In April, crude steel production in the 63 countries reporting to the World Steel Association declined to 161.4 million tons, representing a decrease of 2.4% compared to the corresponding period last year. During the first four months of the year, Japan and South Korea combined produced 51.2 million tons, experiencing a slight decrease of 1.7 million tons compared to the same period last year. In contrast, India's steel production maintains firm, with an annual growth of 3%. However, production from the 27 countries of the European Union remained subdued, declining by 11.1% year-on-year in April.
As the peak season for construction in the first half year close to an end, China’s real estate market delivered another frustrated transcript. In April, new home construction further declined to 71 million square meters, making the worst monthly performance since the outbreak of GFC in 2008. From January to April, new home construction dropped by - 21.4% compared to same period last year. These developments align with our previous forecast published in January (Issue 53), which anticipated a revival in China’s real estate construction no early than the second half of 2023, with an estimated 1% decline in steel demand from the real estate sector.
In the upcoming third quarter, the construction sector is unlikely to pick up significantly, given the current muted investment in real estate development. Over the first four months, investment in real estate construction has accumulated a 14% decrease, while investment in land acquisition has only seen a feeble 1.3% increase. Property developers lack the motivation to inject cashflows into new projects due to the growing stockpiles of unsold commercialized buildings since the end of 2021. In April, only 76.9 million square meters of buildings were sold, marking the worst sales performance in the past eight years.
Furthermore, total funds used for property development by enterprises have shrunk by 6.4% year-on-year in the first four months. There has been a 20.3% contraction in self-raising funds, a 10.1% drop in domestic loans, and a significant 68.5% plunge in foreign investment. Curbed by intense cashflow pressures and a lackluster macro economy, China's property developers are forced to bid farewell to the era of easy money.
The compulsory implementation of output control on crude steel hasn’t been put into effect. Initially, we expected it to be carried out in late Q3, however, considering a persistent struggling steel profits, the output cuts may come earlier. To ensure that the total annual steel output does not exceed that of the previous year, the average monthly output for the remaining months of this year should be below 82.3 million tons. It is thus projected that crude steel production in H2- 23 will be 37 million tons lower than in the H1-23.
