China Steel Prices Plummet to Lowest Level in Three Years Amidst Declining Demand

China’s construction industry is signaling a worrying trend as steel rebar prices fall to a three-year low amidst flagging growth in the country’s economy. This downward trajectory has been especially pronounced in the property sector, which has remained largely inactive.

Falling Steel Rebar Prices and the Significance

The data from Mysteel consultancy demonstrated a notable decrease in the spot price of HRB400 20mm steel rebar, a common reinforcement material used in the construction of buildings and infrastructure. On Thursday, the price plummeted to 3,510 yuan ($507.80) per tonne in Shanghai, marking the lowest point since April 2020. This period was marked by severe curtailment of industrial activities due to the initial outbreak of COVID-19.

Demand for steel rebar usually reaches its zenith during the construction peak season between March and April. However, the previous two months have seen a marked decline, with futures falling by almost 17% since late March. The slow summer months may further stifle any potential recovery.

Concerns Over Chinese Property and Infrastructure Sector

Japan’s Nippon Steel Corp’s Executive Vice President, Takahiro Mori, has voiced concerns about the deteriorating outlook for steel demand in China. The property and infrastructure sectors, which constitute approximately 60% of the steel demand, are experiencing sluggish growth. A slowed infrastructure stimulus coupled with minimal property market growth underscores these concerns.

A research note from analysts at Huatai Futures revealed a 3.4% decline in China’s steel demand in April from the same period last year. This is a stark contrast to the 8.7% increase in March. Furthermore, in May, demand experienced another drop, falling by 2.5% year-on-year.

Data from the National Bureau of Statistics illustrated a 6.2% year-on-year decrease in investment in the property sector over the first four months of this year, a figure that indicates an exacerbation from the 5.8% fall during the January-March period. There was also a 21.2% contraction in new construction starts by floor area over the same period.

The summer months of June-August are often slow for the construction industry, given the unfavorable weather conditions, including high temperatures and heavy rain in the southern parts of China. This lag in demand is putting added pressure on steel mills, with only a third currently operating at a profit. The bleak scenario is projected to continue until September, when weather conditions are more conducive to construction, and economic stimulus measures from late last year finally start influencing the property market.

Takahiro Mori of Nippon Steel Corp suggested an even more pessimistic outlook. He predicts that the weak market conditions may prevail throughout the year or even the fiscal year ending March 31, 2024.