The China X-factor that puts steel’s surprise comeback at risk

SHANGHAI (Feb 14): Steelmakers aren’t out of the woods yet. A year-long resurgence risks cooling as a slowdown in China’s property market deepens, exposing bullish sentiment as overblown, according to a U.S.-based hedge fund manager and former Citigroup Inc. analyst.

“China’s real estate sector is the biggest X-factor for the steel market globally this year,” Ivan Szpakowski, chief investment officer at Academia Capital LLC, said in a phone interview from North Carolina last week. “We’ve clearly turned the corner into a downward phase of the property cycle, and I do think there is a real risk for steel that we go back toward where we were a year ago.”

Steel and iron ore surged in 2016 after a poor start as China’s “old economy” roared back with the help of government stimulus and a credit boom. At the heart of the rebound was a pick-up in construction that helped steel demand expand about 2% last year, versus expectations of a 5 to 6% decline, according to Szpakowski. Construction accounts for the biggest part of steel demand in the top consumer, according to Bloomberg Intelligence.

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