Falling Chinese steel prices are sending ripples through global markets

By Metal miner

Construction MMI (Monthly metals index) further broke out of its sideways trend, falling 3.61%. The main culprits behind the month-on-month decline in the index were lower steel rebar and H-beam steel prices, driven by weak domestic demand in China. With China’s real estate sector not expected to strengthen in the near term, steel prices may continue to witness bearish pressure. This, in turn, could affect the steel and construction industries far beyond China’s borders.

H-beam and steel rebar prices are falling amid weak demand in China

The global steel market has seen a turnaround in the past month as H-beam and rebar prices have fallen in response to lower domestic demand in China. This decline, a direct result of China’s ongoing construction slowdown and tightening financing restrictions for property developers, continues to create ripple effects in global steel markets.

Falling demand, sliding steel prices

China’s real estate sector, which accounts for a significant portion of steel consumption, has seen a drop in new projects as government restrictions on developer financing weigh heavily on the market. This has significantly reduced the demand for steel H-beams and steel bars, essential components for heavy construction.

For steel rebar in China, prices fell by about 7% through August and early September. Meanwhile, continued weak domestic demand is causing an oversupply situation that has spilled over into global markets.

The H-beam steel market saw a similar decline, with Chinese prices falling by around 7-8% from August to September. And that reflects the broader slowdown in infrastructure and construction in China’s real estate sector.

Global impact of Chinese steel slowdown on steel prices

China’s weak steel demand continues to weigh on global demand as well. This is mainly because China is responsible for more than half of the world’s steel production. As Chinese suppliers flood international markets with excess steel products, other major economies are seeing downward price pressure on both H-beams and rebar.

This means that countries that rely heavily on steel imports are now witnessing declines in the prices of construction materials, which could benefit industries such as real estate and infrastructure. However, this trend also risks creating imbalances in global trade. With the Chinese government showing no signs of easing financing restrictions on developers, the construction sector is unlikely to see a quick recovery.

Source: MetalMiner Outlookwhich provides both short-term and long-term forecasts for H-beams and steel rebars.

Meanwhile, the outlook for steel rebar and H-beam steel remains similar. Without a clear resurgence of infrastructure projects in China, the oversupply of steel in the global market is likely to persist, keeping prices low until the end of the year and further threatening domestic steel producers in other countries, which cannot compete with such a level low. prices.

The US construction industry is bracing for anticipated interest rate cuts

The US construction industry is currently in a precarious but hopeful situation. For more than a year, high interest rates set by the Federal Reserve have cast a shadow over the sector, dampening new residential and commercial projects and pushing developers to the sidelines. However, the anticipation of rate cuts – projected to start in the second half of 2024 – has recently sparked a wave of preparation across the industry.

Over the past 18 months, high borrowing costs have slowed the pace of U.S. construction. As high mortgage rates deterred buyers, developers, facing skyrocketing financing costs, scaled back projects significantly. In fact, construction spending fell for the first time in over a year in mid-2024, signaling growing fatigue in the industry.

The business sector suffered the most as spending on retail stores, medical facilities and offices fell. Meanwhile, the rising cost of mortgages has deterred both developers and potential owners, negatively impacting Residential building.

The Fed’s change of strategy

The construction industry is already adjusting its strategy in light of signals from Federal Reserve officials that interest rate cuts could begin by the end of 2024. Builders are poised to take advantage of falling lending rates, which could boost demand for residential and commercial real estate. date again.

However, speeding up project planning is one tactic. Many developers have delayed the release of new projects to wait in advance rate decreases that will lower the cost of financing, hoping to capitalize on fresh demand growth.

How will interest rate cuts affect the construction industry?

The Federal Reserve’s decision to start cutting interest rates will suit the construction sector in several ways. First, developers will find it easier to finance new projects as borrowing costs fall. Both residential and commercial buildings are likely to see a renaissance due to this, especially in the real estate industry, which has suffered significantly from heavy borrowing. RATES.?

Also, lower interest rates in the commercial real estate market will make borrowing less expensive for companies looking to grow or renovate real estate. This would reactivate the market for commercial buildings, shopping centers and industrial sites, reversing some of the declines seen in the last months. However, while interest rate cuts will undoubtedly have a positive impact, the recovery may not be immediate.

By Jennifer Carey

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