"This is because continued Chinese fiscal support to the construction sector has buoyed domestic industrial metal demand, especially through public-private partnerships in public infrastructure such as airports, water, rail, power and roads and bridges (that will) continue at least until the end of 2017," BMI added.
The domestic demand will narrow the global steel market surplus to 3.2 million tons in 2017 from 10.9 million tons in 2016, BMI forecast. China is both the world's largest steel producer and consumer.
Investment bank Morgan Stanley concurred, saying in a recent report that overall near-term steel demand is "stable and improving."
Analysts noted that "infrastructure spending has been increasing, while reduced property inventories in lower-tier cities should result in a rise in new starts. Globally, many regions are showing signs of improved demand, from the economic recoveries in Brazil and India to (U.S. president-elect Donald) Trump's infrastructure plans for the U.S.," the investment bank added.
The change in scenery is a turnaround from massive overcapacity in recent years, with China coming under fire for dumping steel into the global markets, depressing prices.
Steel prices are already rallying this year on the improved outlook, with prices in China gaining 60 percent. Prices of its raw material iron ore have doubled on the back ofexpectations from Trump's massive infrastructure stimulus plan, and as China continued to tackle over-capacity through production cuts, as well as leaving inefficient factories to idle.