##{"id":59470,"date":"2012-02-08T11:05:47","date_gmt":"2012-02-08T00:05:47","guid":{"rendered":"http:\/\/www.fnarena.com\/index.php\/2012\/02\/08\/its-a-better-environment-for-steel\/"},"modified":"2012-02-08T11:05:47","modified_gmt":"2012-02-08T00:05:47","slug":"its-a-better-environment-for-steel","status":"publish","type":"post","link":"https:\/\/staging.fnarena.com\/index.php\/2012\/02\/08\/its-a-better-environment-for-steel\/","title":{"rendered":"It’s A Better Environment For Steel"},"content":{"rendered":"

\n\t– Chinese steel demand should remain solid
\n\t– Need for basic housing to drive demand
\n\t– US steel market recording some price gains
\n\t– Steel consumption in US likely to increase in coming months<\/strong><\/p>\n

\n\tBy Chris Shaw<\/p>\n

\n\tWhile there are growing concerns of a possible bursting of the Chinese property bubble, steel industry consultant MEPS<\/span> suggests these fears are overdone and steel demand from China should remain solid.<\/p>\n

\n\tThe positive view of MEPS<\/span> allows for a property crisis in China, which appears to be unfolding given reports the cost of homes have now fallen for five months in a row. This is forcing developers in larger cities such as Shanghai to cut prices.<\/p>\n

\n\tAs MEPS<\/span> notes, such price cuts are a concern because downward trending prices will reverse the trend of speculation on property prices that has underpinned growth in the industry over the past decade. This speculative demand has been enough for construction of prime developments to outpace real demand.<\/p>\n

\n\tIf speculators start to look elsewhere it may slow the pace of construction, which MEPS<\/span> notes would impact on the steel sector. One positive is developers will then be encouraged to sell off their stock and halt new construction activity, which would let real demand catch up with supply.<\/p>\n

\n\tSuch boom\/bust cycles have played out before in markets such as Japan but as MEPS<\/span> points out, the difference this time is China is a developing economy and large numbers of the population still require basic housing. <\/p>\n

\n\tGovernment estimates are 36 million economic housing units need to be built between 2011 and 2015, with MEPS<\/span> viewing this as the bare minimum needed to prevent a social crisis. Sustaining growth in the construction sector will therefore require real estate developers to engage with this demand, even if this involves accepting substantially lower returns.<\/p>\n

\n\tAssuming this shift in strategy is made, MEPS<\/span> expects it will not only sustain output growth in the steel industry but substantially increase the consumption of steel. This is because affordable housing units are generally more steel intensive than top-end housing.<\/p>\n

\n\tAs well, these affordable units will be furnished, meaning increased steel demand from the white good sector. This leads MEPS<\/span> to forecast Chinese steel demand will be enough to support 8% growth in domestic apparent consumption in 2012.<\/p>\n

\n\tLooking at the US steel market, MEPS<\/span> notes the US hot rolled coil benchmark selling figure rose by almost 4% in January. The gains were on the back of a pick-up in market activity, which suggests transaction values may go even higher.<\/p>\n

\n\tCost driven price hikes are expected to be implemented in the near-term, while MEPS<\/span> expects improving economic data will support the increases. Elsewhere, the group notes reversing mill plate prices have strengthened since the year-end holiday period, while mill proposals for higher transaction values for cold rolled coil have also succeeded.<\/p>\n

\n\tAuto sales forecasts for 2012 remain encouraging and coated steel demand from this sector remains solid. This allowed January price hikes to be accepted, with MEPS<\/span> noting further gains are likely in February.<\/p>\n

\n\tOverall, MEPS<\/span> expects an upturn in US steel consumption across the first two quarters of this year. Higher raw material expenditure should add to the upward movement in selling figures during this period.<\/p>\n

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