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The Endless Wait of Finding a Bottom in the Chinese Steel Industry



Chinese steel industry

Previously, we discussed the US steel demand indicators, which look strong, although steel prices could still be under pressure for the next couple of quarters. The biggest risk which the US steel industry—or for that matter, the global steel industry—currently faces, is the massive slowdown in China’s steel consumption.

The China Iron and Steel Association (or CISA) expects the country’s steel demand to fall 6% this year. CISA’s view is much more pessimistic than the World Steel Association, which expects Chinese steel consumption to decline only about 0.5% this year.

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Chinese steel demand indicators trend downward

CISA’s forecast seems much closer to the ground realities in China’s economy. Most indicators of China’s real estate sector have been trending downward. In our monthly steel indicator series, we discuss the indicators of China’s (FXI) (MCHI) steel demand in detail.

The slowdown in China’s steel market has negatively impacted steel producers like ArcelorMittal (MT), Gerdau (GGB), and Nucor (NUE)

Chinese economy sputters

The previous chart shows China’s manufacturing PMI (purchasing managers’ index). The data are compiled by Markit for HSBC. In the June final reading, China’s PMI has been revised downward to 49.4 from the preliminary reading of 49.6. The HSBC China Manufacturing PMI has been below 50 for four consecutive months. Readings below 50 are generally associated with contraction in manufacturing activity.

However, China’s official PMI was above 50 in June, as it has been for four successive months. The HSBC PMI and the official Chinese PMI have often shown divergence. Also, China cut its benchmark interest rates again—for the fourth time since November—to boost its sputtering economy.

Would these measures help China’s steel industry? We’ll find out in the next part.


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