China’s steel industry in trouble as property market woes hit demand

China's steel industry is facing trouble as its falling property market has affected demand, Bloomberg reported on Wednesday, August 16.

Steel prices are plummeting, and profits are shrinking with little relief from the government, which is focused on reshaping China's economy in the long run. According to the report, the country has not delivered a solution to its real estate market slump that can keep steel consumption at a high level.

As government officials talk about increasing consumer spending and boosting high-tech industries, the steel demand is set to reduce this year, as per the report.

“There are not many positives for steel, and the housing downturn has years to go yet,” said Tomas Gutierrez, an analyst at Kallanish Commodities. “It’s been clear for a long time that the government views stimulus very differently now,” he said.

China fuelled trade frictions as the country increased its steel exports; the steel markets in China have a global impact as iron ore prices fall.

China's steel demand concerns:

According to Kallanish, cited in the report, China's property market slowdown caused steel demand from construction activities to fall 10 per cent this year. The steel sector saw total consumption fall to around a quarter of the previous levels, a very low proportion in the last 20 years.

Areas like consumer appliances and shipbuilding are expanding but are relatively too small to offset the impact of the property market on China's economy. Overall domestic demand fell 1 per cent in 2024, according to Kallanish quoted in the news report.

“Steel demand is really poor,” said Wei Ying, an analyst at China Industrial Futures, reported the news agency. “With highly indebted provinces focusing on deleveraging, plus a lack of good projects, infrastructure spending is less than ideal," analysts said.

Demand slowdown hits steel prices:

The slowdown in demand has led to a fall in prices. Steel Rebar used in construction is at cheaper levels like back in 2017. Hot-rolled coil is at its lowest in four years, it is used in car and home appliances. The producers who endure higher costs are making a loss on every ton produced of steel, as per the report.

The government's new quality standards for Rebar threatened to make existing inventories harder to ship. It created a panic sell situation before the rules came to power in September, as per Mysteel Global, a researcher.

China's export threat and material impact:

China's“aggressive” export of its steel is creating problems for the global steel industry, influencing the US and European prices to fall below cost, said ArcelorMittal SA, the biggest steel producer outside China. The China shipments are the highest since 2016, according to the report.

The commodity's slowdown has impacted iron ore prices this year, impacting mining giants like BHP Group Ltd. and Rio Tinto Group. The Futures in Singapore market has fallen close to 30 per cent since the end of 2023, trading under $100 a ton last Thursday, as per the report.

With pressure growing from more production in the steel mills and the government's interest in capping emissions, it is likely to affect iron ore prices.