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SMM Analysis: Steel Demand to Recover as End Industries Resume Production
iconMar 1, 2022 17:32iconCST
Source:SMM
The steel downstream enterprises resumed the production slowly post the Chinese New Year (CNY). Most enterprises gradually resumed the operation in late February. The demand will rise in March. As of February 28, more than 70% of the enterprises in SMM sample resumed work, and the overall production is expected to return to normal in March.

SHANGHAI, Mar 1 (SMM) – The steel downstream enterprises resumed the production slowly post the Chinese New Year (CNY). Most enterprises gradually resumed the operation in late February. The demand will rise in March. As of February 28, more than 70% of the enterprises in SMM sample resumed work, and the overall production is expected to return to normal in March.

More than 70% of downstream enterprises in SMM sample resumed production      

The end enterprises suspended their production earlier for the CNY holiday. The production was resumed slowly after February 15, since only a small number of workers returned to work. Most enterprises resumed operation in late February. According to SMM survey, 23.08% of the enterprises in SMM sample did not resumed operation as of February 28, of which the real estate enterprises took up 27.59%, and the infrastructure enterprises took up 17.39%. A manager of the Shandong Branch of China Construction Fifth Engineering Bureau said that the resumption of work at the construction site was later compared with previous years, due to the fewer projects and insufficient funds from party A. Besides, the workers did not return to the sites amid adverse weather. The number of projects may not rise in H1 2022, as the large-sized real estate companies are making purchases cautiously.

Real estate industry performance has improved marginally, financial pressure still exists in short term         

Since the fourth quarter of 2021, the central bank reduced the reserve requirement ratio, and the down payment ratio and loan interest rates were reduced in many places. The policy-based soft landing of real estate industry has been continuously implemented, and the real estate industry has a marginal recovery trend. However, it is still difficult to alleviate the short-term financial pressure of housing enterprises, as the supporting effect of the policy has not been fully manifested, the financing is still relatively limited, and the sales of houses are poor. According to SMM survey, 30.77% of the sample companies are under greater financial pressure, of which the real estate enterprises account for 42.31% and the infrastructure enterprises account for 19.23%.

Real estate industry received few new orders, orders for infrastructure industry increased YoY         

In the second half of 2021, the real estate policy regulation continued to take effect, and the real estate companies were less willing to acquire land. There was a lag of about 6 months between land transactions and start of construction. The acquired land area kept falling in H2 2021, and the space floor of newly started construction is expected to drop further in H1 2022. A manager of the China Construction Third Bureau said that there were no new projects in February, and many real estate companies laid off 30% of staff recently. The China Construction Third Bureau was also adjusting the staff structure. It plans to try to undertake the projects of new buildings and water affairs. The manager held a negative outlook on the real estate industry. He believes that in addition to state-owned enterprises, a number of companies may close down in the future.         

The investment in the infrastructure industry in 2021 was lower than expected, mainly because the local governments issued special bonds slowly in the first half of the year, and there lacked reserve projects. Although the issuance was accelerated in the second half of the year, there was a lag period of 3-4 months before the bonds were allocated to the projects. Under the background of hedging the economic downturn and "cross-cycle" adjustment, the demand for infrastructure support in 2022 will increase. The issuance of special bonds is expected to be advanced, which is conducive to the earlier release of infrastructure funds. The investment in the infrastructure industry will rebound mildly in H1 2022. The investment in the water conservancy, transportation, energy, internet, and other new infrastructure industries will also be increased as well. The major projects in 2022 have been prepared for a longer time, and there are sufficient reserve projects. With the support of enough funds provided by the government, the demand for steel from new and old infrastructure projects is expected to rise.          

According to SMM survey, 21.15% of the sample companies in steel downstream industries received more new orders in February, of which the real estate enterprises account for 15.38% and the infrastructure enterprises account for 26.92%.

The overall demand for steel will increase in March amid production recovery of end industries. The newly started projects in the real estate industry are expected to decrease in the first half of the year due to the financial pressure and poor sales, so the demand for steel may not increase significantly. The new projects in the infrastructure industry will increase on the year with the solid support from the government, and the demand for steel from the infrastructure projects is expected to rise more rapidly.


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demand
real estate
infrastructure

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