Steel rebar prices in China have reached their lowest point in three years, highlighting the sluggish growth in the country's second-largest economy, particularly in the weak property sector.
Data from consultancy firm Mysteel shows that the spot price of HRB400 20mm steel rebar, used for reinforcing concrete in buildings and infrastructure, dropped to 3,510 yuan ($507.80) per tonne in Shanghai on Thursday.
This is the lowest price since April 2020, when the COVID-19 pandemic significantly reduced industrial activity in China.
The decline in steel rebar prices can be attributed to disappointing demand, which is typically strong during the peak construction season in March and April. Steel rebar futures have fallen nearly 17% since late March, and recovery is not expected for several months as China enters its slow summer period.
Takahiro Mori, Executive Vice President of Japan's Nippon Steel Corp, expressed concern about China's situation, stating that the outlook for steel demand has worsened compared to three months ago.
The property and infrastructure sectors account for about 60% of steel demand in China. However, infrastructure stimulus has slowed down, and the property market is showing little growth.
According to analysts at Huatai Futures, China's steel demand declined by 3.4% in April compared to the previous year, following an 8.7% increase in March. They also reported a 2.5% year-on-year decline in steel demand for May.
Furthermore, analysts at China Future noted that only 53.11% of new special purpose bonds, typically used to fund infrastructure projects, were allocated to the sector in April, down from 56.38% in March and 63.29% in February.
Data from the National Bureau of Statistics revealed a 6.2% year-on-year decline in property sector investment during the first four months of the year. New construction starts by floor area contracted by 21.2% from a year earlier, exacerbating the negative trend.
Analysts at Sinolink Securities expressed concern that the impact of stimulus measures on the property sector is not as significant as before, and demand for houses may further contract.
In addition to the property sector, the manufacturing sector also unexpectedly contracted last month, compounding the sluggish demand for steel.
The weak demand is putting pressure on steel mills, especially with the arrival of the summer months from June to August, when construction activity typically slows due to high temperatures and heavy rain in southern China.
According to Mysteel, only one-third of the country's mills are currently operating at a profit. Global mining company shares plummeted this week as iron ore prices dropped due to China's weak demand.
Experts believe that steel demand will not improve until September when construction activities pick up due to more favourable weather conditions and the effects of economic stimulus measures implemented since late last year starting to impact the property market.
However, Nippon Steel's Mori suggested that the outlook could be even bleaker, stating that the market could remain weak throughout this year or the fiscal year ending on March 31, 2024. Therefore, a quick improvement in the market is not expected.
