Chinese steel companies’ earnings will likely weaken in 2017 after substantial improvement in 2016. The decline will result primarily from a slight weakening of domestic demand amid continued excess capacity and a build-up of steel inventory in early 2017. These factors will depress steel prices, which have reached a four-year high. Elevated raw material prices and reduced exports will also weigh on steel producers’ earnings.
Domestic steel demand will decline. Property investment, the largest driver of Chinese steel demand, will likely slow this year following the government’s tightening of policy in an effort to curb property-price growth. Auto sales, and subsequently production, will also slow owing to a reduced tax break on small-vehicle sales. These pressures will be lessened by government-led infrastructure investment, which will remain robust.
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David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific's leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
