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China steel market shrugs off new property restrictions

Keywords: Tags  steel, property curbs, steel prices, UOB Kay Hian, Helen Lau

SHANGHAI — China’s latest restrictions on the property market might have rattled property stocks and the steel market earlier this week, but they could have less impact than first feared, market participants told AMM sister publication Steel First.

Markets initially were thrown by the new policies, including a 20-percent capital gains tax intended to snuff out a speculative buy-to-sell boom before it starts.

If the moves really amount to a serious challenge to the property and construction sector’s gradual recovery, it would be bad news for steel.

China’s State Council had already suggested in February that it would attempt to control house prices, which have risen for nine consecutive months starting last June.

Analysts at Hong Kong bank UOB Kay Hian Ltd. downgraded their forecast for steel demand in property to no change this year from previously estimated 3-percent growth. "In a worst-case scenario, assuming property sector demand (will) decline by 10 percent, total steel demand will decline by 4 percent in 2013," analyst Helen Lau said.

But markets this week generally followed most observers in concluding that this wasn’t another major clampdown on a sector that accounts for about a third of China’s steel consumption.

There are various reasons to be underwhelmed by the new property curbs, including that they are aimed squarely at speculative buyers and could end up stabilizing prices for the benefit of real buyers.

"The tax on reselling houses may encourage people to buy new houses, so demand from new construction projects could rise," a Shanghai-based trader said.

"(As the) economic situation continues to improve ... it is likely that steel demand from other sectors, such as machinery, home appliances, oil and the auto industry, will help offset the mild slowdown (1 percent) in steel demand from property," Lau said.

Steel and iron ore tags, which lost ground early this week, had largely recovered by March 7 as investors turned their sights to political meetings under way in Beijing.

The most important longer-term implication of the new property policy is to signal that the government will intervene early to prevent the emergence of a destabilizing property bubble. And that should, in theory, lead to flatter but more stable steel demand from construction.

A version of this article was first published by AMM sister publication Steel First.

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