China's demand for construction steel is anticipated to remain subdued until the end of 2023 due to challenges in the property sector and constrained growth in the infrastructure industry. These factors have arisen as a result of local government debt issues, as reported by industry sources on August 24.

A crucial gauge of forthcoming construction activity, domestic excavator sales, is expected to reach around 5,300 units in August, reflecting a 3.7% increase from July. However, these figures indicate a significant 41.7% decline compared to the previous year. For the January to August period, domestic excavator sales are projected to plummet by 43.9% year-on-year, amounting to 61,443 units.

The weaker performance in excavator sales signals the likelihood of continued fragility in the construction sector and its associated steel demand in the foreseeable future, as highlighted by industry insiders.

The property home sales in China, which serve as a major funding source for new projects, are anticipated to persist in a downward trend throughout August. This prediction aligns with data from the National Bureau of Statistics that revealed a 46% month-on-month and 24% year-on-year decline in home sales for July. Further data from the China Index Academy indicates that home sales in 50 major cities dropped by 16.2% on a monthly basis and 29.3% on a yearly basis over the first two weeks of August.

The growth in new home construction starts, a pivotal driver of steel demand in China, could continue to weaken due to the poor performance in home sales. Meanwhile, prospects for an upsurge in infrastructure steel demand appear limited, primarily due to ongoing concerns regarding local government debt. China has devised plans to enable 12 local governments burdened by debt to raise approximately CNY 1.5 trillion ($206 billion) through special refinancing bond sales.

A financial market source based in Shanghai remarked that China's fiscal policy for 2023 is predominantly centered on tackling local government debt risks and mitigating the effects of slower economic growth, rather than stimulating expansion. Consequently, any increase in infrastructure investment, which is primarily funded by local governments, is expected to be modest.

Data from the National Bureau of Statistics indicates that the growth rate of infrastructure investment in China decelerated to 4.6% year-on-year in July, down from 9% during the January-February period and 9.4% in 2022.

While construction steel demand has remained lackluster overall, the new energy and transportation-related infrastructure sectors have exhibited relatively favorable demand for steel this year. However, a source from a mill located in eastern China expressed skepticism that the construction steel demand will significantly improve for the remainder of 2023.