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China’s 5% growth target for 2024 fails to satisfy ferrous market expectation

The Chinese government has set a 5% target for growth of the country’s gross domestic product (GDP) in 2024, compared with the increase of 5.2% in 2023, according to a Government Work Report released by Premier Minister Qiang Li on Tuesday March 5 in Beijing.

The work report revealed the main economic targets for 2024. These included an expansion of domestic demand, the issuing of 3.9 trillion yuan ($541 billion) in local government special bonds, plus 1 trillion yuan in extra-long term special treasury bonds, and promoting the construction of affordable housing, while removing restrictions on access to foreign investment in the manufacturing industry. The steel sector appeared to be disappointed by the lack of major stimulus measures relevant to the industry in the government report, with ferrous futures prices falling across the board on Tuesday.

On the Shanghai Futures Exchange on Tuesday, the most-traded contracts for steel rebar and hot-rolled coil went down to end the trading session at 3,723 yuan ($516) per tonne and 3,857 yuan per tonne respectively. In both cases, these were the lowest closing prices for more than four months. Chinese steel prices were unlikely to stage a strong rally without major positive signals, a trader in Tianjin said.

The trader believed that there was limited downside room in Chinese steel prices, with a seasonal demand recovery expected when weather conditions across the country improve in spring.

Real estate woes eclipse news of stimulus measures

China will promote the construction and supply of affordable housing and the renovation in older residential areas, such as by installing elevators, according to the work report. But the possible positive effects of the property industry measures on the Chinese ferrous market was blunted by news of further troubles in China’s ailing real estate market, according to a Shandong-based trader.

Country Garden Holdings, one of China’s largest property developers, reported an 85% year-on-year drop in sales on March 5. The developer saw a 32% decline in transaction volumes compared with the previous period, stoking fears of credit defaults among other Chinese developers.

“Tangible efforts must be made to revitalize growth in China’s property sector,” a trader in Shanghai said. “Falling real estate prices have been the strongest deterrent to improving consumer confidence in this market, so government support will be crucial.”

Raw materials markets disappointed by stimulus measures

The newest wave of stimulus measures would not be enough to reverse a week-long downtrend in steelmaking raw material prices, Fastmarkets was told. A Hebei-based mill analyst said that the announced economic targets and stimulus measures in the Two Sessions meeting were quite neutral, and within expectations. The Two Sessions are the annual meetings of China’s National People’s Congress (NCP) and the Chinese People’s Political Consultative Conference (CPPCC). These are separate events but are held at the same time, and run March 4-10 this year.

“There might be no further stimulus measures in the coming two months [in China], and [the markets for] steelmaking raw materials, such as iron ore, might be more driven by fundamental structure changes rather than economy-related sentiment,” the Hebei analyst added.

A trader source based in Singapore told Fastmarkets that weak fundamentals in the downstream steel market, due to poor construction demand, were expected to weigh on iron ore prices in the coming weeks. Fastmarkets’ price assessment for iron ore 62% Fe fines, cfr Qingdao, averaged $117.02 per tonne in the trading week February 26-March 1. This was down by $10.40 per tonne (8%) from the weekly average at the start of February.

“There weren’t any strong stimulus policies announced for the ferrous market, and the downturn of the real estate and heavy industries sectors in China is expected to [continue],” a Shandong-based steelmaker said.

A Xiamen-based trader said that sentiment in the iron ore market was less bullish after the country expressed confidence in its economic development, albeit without strong new measures in the property market.

“The improvement in iron ore derivatives [on Tuesday] might be short-lived, because the iron ore spot market is quite subdued, with a less active response to the measures [announced at the conference],” a second Shanghai-based trader said. And an international trader in Shanxi province said that there seemed to be no stimulus to demand for steel products, and that this would have a negative effect on the coking coal market. “It seems that the Chinese coking coal market will remain soft because of the expected low demand from steel mills,” the source said. But market participants did not expect large-scale cuts in crude steel production in China either.

Despite the economic growth target remaining at 5% in 2024, it would be more difficult to achieve the target this year because the base for comparison has become higher. Market sources expected that there would still be some support for steel demand, and that the government would remain committed to supporting economic growth and stabilizing employment in China.

Ferro-alloys markets relatively stable

Chinese prices for ferro-silicon and vanadium were unaffected by the stimulus measures announced in the Two Sessions.

“Ferro-silicon prices were still showing weak momentum, and dipped further [on Tuesday] amid lower steel mill tenders. Maybe [the government’s incentives] will take some time to be reflected in upstream raw materials such as ferro-silicon,” a China-based ferro-silicon source said.

China’s vanadium prices have turned around in the past two days, following a long-term decline, but this was not a result of the stimulus packages from the Two Sessions, according to a China-based vanadium source. “It is mainly because vanadium prices have been down for quite some time, and many vanadium buyers and traders have started to make purchases at this relatively low point,” he said.

In the ferro-chrome market, however, the impressive output and sales of new energy vehicles (NEVs) in China gave confidence to market participants, despite the Two Sessions having little overall effect on the commodity market, according to sector sources. According to the Government Work Report, China’s output and sales of NEVs in 2023 accounted for more than 60% of the world market, and the country’s government will continue to support NEV purchases.

“The NEV industry supports demand for stainless steel,” one Chinese ferro-chrome smelter source said. “In other words, it is promising for [the consumption of] ferro-chrome.”

Ferro-chrome is essential in the production of stainless steel, which is mostly used in the automotive, household appliance and high-end equipment industries.

Source: Fastmarkets