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Chinese Manufacturing Activity Continues to Falter in September

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Chinese manufacturing activity

As China accounts for almost half of global aluminum consumption, it’s pertinent for investors in aluminum companies including Alcoa (AA) and Century Aluminum (CENX) to track Chinese manufacturing activity.

For investors, flash PMI (purchasing managers’ index) figures are important, as they provide early insights into China’s manufacturing sector. Markit releases the PMI numbers on a monthly basis. The flash PMI for September was released on September 23, and the final PMI figures will be released on October 1.

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PMI still below 50

The above graph shows China’s (MCHI) manufacturing PMI. In September, China’s flash PMI came in at 47, which is a 78-month low. China’s PMI has been below 50 for seven consecutive months. Figures below 50 are generally associated with a fall in manufacturing activity.

The slowdown in China’s manufacturing sector is a negative for global markets. Companies in the metals and mining space (XME) such as BHP Billiton (BHP) and Vale (VALE) are negatively impacted by the slowdown in China.

Subsectors

A closer look at China’s September PMI data paints a grim picture of that country’s economy. It shows that output, new orders, and employment decreased at a faster pace as compared to the previous month. New export orders also decreased during the month. Exports are a key pillar of the Chinese economy, and any slowdown in export activity would only worsen China’s slowdown.

Any sustainable recovery in aluminum prices would depend on how the Chinese economy plays out in the coming months. In the next part, we’ll look at other key indicators of the Chinese economy.

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