When will the steel market thaw?

What's in store for the steel market in the coming months? Let’s take a closer look at the latest data and analysis.

In December of last year, real estate development and investment reached 860.1 billion yuan, showing a 22.31% increase from the previous quarter, while land purchases fell by 1.35%. The area of land purchased was 40.41 million square meters, up 0.30% but down 50.20% year-on-year. New housing starts totaled 201.53 million square meters, rising 35.06% compared to the prior month, yet declining by 18.67% on a yearly basis. Meanwhile, the sales area of commercial housing increased by 0.74% sequentially, but dropped by 13.96% year-on-year. However, the completed commercial housing area surged by 0.93% monthly and 219.19% annually.

According to the National Bureau of Statistics, the prices of new homes in 70 large and medium-sized cities rose in December, with 69 cities recording increases and only 65 seeing declines. This indicates a mixed trend in the housing market, with some areas still experiencing price growth. Despite the overall slowdown, inventory risks in third- and fourth-tier cities are on the rise, which could further pressure the market.

As the new year began, the real estate sector saw seasonal cooling, with new home transactions slowing down. Data from the Central China Real Estate Research Institute shows that new house sales in 54 major cities fell by 7.3% compared to the same period in December 2013, and by 15% year-on-year. Meanwhile, the land market remained active, with developers in Beijing, Guangzhou, and other cities aggressively acquiring land. Additionally, the national new urbanization plan is expected to be released, accelerating the development of urban clusters such as the Yangtze River Delta, the Central Plains, the Shandong Peninsula, and the Chengdu-Chongqing region.

In the short term, the real estate market will continue to show regional differences. First-tier cities are likely to see limited price drops, while construction activity in January and February will remain low due to seasonal factors. In the medium term, central bank de-leveraging and the U.S. tapering of quantitative easing will have ripple effects on the real estate market. Long-term, new urbanization will provide sustained momentum for the sector. This year, the real estate market is expected to focus on stability, with demand for related building materials possibly weakening compared to the previous year.

Moving on to infrastructure, fixed asset investment in urban areas grew by 17.2% year-on-year in December, but the cumulative growth rate of new projects started declined by 0.1 percentage points. Construction project investment also slowed by 1.7 percentage points, and fund inflows dropped slightly. With the off-season construction and tighter credit conditions, infrastructure investment has been gradually slowing since the end of last year. Seasonal factors and the Spring Festival holidays will continue to weigh on investment in the near term.

Looking back at the full year of 2023, fixed asset investment growth remained stable but showed a slight decline. Many local governments held meetings to adjust economic strategies, with reducing GDP and investment growth becoming a common target. Out of 26 provinces, 20 had already announced their plans. This year’s GDP growth forecasts have been revised downward, and local government work reports emphasize "reducing fixed investment targets," "controlling debt risks," and "resolving overcapacity." These trends suggest that local investment competition may slow down. The central government remains committed to addressing local debt and excess capacity, but if economic growth hits the "bottom line," "investment" might once again become the main driver of growth.

In terms of new investments this year, transportation infrastructure—such as highways and rail systems—will continue to receive attention. Road construction will focus more on rural and underdeveloped areas, while urban transportation will shift toward public transit. The Ministry of Water Resources will prioritize water conservation and national water security, launching several major water projects. The state railways will invest 610 billion yuan in fixed assets and open over 6,600 kilometers of new lines. While infrastructure investment growth is expected to weaken throughout the year, the decline is likely to be limited.

Overall, both real estate and infrastructure sectors face challenges in the short term, with seasonal factors dominating. Manufacturing industries like construction machinery, household appliances, and shipbuilding are still in their traditional off-seasons, leading to weak demand. Looking at the whole year, real estate and infrastructure investment are not optimistic, with growth rates expected to remain weak. Meanwhile, the manufacturing sector may see a gradual recovery, driven by decapacity efforts and structural adjustments.

It seems that the future of the steel market remains uncertain, with demand unlikely to pick up significantly in the near term.