How China’s push to Infrastructure Sector will Support country’s Steel Demand in 2019?

In the last week of Dec’18, China has approved the proposals to make tax cuts, increase financing for local government and accelerate infrastructure building and urbanisation projects in 2019 at a meeting of the Central Economic Work Conference presided over by the Chinese President Xi Jinping.

In the meeting, China has made its stance clear of pro-active fiscal policy which implies more spending on tax cuts and infrastructure building and stable monetary policy. The Chinese government added in the conference that country’s monetary policy for 2019 is going to be stable which will ensure sufficient liquidity in the market and also pledged to take measures to ease financing for the private sector and small enterprises.

Apart from this although the economic measures to boost the economic growth of the country amid U.S-China trade war have not been disclosed yet, the government has made its intent clear to spend more this year in order to support country’s economic activity.

In 2018, China’s infrastructure investment growth slumped to less than 4% from 19% in 2017. Construction sector’s contribution to China’s domestic steel consumption is about 60% with around 50% being consumed by real estate projects. It is being anticipated by the steel mills that the faster pace of infrastructure growth will absorb the anticipated softness in real estate growth in 2019.

China has built about 20 million houses in the last three years to upgrade shanty towns and thus there are concerns that the new programme of 2019 may set a lower target of house construction. However, the government’s focus on urbanisation could see state-funded home building projects maintain their growth pace.

Investment in transportation, logistics, municipal infrastructure, rural infrastructure, public service facilities, and disaster prevention and control projects will be the key focus of infrastructure building in 2019. Beijing will also seek to promote the development of under-developed areas in the west and northeast of the country and speed up urbanization with a target of 100 million additional population moving to urban areas by 2020.

Although China has pre-achieved its steel capacity cuts targets of 150 MnT for 2016-20, the government has made clear that it will continue reducing overcapacity in the steel sector by setting up new targets for 2019.