China’s steel production
The slowdown in Chinese (FXI)(MCHI) steel demand has been the major concern for global steel markets. The China Iron & Steel Association expects Chinese steel demand to fall 6% year-over-year (or YoY) in 2015. However, there hasn’t been a commensurate cut in Chinese steel production in the first seven months of this year.
Chinese steel production falls the most since 2010
The chart above shows the recent trend in Chinese steel production based on data released by the World Steel Association. In July, Chinese steel production fell 4.6% YoY. This is the biggest percentage decline in Chinese steel production in about the last five years.
Overproduction in China has created a glut of steel in international markets. We’ll talk about the recent trend in Chinese steel exports in the coming parts of this series.
PMI at multi-year low
On August 21, Markit released China’s flash manufacturing PMI (purchasing managers’ index) for August. According to the survey, China’s manufacturing PMI fell to a 77-month low of 47.1 in August. Please note that this is the preliminary reading for August. The final PMI will be released on September 1. For investors, flash PMI figures are important, as they provide early insights into China’s manufacturing sector.
Prior to this, China’s manufacturing PMI fell to a two-year low in July. The data acted as a blow for market sentiments. What’s worse, the July final PMI figure was even less than the preliminary reading.
For steel companies including Steel Dynamics (STLD), Nucor (NUE), and AK Steel (AKS), slowdown in the Chinese real estate sector is a big concern. We’ll explore the indicators of the Chinese real estate sector in the next part of this series.
Source: Market Realist