Stimulus impact on Chinese steel demand likely to be modest: UBS

Investing/com -- As per analysts at UBS analysts, the impact of China's recent stimulus measures on steel demand is expected to be modest, despite the potential for initial market excitement. 

While these announcements have driven a sharp increase in iron ore prices, rising by nearly 20% in late September, the long-term effect on steel demand is likely to be less than some may have hoped. 

The measures, which include interest rate cuts, a reduction in mortgage payments, and increased funding for social housing, primarily target consumer support rather than a substantial boost in property and infrastructure investment.

UBS analysts flag that China’s property sector continues to struggle with excessive inventories and declining prices, while infrastructure projects are hindered by local government debt and a shortage of economically viable new initiatives.

Consequently, while these stimulus efforts may help to stabilize the economy, they are unlikely to trigger a major surge in steel demand akin to the large-scale economic interventions seen in 2009 or 2015.

Iron ore supply has remained strong, with shipments from key suppliers like Australia and Brazil increasing in 2024. However, steel production in China has been relatively weak this year, and steel inventories at Chinese ports have risen. 

While there has been a seasonal uptick in production towards the end of September, the broader demand outlook remains uncertain. 

UBS anticipates that the iron ore market will enter a moderate surplus in 2025, with prices stabilizing around $100 per ton​.

Source: Investing.com