China's new home sales, the major channel to fund property projects, may start recovering in mid- to late 2023 due to a lower base this year and a plethora of stimulus packages that the government had injected into the sector since the second half of 2022, according to some steel market participants.

However, all the market sources S&P Global spoke to expected the new home starts, the most important steel demand driver in China, to continue falling through 2023, undermining the post-COVID-19 recovery in the Chinese steel market. However, they believed the decline in property steel demand would be smaller from 2022.

China's new home starts fell by 38.9% on the year over January-November, while new home sales value fell by 26.6% on the year over the same period, according to National Bureau of Statistics.

Adding to the headwinds in the property sector, China's manufacturing sector is also likely to continue to be hit by a slowdown in property construction and domestic consumption, as well as languishing overseas demand.

"Shrinking overseas demand should be the biggest adverse impact on manufacturing and its steel demand in 2023, while I believed domestic consumption and construction-related manufactured goods are unlikely to have much improvement in 2023 either," a mill source said.

Fortunately, China's infrastructure construction would continue to improve in 2023 and is likely to maintain at or even slightly above November's rates, some sources said. The year-on-year growth in China's infrastructure investments reached 10.6% in November.

China's steel market may remain under big pressure in the first half of 2023 given poor steel demand and comparatively high steel production. However, most market sources believed steel demand in the second half of 2023 to improve from a year ago and the first half of 2023, although it might not be able to rebound to late 2021 level.

"Besides the hit from property's debt crunch and shrinking overseas demand, the core problem with the recovery in steel demand is that both enterprises and consumers lack confidence about the future, and it takes time, a quarter or maybe half year, and more stimulus policies to restore confidence after the current wave of COVID-19 spreading is over," a mill source said.