China has been speeding up infrastructure project approvals this year in a bid to support an economy still impacted by the coronavirus pandemic, with work on most projects starting in the second half of 2020, helping to boost steel demand.
Over January-June, China approved 13 airport projects with a total investment of Yuan 103.96 billion ($14.71 billion), equivalent to 57% of total approvals in 2019, according to S&P Global Platts analysis.
Meanwhile, 19 railway and urban rail transport projects were approved over the same period, with 12 more expected to be approved soon. The length of these projects combined is 4,638 km, equivalent to 77% of the total length approved last year, Platts analysis showed.
Construction of the projects, which will mainly last from 2020 to 2025, will require 23.8 million mt of steel in total, Platts estimates.
China has also been boosting its fiscal support to help speed up infrastructure construction.
It is set to issue Yuan 3.75 trillion of local government special bonds in 2020, up from Yuan 2.15 trillion in 2019. Over January-June, about 60% of the annual quota had been issued.
The special bonds must be invested in infrastructure rather than in property related projects. Some 64% of special bonds issued in 2019 found their way into the property sector, and thus failed to boost infrastructure growth. The Chinese government is being stricter this year, according to industry sources.
Infrastructure construction has already generated strong steel demand since April, due to improved fiscal support, and because developers and builders have been rushing to make up for lost time over February-March when the country was in lockdown.
The construction rush is expected to be completed by June, but continuous fiscal support and sufficient newly approved projects will ensure sustainable strong steel demand in the infrastructure sector in H2 2020.
Some steel market sources expect China's infrastructure investment to increase by around 10% year on year in 2020, from minus 6.3% over January-May. Steel demand from infrastructure construction, therefore, is likely to grow even stronger in H2 than in Q2 2020.