Slowing property and infrastructure markets in China will likely remain lackluster next year, an industry conference was told. The prospects cast a shadow over the country’s steel production which underpins its iron ore imports, a key source of demand for global dry bulker shipping. Tang Jinwei, an economist at Bank of Communications, estimated the annual growth rate of investment in property development in China would fall to 1.5% in 2022 from 5.3% in 2021 and 7% the previous year. “Strict control policies, especially those targeting developers’ financing levels, have made them less capable and enthusiastic about acquiring lands,” Mr Tang told a dry bulker seminar organized by China Shipowners’ Association.

Beijing in August last year introduced the so-called “three red lines” requirements to de-leverage the domestic property developers it deemed as highly indebted, as part of regulatory efforts to de-inflate the housing market bubble in the country. The moves, however, have led to a liquidity crunch facing large developers, highlighted by China Evergrande’s debt defaults this year, and a severe slowdown in China’s real estate market. Investment in the sector has substantially waned since the third quarter, with negative growth year-on-year seen over several months, said Mr Tang. He expected the weak trend to continue in the short term, despite policy makers’ gesture of goodwill, including easing rules on presales, subsidies, and mortgages. “This year’s delay in land sales will constrain the available land for development and construction next year when the newly started housing area may shrink.”

Chen Jingfu, an analyst at Shanghai Ganglian, a steel industry intelligence firm, echoed the view, saying the policy correction is useful to curb the contraction but unlikely to give the sector a significant boost. Moreover, a sluggish property market meant that local governments were struggling to invest in infrastructure projects, as selling land makes up most of their income, he added. Beijing has already expedited the issuance of local government bonds to perk up the investment and called on local officials to frontload spending on infrastructure projects during a recent top-level meeting that outlines the country’s economic agenda for 2022. But the steel industry has not yet felt the increase of construction projects. The reason might be there were limited projects that could match the funds to be deployed, said Mr Chen.

He expected both steel demand and supply to continue softening in China next year. Chinese steel output already fell 22% year on year in November to 69.3 MMT, while the 11-month accumulated volume dipped 2.6% to 946.4 MMT, the latest data from the World Steel Association shows. Mr Tang from Bank of Communications forecast the policy support will push the country’s infrastructure investment growth to 5% in 2022 from less than 1% in 2021. But a further expansion would be a tall order as the size of traditional infrastructure projects such as roads and rails was already massive and near saturation in China, he added.

Buildings and infrastructure facilities account for about 56% of the country’s crude steel consumption, according to estimates from Shanghai International Shipping Institute, a state-owned think tank. Its chief analyst Zhang Yongfeng said that the decline of China’s imports of iron ore, the main raw materials for producing steels, accelerated in recent months amid a weaker steel market. The world’s largest importer of the commodity saw the volume for the first 10 months drop 4.2% from the same period in 2020, with October seeing a slump of 14.2%. “When the steel market is weak, Chinese mills also tend to use more iron ores produced domestically rather than overseas, which could further slow the imports,” Mr Zhang said.

Maritime Strategies International recently took a bearish stance on the prospects for the dry bulk market into next year. Market dynamics had shifted to negative over the past few months, driven by weakness in China’s steel industry, the London-based consultancy said in a monthly review. That is the biggest concern for the bulker markets in 2022.