China’s post-coronavirus construction boom shows signs of cooling as steel output slows
- Bad weather and government curbs on property financing are slowing construction projects, reducing demand for steel and iron ore
- Analysts say slowdown does not mean steel production will grind to a halt, with demand and output expected to pick up in the New Year
A surge in Chinese steel production to meet a post-coronavirus infrastructure building boom may have run its course for this year, as steel and iron ore inventories pile up and demand for steel declines.
The fall in iron ore prices over the past week from a six-year high of nearly US$130 per dry metric tonne in late August signals a slowdown in steel demand, according to analysts. The price of iron ore shipped by sea had fallen to about US$117 per tonne on Wednesday, according to S&P Global Platts.
Iron ore prices are a key gauge of the economic health in China and around the world, with high, rising prices indicating strong construction activity. In 2015, iron ore prices tumbled below US$40 per tonne when construction in China fell sharply as economic growth slowed.
We think steel output peaked for this year in August and will be softer over the remainder of this year
Project delays caused by heavy rain and flooding, upcoming holidays and the onset of winter, combined with a sharp drop in profit margins at steel mills due to expensive iron ore are also contributing to weak demand and production, analysts said.