Riding a roller coaster at work is nothing new for Mr Xu Jian who spends his days buying and selling steel for a major trading firm in Jiangsu Province. But when the Chinese government in mid April took dramatic policy steps aimed at curtailing the nation runaway real estate prices, Mr Xu suddenly found himself on a white knuckle descent.
Mr Xu said "In early April, lots of customers came to me, begging to buy goods, each time asking for a little more. Now, we''ve delivered the goods. But those accepting are few."
The latest move by policymakers to rein in land and housing prices was not the only factor pushing steel prices downward. But analysts say it was the straw that broke the camel back and marked the beginning of what could be a long ride down for traders such as Mr Xu as well as the entire steel industry.
According to the China Steel Industry Association the building industry is China largest steel consumer, with new housing construction alone devouring more than 36% of the 560 million tonnes produced nationwide last year. April market control decisions softened demand, prompting steelmakers to cut prices while their stockholders sold shares. The steepest cuts in recent weeks were for steel rebar a basic building material whose average price fell CNY 300 to CNY 4,300 per ton or nearly 6%. Previously, prices for rebar as well as steel wire had been rising through mid April.
Mr Shen Wenrong chairman of China largest private steel enterprise Jiangsu Shagang Group said "Real estate controls definitely impeded demand. The market outlook for steel in the second half of the year is certainly worse than the first half. He said that and based on expectations that the government will continue following the same real estate policy trail and things aren''t likely to be better next year or the year after.”
Mr Shen spoke with Caixin in May on the sidelines of the International Steel Congress in Beijing. A few days later his company, one of the largest domestic manufacturers of steel for the construction industry, announced across the board price cuts for rebar and other building-related steel products.
A source close to the National Development and Reform Commission said the possible impact of property market controls on the steel industry has not escaped the government''s notice. But beyond recent price declines, NDRC officials haven''t determined whether it will fundamentally affect the steel industry.
Many analysts agree that it''s difficult to say how property market controls will affect bottom line steel demand over the long term.
The National Bureau of Statistics said on May 11th Chinese steelmakers had been ramping up production just as demand started to slip. In April, average daily production reached a new record and nationwide crude steel output rose to 55.4 million tons a 27% jump from a year before.
Mr Hu Yanping an analyst at steel industry watcher Umetal said the short term effects of slumping demand for construction steel will be psychological. But any long term impact will depend on how real estate companies fare.
He said that "Because real estate developers currently have strong financials, reserve funds for construction investment are still adequate, despite the effects of policy pressure on sales. Some real estate projects might be slowed, but most will maintain a certain level of construction progress which will provide some support for the current steel market."
Another reason for optimism comes from Mr Qi Xiangdong, the secretary general of the China Iron and Steel Association. He said the government emphasis on building more affordable housing and stepping up urbanization in general will boost real estate demand for steel. But Mr Shen thinks policy enforcement, not just new rules, will be a key factor in deciding whether plans for affordable housing projects create genuine demand for steel.
Mr Zhu Jimin Chairman of steelmaker Shougang speaking with Caixin agreed that the steel market outlook will depend on the government''s moves in the area of macroeconomic policy.