Chemical News
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China property growth beyond provincial capitals key to iron ore: Morgan Stanley
http://www.chemnet.com Apr 28,2016 Platts
The bank sees faster property demand growth in Tier 1 and 2 cites, such as in Beijing, Shanghai and at provincial capitals, but is yet to see similar rates in Chinese cities with large populations but ranking below the major cities, the investment bank said in a report.
Tier 3 cities and below make up 70% of China's property market, with Tier 1 and 2 holding a 30% share, it said.
"If the outlook for Tier 3 and below cities improves, steel demand will pick up even further. In this scenario we would expect upside risk to steel demand/production and thus iron ore prices," Morgan Stanley analysts led by Joel Crane said.
"China's continuing rounds of monetary and fiscal stimulus have helped deliver upside surprise to steel and steel-making raw materials prices."
The bank saw new starts in Tier 2 cities at 44% annual growth, while Tier 3 and below saw new starts at a 6% growth rate, with a contraction in both segments of 15% in 2015. The bank's property team forecasts zero growth in new floor space starts in 2016.
The bank estimates infrastructure making up 25% of China's total steel demand, while residential property accounts for 24% and commercial property 18%.
"So far in this mini-cycle, infrastructure investment has been the major driver of steel demand growth. Property-related construction demand has thus far been limited to the Tier 1 and 2 cities, which represent only a small proportion of the total construction market," it said.
Morgan Stanley also said it had noted during a recent trip Tier 3 property markets showing 20-30-month inventory available.
"There are early signs of improvement [for Tier 3 property] amid the Q1 data, but we'll need to see further signals to become more encouraged," it said.
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