b'CHINAS ECONOMYAND STEEL SECTORFACE HEADWINDSPiles of debt, shrinking real estate and construction sectors spell trouble for production and demand.by Peter Buxbaum, AJOTJuly 2023 | Published in AJOT Issue #754Last year, the Chinese governments abrupt end to its zero-COVIDPost-COVID Rise, Fall and Rise?policywaswelcomedasaharbingerofareturntoeconomicThe post-COVID spike in Chinas economic numbers is reflected growth. And, in fact, the reopening of the Chinese economy didin its levels of steel production. In March, China produced 95.7 stimulate a growth spurt. metric tons of crude steel, up 6.9% from March 2022, according to But that didnt last long. Chinas growth has since stalled, and thethe World Steel Association (Worldsteel), representing the end of thinking among some economists is that Chinas zero-COVID policyChinas post-COVID growth surge. In April, Chinas steel production has done long-term damage to the countrys growth prospects.was down 1.5% year over year and in May, it was down 7.3%. Those prospects are reflected in Chinas steel industry productionWorldsteels most recent short-range outlook shows that global and demand numbersand in the prospects for their recovery. steel demand will rebound by 2.3% and will grow 1.7% in 2024, but The post-Covid recovery appears to have run its course and anChina is not part of the picture. In 2024, demand growth is driven economic double dip is nearly confirmed, wrote analysts at Nomuraby regions outside China, said Mximo Vedoya, CEO of Ternium, in a recent report. That Japanese investment bank forecasts 4.2%and chair of the Worldsteel economics committee. After declining growth for China in 2024 and sees significant downside risks toby 3.5% in 2022, Chinas total steel demand is expected to grow by that projection. 2.0% in 2023 and to stay flat in 2024, he added.Of course, one policy cannot take all the blame. Chinas econ- Chinas real estate and housing sectorswhich represent 25% of omy is subject to global trends that have inflicted economic woesthe countrys GDPcontinue to experience negative momentum, elsewhere,includingsupply-chaincongestionandinflation. Theaccounting for the sluggish steel demand. In 2022, the floor space country also has its unique set of domestic challenges, including aof new projects dropped by 39.4% and investments in real estate falling population, mountains of debt, an ailing housing sector, anddeclined by 10%, the first such decline in 25 years. These acute consumers who are reluctant to spend.declines will put pressure on construction activities in 2023 and Agovernmenteconomicstimuluspackageencouragingcon- 2024, said Vedoya.sumer spending has been anticipated for some time but has yetInfrastructure investments picked up last year thanks to govern-to materialize meaningfully. Instead, the government continues toment support, but this was largely focused on less steel-intensive rely on stimulus in the form of investmentswhich may not do theareassuchaswatersupplysystems,telecommunications,and trick. Ultimately, its the very nature of Chinas economic and politi- logistics, said Vedoya, and the same prospects are likely for this cal systems that may prevent a significant recovery going forward. year and next. 42'