[SMM Review] Infrastructure construction will provide sustainable support for steel demand.

Published: Jul 8, 2020 15:59

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SMM7: China has been speeding up the approval of infrastructure projects this year to support an economy still affected by the coronavirus pandemic, and work on most projects began in the second half of 2020, which helps stimulate steel demand.

Statistics show that from January to June, China approved 13 airport projects with a total investment of 103.96 billion yuan ($14.71 billion), equivalent to 57 per cent of the total approval in 2019. At the same time, 19 railway and urban rail transit projects have been approved, and another 12 are expected to be approved soon. The total length of these projects is 4638 km, equivalent to 77 per cent of the total length approved last year.

Construction of these projects will mainly continue from 2020 to 2025 and will require a total of 23.8 million tons of steel. It has also been increasing financial support to help speed up infrastructure construction.

China had planned to issue 3.75 trillion yuan of local government special bonds in 2020, up from 2.15 trillion yuan in 2019. From January to June, about 60 per cent of the annual quota has been issued.

Special bonds must be invested in infrastructure, not in real estate-related projects. About 64% of the special bonds issued in 2019 went into real estate, thus failing to boost infrastructure growth. The government will be stricter on the use of funds this year.

The construction peak is expected to be completed in June, but continued financial support and sufficient new approvals will ensure continued strong demand for steel in the infrastructure sector in the second half of 2020.

In addition, according to the previous SMM survey data, 45.83% of the sample enterprises said that there was a more urgent need to rush to work in the next three months. Among them, the proportion of enterprises with urgent demand in the construction industry is about 41.94%, and that of the infrastructure industry is about 52.94%. 41.67% of the terminal enterprises indicate that there are projects that need to be started in the next three months. Among them, infrastructure enterprises with new construction projects account for 47.06% of the total sample of infrastructure enterprises.

Steel market participants expect China's infrastructure investment to grow by about 10 per cent by 2020 from minus 6.3 per cent from January to May. As a result, steel demand for infrastructure construction is likely to grow or even greater in the second half of the year than in the second quarter of 2020.

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