In June 2024, China's steel industry encountered significant challenges as evidenced by the decline in the Purchasing Managers' Index for the sector. The with Hebei Province experiencing a sharper decline to 42.5%. The China Steel Logistic Committee, part of China Federation of Logistics & Purchasing, reported that the national steel sector PMI fell to 47.8%, marking a decrease of 1.9 percentage points compared to the previous month. This drop below the critical 50% threshold indicates a contraction in the industry, raising concerns about the overall health of China's steel sector.
The situation in Hebei Province, a major steel-producing region in China, painted an even more somber picture. The steel sector PMI for Hebei plummeted to 42.5% in June, representing a substantial decline of 5.4 percentage points from May. This sharp downturn in Hebei, which accounts for a significant portion of China's steel production, underscores the severity of the challenges facing the industry.
Delving deeper into the components of the national PMI, the production index stood at 48.7%, showing a decrease of 1.6 percentage points from the previous month. This decline suggests that steel mills across China have been scaling back their operations, possibly in response to weakening demand or overcapacity concerns. The new orders index also fell, dropping by 1.9 percentage points to reach 46.5%. This decrease in new orders indicates a slowdown in demand for steel products, which could have far-reaching implications for the industry and related sectors.
Raw material inventory levels also showed signs of strain, with the index falling by 2.7 percentage points to 44.4%. This decline could be attributed to various factors, including supply chain disruptions, changes in purchasing strategies by steel mills, or adjustments in response to fluctuating demand. The finished product inventory index, however, saw a slight increase of 0.6 percentage points, reaching 53.3%. This rise in finished product inventory, coupled with declining new orders, suggests that steel producers may be facing challenges in selling their output.
The employment index for the steel sector remained relatively stable at 46.8%, showing only a marginal decrease of 0.1 percentage points. While this stability in employment might provide some reassurance, the fact that it remains below the 50% mark indicates that the sector is not expanding its workforce and may even be experiencing some job losses. This could be a result of companies optimizing their operations in response to the challenging market conditions.
In Hebei Province, the decline was more pronounced across various sub-indices. The production index for the region fell by 7.5 percentage points to 41.7%, while the new orders index dropped by 5.8 percentage points to 40.0%. These sharp declines in Hebei, which is home to major steel producers like Hebei Iron and Steel Group, highlight the particular challenges faced by this key steel-producing region. The raw material inventory index in Hebei also saw a significant decrease, falling by 10.8 percentage points to 37.5%, indicating potential supply chain issues or strategic inventory reductions by local steel mills.
The overall decline in China's steel sector PMI and the more severe downturn in Hebei Province reflect broader economic challenges facing the country. Factors such as a slowdown in the construction sector, ongoing trade tensions, and global economic uncertainties may be contributing to the weakened performance of the steel industry. As China continues to navigate these challenges, the performance of its steel sector will likely remain a key indicator of the country's economic health and industrial output.
