UBS: Modest Impact of Stimulus on Chinese Steel Demand

According to analysts at UBS, the impact of China’s recent stimulus measures on steel demand is expected to be modest, even though initial market reactions may indicate otherwise.

Following these announcements, prices surged by almost 20% in late September. However, the long-term effects on steel demand may not meet the expectations of some stakeholders. The measures implemented, which include interest rate cuts, reduced mortgage payments, and increased funding for social housing, are primarily designed to support consumers rather than significantly enhance property and infrastructure investment.

UBS analysts note that China’s property sector remains challenged by high inventories and falling prices, while infrastructure projects face obstacles due to local government debt and a lack of viable new initiatives. As a result, while these stimulus measures may provide some economic stabilization, they are not likely to spur a dramatic increase in steel demand similar to the large-scale economic interventions seen in 2009 or 2015.

Iron ore supply continues to be robust, with increased shipments from major suppliers such as Australia and Brazil expected in 2024. However, steel production in China has been relatively subdued this year, leading to rising steel inventories at Chinese ports. Despite a seasonal uptick in production at the end of September, the overall demand forecast remains uncertain.

UBS projects that the iron ore market will experience a moderate surplus in 2025, with prices expected to stabilize around $100 per ton.