Following this announcement, confidence in the A-share market has risen, with substantial increases in the infrastructure sector, particularly in water conservancy and hydropower construction. Other sectors related to infrastructure construction, such as engineering, steel, and engineering machinery, have also performed well. It is expected that this surge in infrastructure investment will further contribute to GDP growth in Q4.
Assuming that all of the funds from the additional 1 trillion yuan government bond are used for infrastructure construction, the majority is expected to be allocated to environmental and public facility management, as well as the production and supply of electricity, heat, gas, and water. However, the impact on actual steel demand in Q4 2023 is expected to be minimal, as the effects of the bond issuance will not be felt until 2024.
According to downstream models from SMM, it is estimated that the steel consumption for the infrastructure industry in 2023 will be approximately 196 million mt, up 7% YoY. This growth is primarily attributed to 1) the low base resulting from the pandemic in 2022; 2) various government policies aimed at stimulating infrastructure development; 3) the orderly advancement of urban renovation projects.
SMM also expects the steel consumption for the infrastructure industry to reach approximately 210 million mt in 2024, with the issuance of special treasury bonds leading to an additional demand for more than 10 million mt of steel, up 8% YoY. Of this, the transportation industry is expected to consume about 112 million mt, down 3% YoY, while the environmental and public facility management is predicted consume about 33 million mt, up 12% YoY. The production and supply of electricity, heat, gas, and water are anticipated to consume around 57 million mt of steel, up 10% YoY.
The issuance of additional 1 trillion yuan government bond is expected to have a significant impact on the demand for steel. It is predicted that 2024 will become a new year of infrastructure development. SMM’s ferrous metals consultation team will continue to monitor the latest hotspots in downstream steel demand, as well as cutting-edge technologies for various products, to provide timely industry updates and tailored solutions to meet the needs of different customers.
