Despite recent gloomy figures for manufacturing in China, the steel industry there should continue to grow in 2012, according to UK based market analysts MEPS latest report ‘China Steel Insight’.

The average daily rate of crude steel production in January/February 2012 was similar to that recorded in the same period in the prior year. Moreover, it was substantially higher than the December figure. Steel output growth is forecast for 2012.

The smaller mills which predominately supply the construction segment have increased their contribution to the overall steel output. In contrast, the major mills which supply virtually all the needs of the manufacturing sector, have found orders more difficult to obtain.

Weak economic indicators for most western nations are likely to lead to reduced import volumes for the Chinese steel mills compared to the recent past. Consequently, increased activity in the construction sector will be required to maintain a strong steel industry in 2012. The best prospect in the short term is the construction of affordable homes.

The government has a plan to build 36 million economic houses between 2011 and 2015. At the same time, it is attempting to rein in speculatively driven high end real estate construction in the cities, by restricting, the sale of land for this purpose. In future, new developments are likely to be limited to those which have a proportion of affordable homes in the overall plan. This should encourage the private sector to engage in construction of homes for lower income families and speed up the building of affordable homes.

Incorporating private sector funding with that of the government investment would be good news for the Chinese steel industry. It may be possible for current restrictions on bank lending could be relaxed for projects which incorporated a proportion of affordable homes in the project. This in turn would be useful for the real estate segment and the economy in general – including the manufacturing sector, through sales of home appliances.

Source: MEPS