China's Steel Sector Suffers Low Demand As Property Market Dips

Debt problems at a major Chinese property developer have now spilled over into a vital artery of the nation's industrial engine - the steel sector - and started to ripple through to other critical parts of the world's second-largest economy, Min Zhang and Ryan Woo reported for Reuters.

Photo Insert: The interior of a steel plant in China

The spreading balance-sheet crisis at real estate firms is a warning for policymakers as a swing in the fortunes of the steel industry would have significant repercussions for China's economy, with cement, glass, and household appliances all vulnerable to demand drops.

Already, steel prices are down from their record highs seen earlier this year due to easing demand from construction activities, which account for over half of the metal's consumption, while steelmakers' share prices have also been hurt.

Share prices of major Chinese listed firms dropped from high levels in recent months on easing demand and lower raw materials prices. Steel's acute sensitivity to the ebbs and flows in construction and manufacturing makes it a closely-tracked bellwether for China's economy, which has started to slow down from the second quarter.

Steel firms are also massive employers that support a vast supply chain. Hitting steel operations, real estate developers have dialed back investment in projects to conserve cash in a sector squeezed by tighter borrowing regulations that have engulfed indebted companies, most notably China Evergrande Group.

"We normally stockpile steel products in winter at relatively lower prices and sell them after the new year holidays when consumption resumes. But we are holding off this year," said Qi Xiaoliang, a Beijing-based steel trader.

"There's still uncertainty in the real estate market for 2022 and the situation is not expected to be fully reversed for another six to 12 months," he added.

In the final quarter of 2021, the property market took a further hit as the unease in the sector shook already weak buyer sentiment, with unsold housing stock in China's 100 biggest cities reaching a five-year high in November. Demand for homes is expected to ease further in 2022, hitting downstream manufacturers of household products.

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