The Construction MMI (Monthly Metals Index) experienced a significant drop, breaking further out of its sideways trend with a 3.61% decline. This reduction can primarily be attributed to falling steel rebar and h-beam steel prices, driven by weak domestic demand in China. The property sector in China is not anticipated to strengthen in the near term, which means steel prices may continue to witness bearish pressure.
The global steel market has experienced a downturn over the past month as h-beam and steel rebar prices have dropped due to weakened domestic demand in China. This decline is a direct result of China’s ongoing construction slowdown and tightening restrictions on financing for real estate developers. The reduced demand for h-beam steel and steel rebar has resulted in an oversupply situation that has spilled into global markets.
China’s real estate sector, which accounts for a significant portion of steel consumption, has seen a decline in new projects due to government-imposed restrictions on developer financing. This has significantly reduced demand for h-beam steel and steel rebar, essential components for heavy-duty construction.
For Chinese steel rebar, prices dropped by approximately 7% from August through early September. Meanwhile, the ongoing weak domestic demand is causing an oversupply situation that has spilled into global markets.
The h-beam steel market experienced a similar downturn, with Chinese prices dropping about 7-8% from August to September. This reflects the broader slowdown in infrastructure and construction within China’s property sector.
China’s weakened steel demand continues to impact global demand as well. This is mainly because China is responsible for more than half of the world’s steel production. As Chinese suppliers flood international markets with excess steel products, other major economies are seeing downward price pressure on both h-beam and rebar steel.
This means that countries that rely heavily on steel imports are now witnessing price decreases in construction materials, which could benefit industries like real estate and infrastructure. However, this trend also risks creating imbalances in global trade. With the Chinese government showing no signs of loosening financing restrictions for developers, the construction sector is unlikely to see a rapid recovery.
The outlook for steel rebar and h-beam steel remains similar. Without a clear resurgence in infrastructure projects within China, the oversupply of steel in the global market will likely persist, keeping prices low through the end of the year and further threatening domestic producers of steel in other countries, who cannot compete with such low prices.
The U.S. construction industry currently finds itself in a precarious yet hopeful situation. For over a year, high interest rates set by the Federal Reserve have cast a shadow over the sector, dampening new residential and commercial projects and pushing developers to the sidelines. However, the anticipation of rate cuts—projected to begin in the latter half of 2024—recently sparked a wave of preparation across the industry.
For the past 18 months, high borrowing costs have slowed the pace of U.S. construction. As high mortgage rates deterred buyers, developers, facing skyrocketing financing costs, significantly scaled back on projects. In fact, construction spending fell for the first time in over a year in mid-2024, signaling a growing weariness across the industry.
The business sector endured the most hardship, as expenditures on retail stores, medical facilities, and offices declined. Meanwhile, the rising cost of mortgages discouraged both developers and potential homeowners, negatively impacting residential building.
The construction industry is already adjusting its strategy in light of signals from Federal Reserve officials that interest rate reductions may start by late 2024. Builders are preparing to profit from a drop in borrowing rates, which could spur demand for residential and commercial real estate once again.
Still, project planning acceleration is one of the tactics. Many developers delayed starting new projects to wait for anticipated rate decreases that will lower the cost of financing, hoping to capitalize on the surge of fresh demand.
The Federal Reserve’s decision to start cutting interest rates will behoove the construction sector in several ways. First, developers will find it easier to finance new projects as borrowing costs drop. Both residential and commercial building sectors are expected to benefit from this. In addition, lower interest rates in the commercial real estate market will make borrowing less expensive for companies wishing to grow or restore real estate. This would revive the market for commercial buildings, shopping centers, and industrial sites, reversing some of the declines seen in recent months. However, while interest rate cuts will undoubtedly have a positive impact, the recovery may not be immediate.
