China's steel sector awaits demand rebound

China's steel output and prices in 2023 will be driven by the level of demand recovery compared with 2022, with infrastructure investment unlikely to increase while the outlook for property sector-driven demand remains uncertain.

China's gross domestic product (GDP) growth is expected to reach 5.1pc in 2023, Feng Ximing, director of macroeconomic think tank Chinese Academy of Social Sciences said. The country's economy grew by 3pc in the first three quarters of 2022, against a target of a 5.5pc for the year. China's crude steel output fell by 1.4pc on the year to 935.11mn t in January-November 2022. The government has not announced any targets for steel production cuts during the winter months of November-March. The market views the lack of government-mandated cuts as a response to weak steel demand which has weighed on output in 2022.

Property sector outlook uncertain

China's infrastructure investment rose by 8.9pc on the year in January-November 2022, according to the National Bureau of Statistics (NBS). Market participants expect full-year investment to register a growth of over 10pc compared with 2021 and fall to around 8-10pc on the year in 2023.

The risks to property sector growth may shrink in 2023 with unfinished projects likely to be completed following stimulus measures Beijing announced in November. But new project start-ups, which are critical to steel demand, remain uncertain for 2023.

China's real estate investment dropped to a 30-year low in 2022, with all major real estate market indicators negative. Floor space under construction contracted for the first time in modern history, the World Steel Association said in October. Real estate sector investment in January-November fell by 9.8pc from the previous year, NBS data show. The sector slowed because of tighter mortgage lending quotas since the second half of 2021 and the subsequent loss of consumer confidence in the sector as the preferred sector to invest their savings in. Real estate and infrastructure account for about two-thirds of China's steel demand.

Covid policy changes and stimulus push

China rolled out measures since November to ease restrictions on the movement of people.

Most notably, the country allowed home quarantine for people with no or mild symptoms as opposed to the previous requirement for quarantine at a government-designated facility. Use of public transport was also exempted from a Covid-19 test certificate.

The People's Bank of China (PBOC) and the China Banking and Insurance Regulatory Commission (CBIRC) jointly issued 16 measures in November to support the "stable and healthy development" of the real estate sector. Key measures to support the sector include improving access to bank credit, equity financing and bond issuance. The notice was the first time this year that the central government officially announced support for the real estate industry, rather than informally at meetings. Steel prices moved up following the announcement. The Argus fob China HRC index was at $577/t on 14 December, up by 11pc from 14 November but down by 25pc on the year. The stimulus push for property and the easing of Covid-related restrictions are likely to support the Chinese economy in the latter part of 2023. This is because demand could come under pressure from a rise in Covid-19 cases in the first half while consumer confidence in the property sector will only return with more persistent signals from the government that it is committed to support the sector's growth.