New easing measures directed at the construction sector in China were also announced this week, with reduction of the down payment for first-time buyers from 25 percent to 20 percent (in cities without purchase restrictions such as Beijing and Shanghai). This follows a cut in the down payment last year by 5 percentage points, in an attempt to support housing.
"Part of the problem with big overcapacity in the steel, cement and aluminium industry relates to the construction stagnation. Hence, turning construction is also key for dealing with industry overcapacity and bad loans in these sectors," said analysts at Danske Bank.
China, with the top share of production in the world, has seen output fall significantly by 5.2 percent year on year in December. Output is down by more than 80 million tonnes (annualized), since last June and mills that are seeing expanding deficit and cash flow shortages have suspended production according to analysts, helping the overall industry with supply and demand imbalances longer term.
"Since the financial crisis, global steel stocks have remained within a range band of +/-10 percent, but they fell below the lower end of the range and to a new low last week. At the current stage, we forecast profit growth for 2016, but note a downside risk in view of the economic climate. However , in our view the major companies' price to book valuation has approached the trough," UBS analyst Atsushi Yamaguchi said in a note published this week.
"By region, we are bullish on Europe, where there are moves to reduce excess supply and where protectionist moves can be seen. We are also bullish on the U.S., where prices are finding support in protectionist moves. We like India due to long term growth outlook. On the other hand, we are bearish on China and Latin America due to the weak fundamentals," he added.