China’s Property Woes to Weigh on Steel Prices Through Next Year

Chinese steel prices are likely to drop through 2024 as demand growth weakens and excess capacity weighs on the market, according to Capital Economics Ltd.

(Bloomberg) — Chinese steel prices are likely to drop through 2024 as demand growth weakens and excess capacity weighs on the market, according to Capital Economics Ltd.

The protracted crisis in China’s property sector is the biggest burden on prices, the London-based research firm said in note on Tuesday. But Beijing’s efforts to stimulate the economy after a weak recovery from the pandemic are unlikely to do more than just stem declines in the housing market. 

Although infrastructure spending should put a floor under construction-related demand, housing sales are in “long-term decline due to demographics and slower rural-to-urban migration,” Capital Economics said. Meanwhile, growth in steel exports “could slip as developed markets flirt with recession.”

Real estate accounts for 37% of China’s steel output, according to ANZ Group Holdings Ltd., while broader building and construction consumes around 60%. In a note last week, the bank said it expects steel demand from property to fall 22% this year to 275 million tons. Although some growth from infrastructure will offset that, ANZ forecast overall steel demand to contract by 5% to 910 million tons.

China’s construction steel prices have stabilized in recent weeks after peaking in March, while production has shown signs of strength as mills prepare for the seasonal lift in building activity that occurs after the summer. Steelmakers could also be raising output ahead of government-mandated curbs later in the year.

China has cut output in each of the past two years after production topped 1 billion tons and plans to do so again in 2023. Output is also likely to fall next year, Capital Economics said, as weaker demand and an accumulation of stockpiles add their own pressures.

The upshot is that China’s steel market surplus will decline slightly this year and next, but remain elevated. With demand subdued, prices will fall nearly 4% to 3,750 yuan ($515) a ton by the end of 2023 and to 3,650 yuan a ton by the end of 2024, the research firm said. 

Hot-rolled steel sheet was last trading around 3,900 yuan a ton, after peaking in March at over 4,500 yuan.

The Week’s Diary

(All times Beijing unless noted.)

Wednesday, Aug. 30:

  • US Commerce Secretary Gina Raimondo visits China
  • China Council for International Cooperation on Environment and Development in Beijing, day 3
  • Zijin Mining earnings webcast, 10:00
  • CCTD’s weekly online briefing on Chinese coal, 15:00
  • EARNINGS: Baosteel, Hesteel, Angang Steel, Maanshan Steel, Tianqi Lithium, Metallurgical Corp. of China, PetroChina, Longi Green, JA Solar, China Three Gorges, Yangtze Power, Ming Yang, China National Nuclear

Thursday, Aug. 31:

  • China’s official PMIs for August, 09:30
  • China Electric Power Planning and Engineering Institute report, 13:50
  • PetroChina earnings briefings, 16:00 in HK and 17:00 online

Friday, Sept. 1:

  • Caixin’s China factory PMI for August, 09:45
  • China weekly iron ore port stockpiles
  • Shanghai exchange weekly commodities inventory, ~15:30
  • Shenhua earnings webcast, 16:00

On the Wire

China is stepping up its efforts to revive the economy’s recovery and improve the business environment as concerns about the growth outlook continue to mount. 

Earlier this month, Chinese oil giant Sinopec made a surprise announcement that mostly flew under the radar. It’s now expecting gasoline demand in China to peak this year, two years earlier than its previous outlooks.

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