China slowdown to put dampener on demand

China slowdown to put dampener on demand
Published: 01 November 2010

China’s introduction of measures in April 2010 to avoid a potential housing bubble have precipitated a decline in global steel prices as the government attempts to control residential construction activity and unwinds infrastructure spending. Subsequent measures, notably the interest rate hike in October 2010, have further underlined the government’s commitment to this path, thus pointing towards a deceleration in global cement and steel demand in 2011.

Indeed, given that China accounts for close to 50% of global cement and steel consumption, the extent of the slowdown will hinge on the government’s ability to cool residential construction activity in a market that has proved to be relatively resilient to the measures introduced so far.

Further dampeners on growth will come from mature markets and Europe especially, where cuts to capital spending and stagnant housing markets will continue to depress cement prices over the medium-term, with little in the way of sustained upward price-pressure likely.

A resurgent demand for cement and steel within major EM economies in 2010 will likely pick up speed in 2011, particularly in countries such as India, Turkey, Egypt and Saudi Arabia where a booming demand for housing will ensure heavy cement consumption. This, however, will be unlikely to offset China’s falling demand coupled with a muted Europe and hesitant US going into 2011.

Source: Business Monitor International