Low-Income Housing Construction Limitedly Stimulates Steel Demand

SHANGHAI, Oct. 23 (SMM) -- According to Minister of Housing and Urban-Rural Development (MOHURD), 7.2 million units of low-income housing started construction, and almost 4.8 million units were already completed during the first three-quarters of 2012, with total investment of RMB 960 billion. According to MOHURD’s plan set in early 2012, there should be over 7 million units of low-income housing starting construction and 5 million units should be completed in 2012. As of late September, Jiangsu, Fujian and Anhui province already hit target ahead of schedule. Based on current development, China’s low-income construction target will be overfilled Nevertheless, Steelease still believes that China’s low-income housing construction has only limitedly stimulated steel demand, and shall have waning impact on steel consumption in the following years.

First, around 10 million units of low-income housing started construction in 2011, but most of them were completed in 2012. Coupled with construction of 7 million units of low-income housing in 2012, consumption of steel from low-income housing construction in 2012 will be larger than that in 2011. However, based on construction sector PMI, a major gauge for steel consumption in construction sector, did not reflect expansion of construction sector, suggesting that construction of low-housing failed to offset negative impact from government’s rein in the whole real estate sector.

Second, based on Steelease calculation, low-income housing construction consumed less than 6% of China’s total crude steel output. Steelease believes that Chinese government will continue to support low-income housing construction, but total number of low-income housing construction per year will be less than 10 million units. This will lower consumption of steel in the following years.

Finally, construction of low-housing construction is better than last year, but still fails to strongly stimulate steel consumption. It was reported that it was difficult for other infrastructure projects to receive loans, but easier for low-income housing project to get loans. Steelease believes that if government does not release new stimulus, construction of low-income housing will not be so brisk in the following year.