March 15, 2023 (MLN): The steel markets in China are starting to thaw after a deep freeze as a sign of economic recovery, according to a report published by S&P Global Ratings.
The report, titled "China Commodities Watch: Steelmakers To Turn The Corner In 2023," predicts that a moderate expansion in real estate and sturdy infrastructure investment will underpin a recovery in steel demand this year.
The report suggests that the stabilization in the property market, which historically comprises 40% of steel consumption in China, will likely be "L-shaped," meaning there will be flattish sales growth after stabilizing, rather than a vigorous rebound. However, the higher demand will combine with settling raw material prices to bolster steel spreads, in S&P Global Ratings' view.
Last year, the steel industry faced tough conditions as demand was low, yet prices for raw materials stayed buoyant. However, the report predicts that rated entities, mostly industry leaders, will maintain relatively stable financial leverage over the next two years. Operating cash flows are expected to improve, and debt levels will be stable, with spending mostly funded by internal resources.
The report assumes no major mergers and acquisitions, which would likely be debt-funded. However, if major mergers and acquisitions were to occur, the report's predictions could change.
Overall, the report predicts a modest revival in the steel markets in China this year, driven by a combination of moderate expansion in real estate and sturdy infrastructure investment, which will underpin a recovery in steel demand.
