Cars Shift Steel Use in China: Chart of the Day

China’s demand growth for automotive steel sheets is trumping that for rebar, which is mainly used in construction, underscoring the nation’s efforts to “rebalance” its economy toward consumer spending.

The CHART OF THE DAY shows hot-rolled coil cost as much as 255 yuan ($41) more than rebar per metric ton last month, the widest spread since contracts for the automotive metal debuted on the Shanghai Futures Exchange in March. The gap almost quadrupled since early April. The lower panel tracks prices of the steel-product contracts, with coil at 3,306 yuan per ton, compared with 3,102 yuan for rebar.

“The steel-price premium may widen again over the next six months as a slowing property market weighs on rebar demand, while purchases of automobiles and white goods will remain robust,” said Xu Xiangchun, chief analyst in Beijing at Mysteel Research. Investors who sell rebar and buy hot-rolled coil will be making “a profitable trade,” he said.

A “rebalancing” of the economy is coinciding with less spare capacity for hot-rolled coil, as more than three-quarters of steel-plant expansions in China since 2011 were geared for rebar amid bets the property and construction boom would continue, Xu said. Rebar output of 206 million tons last year tapped 60 percent of capacity, while the 183 million tons of coil used 80 percent, according to Shanghai Steelhome Information Technology Co. Rebar’s price has fallen 13 percent in 2014, extending a three-year slump.

China’s leaders have been pushing policies to boost household consumption from about 36 percent of gross domestic product even as they try to curb debt-led investment in property. That proportion is the lowest of any major economy, with only a few oil-rich nations having a similar level “over the past fifty years as China has today,” said Mark Williams, chief Asia economist at Capital Economics Ltd.

Passenger-vehicle sales increased by a monthly average of 12 percent in 2014 from a year earlier through May, including a record 1.85 million units in January, data compiled by Bloomberg show. Sales of electrical appliances, forecast by Goldman Sachs Group Inc. to grow at an annualized pace of 9.1 percent through 2017, will also support demand for coil. By contrast, China’s home sales slumped 10.2 percent in the first five months of this year from the same period a year earlier amid tight credit, reversing last year’s 27 percent jump.

— With assistance by Feiwen Rong

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