CRU: Evergrande Default Risk Will Have Limited Impact on Steel Demand

By CRU Analysts Zhenzhen Jiang and Kevin Bai, from CRU’s Steelmaking Raw Materials Monitor

Evergrande, the second-largest property developer in China, has grown to be the most indebted, accumulating more than RMB1.97 tn in liabilities since China rolled out the “three red lines” policies. Market investors are concerned that Evergrande will collapse and default on part of its debts, leading to greater concern over the negative impact the situation may have on construction activity and steel demand in the Chinese domestic market. In this Insight, we take a closer look at potential risks associated with Evergrande’s housing projects and assess their impact on construction steel demand. This follows analysis by CRU’s Economics team, which discussed the development of the crisis, the risks that may emerge if default occurs and some possible outcomes. In terms of the impact on overall steel demand, we find there is limited impact, though the overall policy environment means that construction demand will weaken in the coming years. The decline in construction steel demand due to these policies has been included in our base case for some time now.