China’s manufacturing steel demand rebounded in August and is expected to improve further in September and October on higher seasonal manufacturing activity, but market sources told S&P Global Commodity Insights that overall volume requirements are likely to remain modest amid a weak property sector and low household consumption. Evidence of this was also seen in August, when volumes were the third lowest so far in the year despite seeing a month-on-month growth.
China’s manufacturing production index of steel consumption produced by S&P Global Commodity Insights stood at 107 points in August, 7 points higher both on the month and on the year.
However, the index was still lower than 110 points in May and 118 in June, when China started recovering from widespread lockdowns and industrial stoppages caused by a resurgence in COVID-19.
The index is based on production data from China’s National Bureau of Statistics for 18 steel-related manufactured goods, categorized into seven sectors and weighted according to their share of steel consumption. The monthly production average in 2018 is used as the baseline of 100.
Manufacturing of machineries, vehicles, shipbuilding and railway facilities saw a year-on-year increase in August, while home appliances, power generation facilities and containers still saw a year-on-year decline.
Vehicle production and shipbuilding rose 39% and 35.7% on the year in August, respectively, contributing the most to the upward movement in the entire manufacturing sector.
Meanwhile, production of engineering machineries also rebounded in August as the infrastructure sector gained momentum from a fiscal stimulus.
Excavator production in August increased 10% on the year, returning to year-on-year growth for the first time since April 2021.
However, the growth rate in vehicle output is likely to slow down in the coming months as the boost in purchase tax cuts for car sales has started to diminish.
China’s passenger car retail sales over Sept. 1-18 declined 7% from the same period of August, but were still 10% higher on the year, latest data from the China Passenger Car Association showed.
Some steel market participants expected any further improvement in sales of engineering machineries should be modest, as the infrastructure sector would not gain much further traction in the coming months.
China is unlikely to introduce further fiscal stimulus until after the 20th Communist Party Congress is held in October, while the weather will become too cold in the north during November to carry out construction activities.
“Property construction is still a long way from seeing recovery, which is the key problem behind China’s depressed steel demand. Stagnant household incomes and consumption will also limit improvements in manufacturing production and steel demand amid slowed economic growth and frequent COVID-19 resurgence,” a market participant said.
Most of the sources S&P Global talked to were looking forward to more stimulus getting issued for the property and infrastructure sector after the 20th Communist Party Congress concludes.
Post time: Sep-26-2022