- Chinese steel demand should remain solid
- Need for basic housing to drive demand
- US steel market recording some price gains
- Steel consumption in US likely to increase in coming months

By Chris Shaw

While there are growing concerns of a possible bursting of the Chinese property bubble, steel industry consultant MEPS suggests these fears are overdone and steel demand from China should remain solid.

The positive view of MEPS allows for a property crisis in China, which appears to be unfolding given reports the cost of homes have now fallen for five months in a row. This is forcing developers in larger cities such as Shanghai to cut prices.

As MEPS notes, such price cuts are a concern because downward trending prices will reverse the trend of speculation on property prices that has underpinned growth in the industry over the past decade. This speculative demand has been enough for construction of prime developments to outpace real demand.

If speculators start to look elsewhere it may slow the pace of construction, which MEPS notes would impact on the steel sector. One positive is developers will then be encouraged to sell off their stock and halt new construction activity, which would let real demand catch up with supply.

Such boom/bust cycles have played out before in markets such as Japan but as MEPS points out, the difference this time is China is a developing economy and large numbers of the population still require basic housing.