China's State Council, the country's top economic planning body, has made stabilizing land and housing prices the top priority for the property market in 2020, meaning that any fluctuation in property prices will not be an option for top policy makers. As a consequence, steel demand generated from the property and construction sector is expected to remain stable in 2020.
Property construction accounts for about 35% of China's total steel consumption, and is likely to remain the core driver of steel demand in 2020.
The central government in late 2019 declared that different cities will have different property policies for 2020 based on their own set of circumstances. The steel market interpreted the announcement as an implication that cities facing downward pressure in their property markets will have their home buying and financing restrictions loosened.
Meanwhile, China's central bank had cut the reserve requirement ratio for financial institutions by another 0.5% at the beginning of 2020, leading the market to anticipate more proactive monetary policies this year, which would provide additional support to property sales in 2020.
Some steel market sources said if it were not because of the monetary and fiscal stimulus issued in 2018 and 2019, China's property sales might have declined by up to 20% year on year in 2019 after booming for almost four years.
But a 20% decline in property sales within one year would have caused major turbulence to China's already slowing economic growth, market sources said, adding that they expect the government would make every effort to at least slow down the decline to a single digit in 2020. Based on property data from 2019, a mild decline in property sales could still lead to decent new property starts.
S&P Global Platts estimates that as long as property new starts can increase by just 4% year on year in 2020, down from a 9% year on year increase over January-November 2019, strength in demand for long steel will continue into 2020.
Meanwhile, completed floor space is expected to rebound in 2020 after falling for the previous three years, thanks to the boom in new starts and projects under construction in 2018 and 2019. This will provide support for flat steel demand, as home buyers will need to purchase home appliances before moving in, albeit home appliance manufacturing accounts for only about 2% of China's total steel consumption.
Source: S&P Platts
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