Basic Instinct -- Cuts in Chinese social housing :: Macquarie Research,

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Basic Instinct
Cuts in Chinese social housing
Event
 Reuters is reporting unnamed government sources saying social housing
targets for 2012 could be cut by 20% to 8m units.
 This may have a negative impact on sentiment but we do not believe it will
have a meaningful impact on construction activity or demand for
commodities. We have highlighted a number of times this year that the
strength in construction has not come from social housing but rather a range
of other construction areas.
 We estimate that social housing construction makes up around 2–3% of total
steel demand and around 6–7% of total cement demand in China. From these
numbers alone, it can be seen that a cut in spending or construction will have a
minimal impact.
 Despite the real impact, sentiment is likely to be weak in the market especially
when you consider the volatility that we are seeing in offshore markets.
Sectors in HK/China that are likely to be impacted include Cement and
Steel. We continue to think Anhui Conch and CNBM look good on
weakness, but for the short term, we would stay away from the Steel
names, namely, Angang and Maanshan.
Impact
 Why don’t we think this will impact actual Steel and Cement volumes?
Commodity construction has been the key driver of activity this year.
Tighter credit has not impacted developers significantly.
Commercial construction has been much stronger this year.
There is little evidence social housing has actually had an impact.
Even if there was a slowdown in social housing, it would take a while for
this to filter through to the end market and starts.
We already model slower and more conservative growth assumptions
across both steel and cement demand models.
Steel and Cement sector the focus