Chinese steel producers move away from property sector, rising decarbonisation Capex

Manufacturing, infra sectors to boost growth in steel consumption

Chinese steel producers are moving away from their reliance on the struggling property sector, focusing instead on optimising their product mix to increase the production of higher value-added products, Fitch Ratings predicts.

On the other hand, the increasing investment in decarbonisation may strain the financial health of steel producers in the medium turn if operational cash flow is not sufficient.

The manufacturing and infrastructure sectors in China, accounting for 40% of steel demand, are expected to drive growth in steel consumption.

This shift away from the property sector is likely to lead to more production of higher value-added products with higher selling prices and wider profit margins. Overall output volume may decrease as production of property-related products shrinks.

The steel industry in China is a significant contributor to carbon emissions, and producers are working towards meeting the government's carbon reduction targets by 2030 and 2060. This will require increased investment in decarbonisation, which could impact the financial stability of steel producers in the short to medium term.

Meanwhile, Indian steel producers may face pricing and profitability challenges from rising imports, particularly from China, in the near future. However, as industry dynamics in China become more balanced, margins in India should stabilise over the medium term.

Leading companies in the Indian steel sector, such as JSW Steel Limited and Tata Steel Limited, are planning to double their domestic capacity by 2030. Despite some potential delays, the strong growth outlook in India and the companies' intentions to maintain or expand market share suggest limited risks in their expansion plans.