SHANGHAI, Aug 31 (SMM) – In August, infrastructure construction increased steadily, while the real estate sector was still in a downturn. Although there will be a rush to meet the deadlines of infrastructure projects in September, the end demand may increase at a slower pace than in previous years due to pessimism over the real estate industry.
Infrastructure projects improved, property developers saw big regional differences
According to the SMM survey, 50% of the end companies reported stable projects on hand, of which infrastructure companies accounted for 59% and real estate companies accounted for 40%. This suggests that half of the steel downstream enterprises have survived the tough times of shrinking number of projects and sharp reductions in scale. It is worth mentioning that 15% of the infrastructure enterprises reported an increase in the number of projects.
In terms of different regions, real estate companies in first-tier cities reported significantly higher number of projects than those in second- and third-tier cities. 60% of construction companies in first-tier cities reported stable or improved project conditions, while this proportion was only 33% in second- and third-tier cities. According to data from the National Bureau of Statistics, the sales prices of commercial housing in first-tier cities rose slightly month-on-month in July, but showed a downward trend as a whole in second- and third-tier cities. The pandemic and high temperature in some regions slowed the progress of projects.
Capital crunch improved month-on-month, but still fell short of expectations China cut the interest rate of MLF on August 15, and lowered the LPR on August 22. Have the financial issues of end enterprises improved amid looser monetary policy? SMM survey showed the proportion of enterprises with financial problems decreased by 7 percentage points from the previous month to 39% in August. The proportion was 33% for infrastructure enterprises, down from 38% in July, and 44% for real estate enterprises, also down from July’s 50%. The financial situation of end enterprises is showing a trend of improvement, but the speed of improvement is far lower than expected. It still takes time for favourable monetary policy to be transmitted to the financial situation of end enterprises.
There may be a rush to meet deadlines of end projects in September, but the recovery of overall steel demand is still worrying
September is the start of the traditional peak season. According to SMM survey data, 19% of end companies said that they will rush to meet the deadlines once the weather improves. The proportion is 26% among infrastructure companies and 10% among real estate companies. Considering that the projects whose construction will accelerate are mostly located in second- and third-tier cities in east and central China, it is expected that it may slightly drive local steel demand. However, virtually all of the companies surveyed by SMM said that they will continue to restock only as needed due to financial considerations, belief that steel prices will hardly rise significantly, as well as the fact that most construction sites could only store up to 7-14 days of raw materials at most.
In the medium term, only 21% of the sample companies indicated that there will be an increase in new projects in the next three months. The proportion is 22% among infrastructure companies and 20% among real estate companies. Considering that the national fixed asset investment continued to increase in the first half of the year while the land acquisition situation in the real estate industry has further deteriorated, the recovery of end demand may not be sustainable in the future and the recovery will be mild.
On the whole, project construction will speed up in some areas in September as the weather becomes less hot, and improved financial condition of end enterprises amid looser monetary policies will also drive the launch of end projects. However, due to the continuous downturn of the real estate industry this year, it is expected that the end demand for steel will see only limited room for growth next month.
