Steel demand slumps in China

Shanghai-based steel information service MySteel has reported that China’s purchasing managers’ index (PMI) for the steel sector “reversed down by a large 2.3 basis points month on month in December 2019 to 43.1, well into the zone of contraction.” In PMI figures, any number less than 50 indicates contraction, with 43.1 pointing to considerable contraction.

MySteel says the PMI figure was compiled and distributed by the Steel Logistics Professional Committee (CSLPC) of the China Federation of Logistics & Purchasing (CFLP). The CFLP committee report was published Dec. 31, 2019.

Perhaps disturbingly for stakeholders concerned about Chinese steel overcapacity issues, as of November 2019 steel output in China had not scaled back in any way. According to the November 2019 summary issued by Brussels-based Worldsteel, China’s crude steel production that month was 80.3 million metric tons, up 4 percent compared with November 2018.

In the fist 11 months of 2019, Chinese mills produced 904 million metric tons of steel, up 7 percent from the nearly 845 million metric tons produced in the first 11 months of 2018.

The low December figure could have seasonal aspects tied to slower winter construction schedules and the upcoming Chinese New Year (taking place in late January). However, a report by Argus Media states, “The average steel sector PMI [in China] for 2019 was lower by 3.5 points at 47.2, indicating a sectoral contraction [for the] year.” Argus adds this was “reflected in a 40 percent drop in January-November profits for the sector.”

Despite the 2019 slowdown, the MySteel report says the CFLP expresses optimism for 2020, putting faith in anticipated Chinese government stimulus programs. “Next year, China’s steel market will find firm support from infrastructure projects, as 2020 is the final year of the 13th Five-Year Plan period from 2016 to 2020; all local authorities will accelerate their pace of completing scheduled infrastructure targets,” MySteel writes of the CFLP’s prediction.

That anticipated demand means “for the coming 2020, steel prices are expected to trend up – despite softening demand and slower production growth – and makers’ profits would increase, given higher steel prices and less pressure from raw materials costs,” according to MySteel’s characterization of the CFLP report.