China’s recent pledge to make stabilizing economic growth its top priority in 2022 and reserve rate cuts are leading to signals of further monetary policy easing in 2022, with policies affecting both demand. and the supply of steel to be relaxed in order to support stable economic growth. next year, market participants and industry watchers told S&P Global Platts.
At a meeting on December 6, China’s top decision-making body, the Politburo, spoke out in favor of economic growth through more proactive fiscal and monetary policies.
On the same day, the Chinese central bank announced a cut in the reserve requirement ratio of banks by 0.5 percentage point and, on December 7, a cut in interest rates on loans to rural banks and small local banks. by 0.25 percentage point.
Focus on end users
Along with easing monetary policy, the Politburo has stressed the importance of healthy development of the real estate sector and better support for purchasing reasonable housing in 2022.
The Chinese real estate sector is the country’s largest consumer of steel, accounting for over 30% of its total steel consumption.
Meanwhile, proactive tax policies would benefit infrastructure construction, a sector that has struggled this year due to a lack of funding.
With construction-related manufacturing, real estate and infrastructure could generate more than 70% of China’s steel consumption, according to market sources.
However, any measure aimed at facilitating the financing of the real estate sector only aims to prevent it from the risk of a debt crisis, and would not aim again to give a boost to the sector within the framework of the recovery plans. economy, sources said.
As a result, China’s real estate investment as well as its demand for steel is expected to decline further in 2022, but the scale remains to be seen, depending on government interventions, some market watchers and factory sources said.
In addition, all steel-intensive infrastructure projects, such as roads, railways and bridges, are expected to experience only slight upward momentum in 2022, as much of the aid Next year’s budget will go to projects that are less steel-intensive and more tied to people’s livelihoods, such as agriculture, education and logistics, some sources said.
Lack of supply side reforms
While the Politburo meeting added that securing people’s livelihoods and jobs was the bottom line of the 2022 policies to be protected, no indication of supply-side reform has emerged over the course of Of the reunion.
To ensure that steel prices do not contribute to inflationary pressures and to protect jobs, the steel industry is unlikely to face more severe cuts in steel production or further restrictions on steel production. short-term exports, some market sources said.
In fact, some factory sources and traders expected first-half 2022 production to rebound from second-half 2021.
“[S]steel production cuts in the second half of 2021 are actually a bit more severe than what Beijing initially required, and local government production control policies in 2022 could be adjusted slightly, âa source said. .
China’s central government has demanded that the country’s crude steel production in 2021 be kept at 2020 levels, but actual production in 2021 is expected to be 30 million tonnes lower than in 2020, some sources said.
âThe oversupply is expected to continue in the domestic steel market in 2022, especially in the first half of the year, as steel production is expected to pick up, but any easing of policy, from December, will put some time to reach end users of steel, such as real estate. “said a source from the factory.
However, steel prices and margins will be supported by lower commodity prices and improved market liquidity, which will encourage traders to restock and allow the market to hold more inventory, have indicated sources.