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China's infrastructure investment push seen set to boost steel demand in Q3

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China's infrastructure investment push seen set to boost steel demand in Q3

Singapore — China's local government special bonds issuance, which is designed to mainly fund infrastructure projects, is expected to gather pace in August, supporting steel demand in the remainder of the third quarter and into Q4, market sources said August 6.

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China issued Yuan 2.266 trillion ($326 billion) of new special bonds over January-July, leaving a balance of about Yuan 1.484 trillion ($214 billion) to be issued by year end, according to the Ministry of Finance. The ministry wants the balance to be issued in October.

Market sources said the value of new special bonds issued in August was expected to again approach Yuan 1 trillion, following May's issuance of Yuan 998 billion.

The value of total new special bonds issued in 2020 would be Yuan 1.6 trillion or 74% higher than Yuan 2.15 trillion issued in 2019.

The ministry requires the special bonds be invested in infrastructure rather than in property-related projects in 2020; around 64% of special bonds issued in 2019 found their way into the property sector.

Some sources expected China's infrastructure construction to be better supported in 2020 than in 2019 in a bid to cushion the slowing economy hit by the coronavirus pandemic. They said some single-month infrastructure investment in the second half of 2020 was likely to rise at double-digit rates, taking the full year investment growth to as high as 10% year on year in 2020, up from 3.8% in 2019.

Some traders said steel demand from infrastructure construction sites had gradually improved since the start of August, after the rainy season in the country's south and east and along the Yangtze River eased in late July.

However, they said China's soaring steel production and steel inventories would continue to keep steel prices in check for the remainder of the year.