China's steel production falls in April, property stimulus fails to boost sentiment

China's steel production fell in April because of sluggish demand in the wake of an ailing property sector.

The Chinese government on May 17 announced reductions in housing down payment ratios and housing provident fund loan rates, but that was not enough to improve the 2024 outlook for construction steel demand.

Some mill and trading sources expressed skepticism regarding whether the new property stimulus package would be able to halt the decline in China's home sales, with steel demand from the sector expected to remain lackluster throughout the year.

Steel production

China produced 71.63 million mt of pig iron and 85.94 million mt of crude steel in April, falling 8% and 7.2% on the year, data from the National Bureau of Statistics showed May 17.

Daily pig iron and crude steel output in April, however, increased 1.9% and 0.6% on the month to 2.388 million mt and 2.865 million mt, respectively.

Over January-April, China's pig iron and crude steel output fell 4.3% and 3% on the year to 284.99 million mt and 343.67 million mt, respectively.

Some market participants expected China's pig iron and steel production in May and June to continue rising from April levels but remain lower than a year earlier.

The average utilization at China's blast furnaces increased to near 89% as of May 17, rising about three percentage points from the end of April, according to trade sources.

Some of the sources said that as domestic steel demand in 2024 is expected to be below the 2023 level, the country's annual crude steel output this year could also be lower than a year earlier, even without government-mandated steel output cuts.

Property stimulus

China's debt-laden property sector did not show signs of bottoming out in April after weakening for nearly three years, prompting the central government to roll out a new round of stimulus measures.

The floor space of China's new home sales over January-April fell 20.2% on the year, accelerating from a 19.4% year-on-year decline over January-March, according to NBS data.

New home sales over the first four months of 2024 were 41.8% lower than in the same period in 2021, when China's property sector peaked.

China's new home construction starts, a key steel demand driver in China, fell 24.6% on the year over January-April, slumping 56.4% from the same period in 2021.

The People's Bank of China has reduced the minimum down payment ratio for individuals' commercial housing mortgages to 15% for first-time home purchases and 25% for second-home purchases, from 20% and 30%, respectively.

The PBOC also cut the individual housing provident fund loan rates by 0.25 percentage points from May 18. The individual housing provident fund is a long-term housing savings plan made up of compulsory monthly deposits by both employers and employees.

The central bank has also abolished commercial mortgage floor rates for first and second homes across the country, and its branches can determine the lower limit for commercial mortgage rates in accordance with local conditions.

Outlook weak

Some steel market participants remained cautious about the new round of stimulus, saying that the policies were still aiming at raising Chinese residents' leverage when they were already highly leveraged, and the key problems in the property market were household income uncertainty and housing oversupply.

"Home buying in the tier 1 and some strong tier 2 and 3 cities may be encouraged by these new policies, but for most regions, home sales are unlikely to improve fundamentally in the foreseeable future," a market watcher in Shanghai said.

He said that declines in China's new home sales might largely slow in 2025 because of a low base factor, but new home construction starts were expected to be depressed due to an housing oversupply.

"I don't think construction steel demand would improve this year, not only because the ailing property sector is unlikely to rebound even with the stimulus, but also that infrastructure construction has been curtailed by a lack of local government funding ... I think we may continue to see Chinese steel prices fluctuating in a narrow range in the coming months [because of] comparatively softer steel production and sluggish domestic steel demand," said a mill source in eastern China.

Over January-April, China's infrastructure investments increased 6% on the year, compared with a 6.5% year-on-year growth over January-March, according to NBS data.

Chinese domestic rebar prices rose Yuan 10/mt ($1.4/mt) on the day to Yuan 3,740/mt ($518/mt) on May 17, but were Yuan 40/mt lower than in early May and down Yuan 95/mt on the year, Platts data from S&P Global Commodity Insights showed.