The one commodity that should be getting hammered by China’s worsening property crisis is actually doing rather well. That’s good news for Australia.
The one commodity that should be getting hammered by China’s worsening property crisis is actually doing rather well.
The absence of a price crash or devastating slump in steel demand illustrates how pockets of China’s economy are holding up despite the negative headlines. There are still plenty of risks ahead for iron ore, not least the prospect of a prolonged slump in the property sector. But relatively robust prices offer a counterpoint to the prevailing bearish mood across Chinese markets.
Property construction is falling, especially in less-developed inland cities. And President Xi Jinping’s government is holding off on the large-scale stimulus, including infrastructure spending, that has typically lifted steel consumption during previous episodes of economic stress. A bullet train is pictured on the Shijiazhuang-Jinan high-speed railway at the Shijiazhuang Railway Station in Shijiazhuang city.Steel industry forecasts from researcher CRU Group illustrate the divergence between construction and the rest, with demand for so-called “long products” used in building set to fall 1.7 per cent this year. Flat products, the other major category, will see a 3 per cent increase, it said.
The resilience in steel demand and iron ore prices is also being driven by some industry-specific factors. “Iron ore prices have deviated a bit from economic fundamentals, largely due to a lack of self-discipline at mills,” said Xu Xiangchun, an analyst with Mysteel. “China’s economy isn’t that promising.”
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