Construction steel demand in China is likely to remain low until the end of 2022

Domestic demand for construction steel in China is forecast to remain subdued through the end of 2022, market participants told S&P Global Commodity Insights, with key excavator sales declining in July for the fourth straight month.

China's domestic excavator sales fell 24.9% year-on-year to 9,250 units in July, the second-lowest level in 2022 after January, data from the China Construction Machinery Association showed on Aug. 11.

Sales of excavators in the domestic market in January-July fell by 51.3% year on year to 100,374 units.

A sharp slowdown in new housing construction due to the fact that the central government is tightening funding for indebted developers was the main reason for the low construction activity.

Chinese steelmakers were forced to step up their cuts in July as weak demand for structural steel sent their margins into the negative.

Inventories in the steel market declined rapidly in July amid higher production cuts, which finally triggered an upward correction in steel prices and margins at the end of July.

According to market sources, rebar stocks held by traders in the east China city of Hangzhou are down about 27% since the end of June and down 33% year-over-year as of August 11.

On the same day, stocks of long products, mainly rebar and wire rod, in the Guangzhou spot market in southern China also fell by about 27% compared to the end of June and 24% compared to the same period last year.

Profit margin on rebar sales in China's domestic market increased to almost $50/t on August 10 due to reduced steel production and inventories, compared with minus $61.9/t on July 15, according to S&P Global Commodity Insights.

Some market sources said the steel market's rapid destocking was also driven by traders cutting inventories given the bleak outlook for steel demand for the rest of 2022.

“Any further political support for the real estate sector until the end of 2022 will mainly focus on the completion and timely delivery of pre-sales rather than new housing construction. This means raw materials such as copper or aluminum could start to benefit from recovery. at the end of this year, but demand for construction steel is unlikely to improve,” said a market participant.

A source at the plant said: “Not only traders, but also large steel mills fear that poor new housing construction will continue to undermine steel demand in China, so plants in general remain cautious about ramping up steel production or commissioning new capacity. for the production of iron or steel. Currently."

While China's steel production may recover in August due to improved margins, most sources said production will remain at a relatively low level until the end of 2022 due to weak demand.