China's construction sector consumed two-thirds of China's incremental steel production over January-July, with the stronger-than-expected property market remaining the biggest steel demand driver, according to the China Iron & Steel Association.
China's net steel exports decreased by almost 200,000 mt year on year over January-July, while its crude steel production increased by 48 million mt year on year, suggesting that the output rise was absorbed by domestic demand, according to Chinese media quoting CISA vice-chairman Luo Tiejun on Thursday.
However, Luo said China's steel demand over the longer-term would plateau and therefore the industry should be careful about investing too much in the steel sector and associated industries.
According to the National Bureau of Statistics, China's fixed asset investment in the ferrous smelting and processing sector over January-July increased by 37.8% year on year, up from 13.8% in 2018, and a big jump from minus 7.1% in 2017.
Though China's property construction sector has been strong enough to absorb additional steel production in 2019, its slowdown is inevitable as Chinese regulators have curtailed lending to developers and refrained from cutting mortgage rates.
Land purchases by Chinese developers over January-July dropped 29.4% year on year, indicating the steel demand pipeline is thinning out.
On Wednesday, during China's State Council meeting, Premier Li Keqiang urged the "timely use" of bank deposit reserve ratio cuts, dropping a hint to the market that China would further lower the cost of borrowing to support the economy.
However, steel traders said any boost from a further reserve ratio cut for steel demand would be limited, as China has become hawkish about the property sector. The manufacturing sector remains constrained by a lack of investor confidence due to global trade tensions; the NBS manufacturing purchasing managers' index for August showed the sector was technically in contraction.
The traders expect new home building starts to be robust into the first half of 2020, but the outlook may become grim afterwards.
