China’s steel sector PMI rises in May amid output and prices increases, stabilization foreseen in June

China’s steel sector PMI rises in May amid output and prices increases, stabilization foreseen in June

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In May this year, the purchasing managers index (PMI) for the Chinese steel sector was at 46.1 percent, up 0.7 percentage points as compared to April, as announced by the China Steel Logistics Committee (CSLC), which is part of the China Federation of Logistics and Purchasing (CFLP).

In May, steel production in China increased despite the production restrictions in Tangshan and slowing demand from downstream users.

In May, the production index for the Chinese steel sector rose by 4.4 percentage points compared to the previous month to 51.4 percent. Higher production was supported by the high profits of mills as local steel prices rose very sharply in the first half of the month.

Nevertheless, in total in May the sub-index for new orders in the steel sector saw a drop of 5.0 percentage points month on month to 39.4 percent. Moreover, the new export orders index indicated a decline of 7.8 percentage points month on month to 43.9 percent due to the relatively high prices in the local market and the implementation of the new export tax rebate policy.

In the given month, the finished steel inventory index increased to 43.4 percent, up 9.0 percentage points month on month, signaling steelmakers had completed the previous trend of rapidly consuming inventories.

At the same time, the purchase price index of raw materials in the Chinese steel sector declined by 6.3 percentage points month on month to 63.1 percent amid increasing raw material prices.

As for June, there will be limited space for steel prices to edge down and they will likely fluctuate within a limited range. As the rainy season in eastern and southern China is approaching, demand for steel, especially for rebar and wire rod, in construction sites will slow down. At the same time, the supply shortage of chips will negatively affect auto output, which will result in slacker demand for steel. Moreover, liquidity is expected to be tight, and this is unlikely to provide support for rises in commodity prices. 

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