Chinese steel market showing signs of bouncing back in Q4CY’22

• Manufacturing indices reflect healthy growth
• Buoyant second-hand housing market points to real estate revival
• Special bonds to drive infrastructure spending
• Auto consumption index rises

Some key indicators announced in September 2022 showed that the Chinese steel market is on an upward trend and positive sentiments are expected to prevail in October. Due to the effect of the policy of stabilising growth in the industry, the related steel market data showed that continued acceleration is likely throughout the fourth quarter of 2022, which will be significantly better than the same period last year.

• PMI on expansion mode: According to data, in September the National Manufacturing Purchasing Managers’ Index (PMI) was 50.1%, an increase of 0.7 percentage points from the previous month. Among the different sub-indices, the production index was 51.5%, an increase of 1.7 percentage points from the previous month, and the business activity index of the construction industry was 60.2%, an increase of 3.7 percentage points from August, which reflects a level of prosperity. All this indicates that the growth trend of manufacturing production and the accelerated expansion of construction activities will benefit consumption demand for raw materials such as steel in October and Q4CY’22.
• Logistics index reverses downward trend: In September, China’s logistics industry prosperity index was 50.6%, up 4.3 percentage points from the previous month, reversing the trend of falling for two consecutive months. China’s warehousing index was 52%, also up 0.8 percentage points from August. The increasing trend of charge trade and circulation demand is conducive to an active steel market.
• Real estate market to stabilise in Q4: During the National Day holidays, the national real estate market showed mixed trends. On the one hand, transactions in the new housing market were relatively sluggish, and the area of newly-built commercial housing declined. According to data released by the China Index Research Institute, from 1-7 October, the transaction area of newly-built commercial housing in 20 key cities across the country decreased by 37.7% y-o-y. However, the second-hand housing market has picked up significantly. Transaction volumes of second-hand houses in 90% of cities across the country have increased on the year, and the number of second-hand houses sold in some cities has more than doubled over the same period last year. Data by Shell Research Institute shows that during the ‘November’ holidays this year, the average daily number of second-hand housing transactions in 50 cities increased by about 54% y-o-y. The real estate market has bottomed out. The interest rate on home loans has been reduced and the continuous efforts of the national real estate “relaxation” policy will lead to the real estate market gradually stabilising in Q4.
• Special bonds to boost infra investment: So far this year, the issuance of new local special bonds exceeded RMB 3.54 trillion, and it is expected that the issuance of local bonds will peak in October. It is expected that in Q4, some new special debt quotas for next year will be issued in advance, so as to form a physical workload as soon as possible. It is expected that the issuance quota may be higher than the RMB 1.46 trillion issued in advance last year. A large part of these funds will be used for infrastructure investment, which has contributed to the rapid growth of infrastructure investment this year. Data from the National Bureau of Statistics shows that in the first eight months, national infrastructure investment increased by 8.3% y-o-y, of which the monthly growth rate in the second half of the year was more than 10%. It is expected that the growth rate of infrastructure investment in October and Q4 will be in double-digits.
• Auto consumption index rises: Data released by the China Automobile Dealers Association shows that the auto consumption index in September was 92.1, higher than August. October is a peak season for car sales, indicating that car sales will continue to be strong in October and Q4, stimulating rapid growth in car production.

The above-mentioned key indicators are closely related to steel market trends and almost all of them show an upward trend. Therefore, it is expected that the steel market situation in Q4 will improve.