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Steel, Commodity Demand to Falter on Property Dip, Essence Says
Aug 5, 2010 14:00CST

Aug. 5 (Bloomberg) -- Demand for steel and cement may falter should China's property prices continue to slide, said Heng Kun, a Shanghai-based analyst at Essence Securities Co.

China's banking regulator last month asked lenders to conduct stress tests to gauge the effect of a drop of as much as 60 percent in residential property prices, a person with knowledge of the matter said. Tests last year assumed home-price declines of 30 percent.

"Steel, cement producers will be mostly hurt if China's property prices tumble because over half of the demand of the commodities comes from construction.

"For base metals, demand for nickel, used in stainless steel, and zinc in galvanized steel, will be cut significantly as these base metals are used in building materials.

"A decade ago when China's government curbed property prices, lots of buildings in the Hainan province were left uncompleted and unsold, which led to a huge number of bad loans.

"But the wealth of individuals was little affected as most lived in government-subsidized apartments. Now, if such a slump happens again, it would not only lead to bad loans, but a significant shrinking of personal wealth. The economy could be in very bad shape. That's not what the government wants to see."


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