Iron and Steel

China`s Steel Sector to Benefit amid Rebound in Country`s Infrastructure Spending to Boost Economic Growth

China`s Steel Sector to Benefit amid Rebound in Country`s Infrastructure Spending to Boost Economic Growth
Mining News Pro - According to latest reports, China has given the go-ahead to a series of urban infrastructure projects after a 12-month pause in a return to the investment-driven policies for spurring economic growth.
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According to Mining News Pro -After the country’s government shifted its focus to transform China from an investment-driven economy to a consumption-driven one last year, the infrastructure spending witnessed a sharp drop in the country so does its steel consumption in the infra sector.

The government had been counting on stronger consumer spending to support growth as the government’s financial deleveraging plan and the trade war with the U.S. have begun to take their toll on the domestic economy. However, with consumers restraining their spending because of rapidly rising personal debt, high housing costs and worries about future income growth, the government is back to its old habit of infrastructure spending to boost economic growth.

Last month, the Chinese government approved a number of infrastructure projects, some of which had previously been mothballed because they were deemed an inefficient use of spending or risked driving up already high levels of local government debt.

China’s infrastructure investment plan to focus on the expansion of subway networks

On 10 Aug’18, the NDRC (National Development Reform Commission) gave green light to RMB 78.7 billion (USD 11.4 billion) urban rail project for Changchun which is the provincial capital and largest city of Jilin province. The project includes eight new rail lines with a total length of 135.4 kms. This was the first approval of a major infrastructure project in more than a year.

Four days later, the NDRC cleared the path for a RMB 95 billion plan for Suzhou in south-eastern Jiangsu province to extend its subway network, according to a statement by the service’s operator. Shenzhen which is a major city in Guangdong province is expected to increase from 33 metro lines by 2035, expanding the current mileage by 4.7 times.

Other Chinese cities are following suit as two weeks ago, Chengdu, the capital of Sichuan province, finalised a plan for building nine new metro lines that it will soon submit to the NDRC for approval. Wuhan Metro Group, based in the capital of Hubei province, has also said it has submitted an application for a new rail project.

The approval of the infrastructure spending will surely boost expectations of more steel demand and lead to a price rally in steel. In addition to high-strength steel track, the expansions will also need multiple stations, extensive underground building work using reinforced steel and rail cars made from alloy steel sheet rather than aluminum used in long-distance trains.

Change in dynamics

A nationwide campaign to reduce off-balance-sheet credit growth and rein in rising debt has reduced the ability and willingness of local governments to push for massive construction projects.

In the first seven months of this year from Jan-Jul’18, China’s infrastructure investment growth rate tumbled to 5.7% compared with 20.9% during the same time frame of last year, according to the National Bureau of Statistics.

But because now the government priorities have changed once again, a resurgence of infrastructure investment is expected in the second half of the year.

However, the renewed subway spending spree still has its limits where as per the new guidelines only cities with local economies of at least 300 billion yuan and fiscal revenues of at least 30 billion – three times the previous limit – would be approved. But even with these new guidelines, about two-thirds of the 43 cities with nationally approved metro design plans will qualify for new spending including Changchun, Suzhou, Chengdu, and Wuhan.

 


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