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

3-MIN READ3-MIN

China’s falling iron ore prices likely indicate a cooling of economic expansion. Photo: Reuters

Published: 4:30am, 24 Sep 2020Updated: 5:29am, 24 Sep 2020

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.

China’s falling iron ore prices likely indicate a temporary cooling of economic expansion, as the boom in infrastructure and real estate projects that followed the lifting of lockdowns begins to slow after five months of positive growth.

We think steel output peaked for this year in August and will be softer over the remainder of this year

Paul Bartholomew

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.

Following major Australian and Brazilian shipments earlier in the year, iron ore stocks are now piling up at ports, putting further pressure on prices.

“Steel production has started to ease in September, which wasn’t really a surprise as lending to the property and infrastructure sectors has been tightened,” said Paul Bartholomew, S&P Global Platts head of market insight for metals in the Asia-Pacific.