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China is about to make a big move on its housing market

Getty/China Photos

Weakness in China’s housing market, particularly smaller second and third tier cities, remains entrenched.

According to data recently released by the China’s National Bureau of Statistics, unsold home inventories across the nation hit a record 686.3 million square meters as at the end of October, up 17.8% on the levels of a year earlier.

In an attempt to reverse the recent trend in inventory levels, China’s government looks set to introduce measures to reduce the amount of unsold housing stock.

According to the China’s state-run People’s Daily newspaper, citing an unnamed source, selling off unsold property will likely be discussed at the upcoming Central Economic Working Conference, which sets economic targets for the coming year.

According to the report, besides existing stimulus measures like cutting interest rates and easing deposit requirements, measures such as transforming commercial housing into affordable housing are are expected to arrive in the new year.

The source stated that the measures are not expected to boost China’s real estate market nor set quantitative destocking targets for specific regions, suggesting that limiting new supply, rather than offering additional stimulus to encourage new construction, may be undertaken in attempt to reduce the growing glut of unsold property.

“The most important thing is to reactivate the property sector to help with its liquidity,” the source said.

The slowdown in China’s construction sector – the largest source of industrial metal demand globally – has reaped havoc on commodity prices so far in 2015. The price for iron ore, a key steelmaking ingredient, has near halved, narrowly shading substantial falls in other industrial and base metals.

Should activity across China’s construction sector remain subdued, it’s likely that steel prices, along with the raw ingredients required to produce it, will remain under pressure.

On Monday the China Metallurgical Industry Planning Institute warned that Chinese steel production would likely outstrip demand again in 2016, forecasting that production will fall to 781 million tonnes, outpaced by a drop in demand to 648 million tonnes.

At a time when production of key steel making ingredients is ramping up, it’s clear why the industrial metals complex remains under extreme pressure at present.

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