China Jun steel PMI eases to 49.3, H1 average down 5.5

After three months of recoveries, China’s Purchasing Managers’ Index (PMI) for the steel industry reversed down in June by 1.6 basis points on month to 49.3, as steel production rapidly grew while demand softened, and the PMI for H1 averaged 45.3, down 5.5 basis points on year mainly because of the COVOD-19 outbreak, according to the release by CFLP Steel Logistics Professional Committee (CSLPC) on June 30.

June Steel PMI reverses down on weakening demand

The on-month decline in June after three-month consecutive revivals earlier on was mainly due to the factor that “downstream demand for steel softened with frequent rainfalls in South China starting mid June, and some regions have also been flooded,” CSLPC explained in the release.

China’s steel PMI since January 2016
Source: CSLPC

In June, the sub-index for new steel sales orders both for domestic market and exports ended its three-month increase too, down 6.5 basis points on month to 46.4, and the widespread and ongoing pandemic outside China saw the index for exports subside after three months of recovery, down 0.7 basis point on month to 31.9, according to CSLPC.

As for domestic steel sales, “the construction works in East and South China have been affected by adverse weather, but the smooth construction operations in North China with Xiong’an New Area in particular has lent some support,” the official index compiler highlighted.

In contrast to the weakening in demand especially since mid-June inside China, the sustaining steel margins prompted Chinese steel mills to step up their output, and the sub-index for production, thus, rose for the fourth month by another 1.1 basis points on month to 57.5 for June, according to the committee.

The daily crude steel production among the 97 member steelmakers of the China Iron and Steel Association (CISA) grew 2.89% on month or 3.05% on year to 2.13 million tonnes/day over June 1-20, and mills’ finished steel stocks, as a result, reversed up 797,400 tonnes or 5.8% from June 10 to 14.6 million tonnes by June 20, CSLPC quoted CISA’s data.

Finished steel stocks at the traders in 20 Chinese cities, however, declined further by 4.6% from June 10 to 12.1 million tonnes as of June 20, according to the CISA data.

China’s steel market affected badly by the pandemic in H1

China’s average steel PMI over the first half of 2020 declined on year, as the demand fell sharply in the first quarter when most of economic activities including steel-consuming industries had suspended operations, and the sub-index for new steel orders averaged 42.4 for H1, or down 10.8 basis points on year, despite that demand showed signs of recovery over April-June when many industrial sectors including construction had gradually restarted and resumed normal operations.

The sub-index for exports orders during the first six months lost 10.6 basis points on year to 35.1 on average, and China’s steel exports over January-May declined 14% on year to 25 million tonnes, CSLPC quoted data from China’s General Administration of Customs.

The sub-index for steel production, however, had not been affected as much, and it decreased by merely 3.4 basis points on year to 47.4 for H1, as Chinese steel mills had been accelerating the pace in production on the sight of strong recovery in demand and profits after the limited affection in the first quarter Q1, CSLPC shared.

China’s steel output to hover high in H2, room for price rise limited

To stimulate the domestic economy, the Chinese government has released a series of efforts including investing in new projects including traditional and new infrastructure projects, upgrading in the traditional industrial sectors, and welcoming new investments, all of which may lead to more steel demand and support high production, CSLPC projected.

Despite the disruption of the intense rainfalls on the construction works in some parts of China for the time being, “steel demand will not just disappear, all the targets for the 13th five-year plan will need to be met by the end of this year, and the construction works will speed up after the wet season, so will the demand for steel,” CSLPC said.

The committee, thus, predicts China’s steel production may rise further on the sight of China’s steel demand returning to the track of the recovery in the second half, which may result in oversupply and the build-up in stocks and in the end limited room for steel price increases.

Written by Anna Wu, wub@mysteel.com
Edited by Hongmei Li, li.hongmei@mysteel.com