Chinese steel demand
China is the dominant player in the international steel markets. It’s the largest steel producer (NUE) (CLF), consumer, and exporter. Given China’s bulk share in the global steel demand, the country’s steel consumption tends to impact steel markets elsewhere. The Chinese steel demand has been better-than-expected in 2017. ArcelorMittal (MT), the world’s largest steelmaker, raised China’s 2017 steel demand growth forecast by 200 basis points during its 2Q17 earnings call.
A rebound in the construction markets has been the key driver of China’s metal demand this year. Since construction activity was strong in the first half of 2017, it gave a boost to metal demand. However, just as the markets got accustomed to better-than-expected Chinese economic indicators, some of the recent data points haven’t been all that encouraging.
Recent data points
China’s July trade data were worse than what the markets were expecting. The country’s July industrial activity, fixed asset investment, and retail sales also missed consensus estimates. China’s fixed asset investment rose 8.3% year-over-year in the first seven months of the year compared to a rise of 8.6% in the first half of the year. However, auto sales continued to be a silver lining. China’s car sales continued to rise in July despite the purchase tax hike that came into effect at the beginning of the year.
During its 2Q17 earnings call, ArcelorMittal’s CEO (chief executive officer) Lakshmi Mittal said that China is outperforming. He also admitted that “the downside risk exists.” We should remember that China’s steel demand could cool off in the coming months as the government takes steps to prevent overheating in the property market.