China's heavy rains and floods -- which brought the local construction activities to a standstill since June -- are likely to wind down from July 20, according to the country's National Meteorological Center, boosting hopes of a quick recovery in steel demand.
Nearly 23 Chinese provinces and Chongqing municipality have been hit hard by heavy rains and floods in the last few weeks. The regions along Yangtze river were severely impacted, with accumulative rainfall over June-July hitting a record high since 1961.
However, due to improved water conservancy facilities, the number of collapsed houses and direct economic losses caused by floods over the period decreased 78% and 6% from the average level over the past five years.
According to steel market sources, steel demand from infrastructure and property sectors will likely pick up quickly from hereon.
"The scale of post-floods reconstruction will be limited, and will not generate much demand for steel," one steel market source said. "But the steel market is expecting strong steel demand from construction sites to return as long as the rainy season is over, given China's liquidity boost to infrastructure an property," he added.
In light of the current market expectation, steel traders are more than willing to hold on to soaring steel inventories during the low season, providing firm support to Chinese steel prices, an analysis by S&P Global Platts showed.
The rebar inventories in eastern China's Hangzhou city rose 22% from early June to July 20, according to market sources. Yet, the rebar ex-works price in eastern China's Jiangsu province fluctuated just mildly between Yuan 3,530/mt ($505/mt) and Yuan 3,605/mt over the period, according to Platts assessments.
Another source said he expects the floods would make the government to push water conservancy projects harder from the second half of 2020 and onwards, benefiting steel demand in the long run.
According to China's National Development and Reform Commission, China has set to push forward 150 major water conservancy projects over 2020-2022, driving direct and indirect investment by a total of Yuan 6.6 trillion, accounting for 12% of China's total fixed asset investment completed in 2019.
-- Analyst Jing Zhang
