due to pollution cuts and property taxes would be introduced after 2019.

Since December 22, prices for steel billets and rebar have decreased by 6-7%. The factories reacted by cutting the level of export offers by $ 30-40 per ton. Slow sales impacted prices last week, but the decline accelerated on December 23, when the head of the Communist Party said China was willing to sacrifice economic growth to reduce pollution.

China only needs an average of 6.3% growth in 2018-20 to meet its goal of doubling the size of its economy by 2020 from 2010 levels. This is below the minimum growth target of 6.5% per annum in the 2016-20 plan. China is moving from high-speed to high-quality development while keeping its monetary policy stable and with ongoing supply-side reforms.

China's National Audit Office on the same day warned local governments that Beijing would liquidate hidden debts. "This illusion must be resolutely dispelled - the central government will not pay the debts of local authorities," it was reported. Local officials who were keen to promote the business borrowed too much for construction projects in an attempt to boost GDP, but central authorities are now tightening funding rules and ditching construction projects that are not properly funded.

The negative price outlook is also a result of the threat of property taxes slowing down demand for construction steel in 2020. Real estate authorization legislation is due to be completed by 2019. China has sought to introduce a property tax to provide a more sustainable tax base for local governments, which are heavily dependent on land sales. But progress will be slow, even when it is realized, the tax is expected to be levied gradually to limit its impact on home prices.