Industry
China’s real estate stimulus to aid Indian steelmakers but oversupply persists
Summary
- Even after the stimulus, Chinese steelmakers will have to curtail production for global demand-supply balance to be restored.
Mumbai: China’s latest push to revive its struggling real estate sector could benefit Indian steelmakers but may still not be enough to resolve high steel imports from India’s neighbour, according to experts.
“The stimulus should improve domestic steel demand in China, which would be positive for the global market," said Ranjan Dhar, director and vice-president, sales and marketing, ArcelorMittal Nippon Steel India (AM/NS).
As China’s housing market stagnated in recent years, the bulk of Chinese steel found its way into the international markets, including India, suppressing the prices of the alloy. Interest rate cuts and a reduction in upfront payment requirements for homebuyers to boost the local property market aided metal and mining stocks in India.
Shares of Indian steelmakers rose as much as 5% during early trade on Tuesday before paring some of the gains. Tata Steel Ltd, Jindal Steel and Power Ltd, Steel Authority of India Ltd and NMDC Ltd shares closed 1.9-4.3% higher. JSW Steel gained 0.72%.
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“The metal and mining sector has surged today following China’s announcement of measures to boost the property market," Parthiv Jhonsa, lead analyst, metal and mining, Anand Rathi Institutional Equities, said referring to the stimulus plan.
“Historically, while a rebound in metal prices is anticipated in the short term, it has often fallen short of expectations," Jhonsa added.
According to Dhar of AM/NS, even after the stimulus, Chinese steelmakers will have to curtail production for the global demand-supply balance to be restored. “China cannot continue to export 100-120 million tonnes (mt) of steel a year; they will have to rationalize exports to about 30-40 mt."
China’s real estate sector, the biggest growth driver for Asia’s largest economy, has been in the doldrums for the past four years now, leading to a wider economic slowdown. The country hosts half of the world’s annual 2-billion-tonne steelmaking capacity. The weakness in the real estate sector resulted in an oversupply of steel, which invariably found its way into the international markets, often at a steep discount.
China’s annual steel exports rose about 70% between 2020 and 2023 to 91 mt, according to data from market intelligence firm BigMint. The figure is expected to exceed 100 mt in 2024.
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Chinese steel costs 5-10% less than the list price of domestic steelmakers in India even after paying a 7.5% import duty and logistics costs, industry data shows. This prevents Indian steel companies from raising prices and has suppressed their margins.
On Tuesday, the People’s Bank of China said it will lower the interest rates on existing home loans to the tune of 0.5 percentage point and reduce the minimum down payment requirement for second home purchases to 15% from 25% earlier. The stimulus package is expected to revive demand for new real estate in the country.
Some analysts expect the stimulus to take some time to show impact on the steel sector.
“There will be medium- to long-term impacts. We do not expect anything to change in short-term due to this stimulus package," analysts at BigMint said.
