China's recent pledge to make stabilizing economic growth its top priority in 2022 and reserve ratio cuts are leading to signals of further monetary policy easing in 2022, with policies on both steel demand and supply side expected to be eased in a bid to support stable economic growth next year, market participants and industry watchers told S&P Global Platts.
China's top decision-making body the Politburo in a Dec. 6 meeting came out in support of economic growth through more proactive fiscal and monetary policies.
On the same day, China's central bank announced lowering banks' reserve requirement ratio by 0.5 percentage points, and on Dec. 7 cut interest rates on relending to rural and small local banks by 0.25 percentage points.
Focus on end-users
In parallel with the easing of monetary policy, the Politburo stressed the importance of healthy development of the property sector, and better support for reasonable home buying in 2022.
China's property sector is the biggest steel consumer in the country, accounting for more than 30% of its total steel consumption.
Meanwhile, proactive fiscal policies would benefit infrastructure construction, a sector seen struggling this year due to a lack of funding.
Together with construction-related manufacturing, property and infrastructure could drive more than 70% of China's steel consumption, according to market sources.
However, any measure to ease financing to the property sector is only to prevent it from the risk of a debt crisis, and would be not again aimed at providing a boost to the sector as part of plans to stimulate the economy, sources said.
As a result, China's property investment along with its steel demand is still likely to drop in 2022, but the extent remained to be seen, depending on the government interventions, some market watchers and mill sources said.
Also, any steel-intensive infrastructure projects, such as roads, railways and bridges, were expected to gain only a mild upward momentum in 2022 as a large part of the fiscal support next year would go to projects that are less steel-intensive and more related to people's livelihood, such as agriculture, education and logistics, some of the sources said.
Supply-side reforms missing
While the Politburo meeting added that guaranteeing people's livelihood and employment were the bottomline for 2022 policies to protect, no indications of a supply-side reform emerged during the meeting.
To ensure steel prices do not contribute to inflationary pressures and to protect employment, the steel industry may unlikely face any tougher steel output cuts or further restrictions on exports in the near term, some market sources said.
In fact, some mill sources and traders expected production in the first half of 2022 to rebound from the second half of 2021.
"[S]teel output cuts in the second half of 2021 are actually a bit tougher than what Beijing initially required, and the output control policies by local governments in 2022 could be slightly adjusted," one source said.
China's central government required the country's crude steel output in 2021 to be maintained at 2020 levels, but the actual output in 2021 is likely to be 30 million mt lower than in 2020, some sources said.
"Oversupply is likely to continue in the domestic steel market in 2022, especially in the first half as steel production is set to recover, but any policy easing, starting from December, will take some time to reach steel end-users, such as property," one mill source said.
However, steel prices and margins will be supported by falling raw material prices and improved market liquidity, which will encourage traders to restock and enable the market to hold more inventories, sources said.
Source: S&P Platts