China’s Steel Industry PMI Dips for Third Consecutive Month Amid Market Weakness
China's Purchasing Managers' Index for the steel industry has shown signs of continued slowdown, declining for the third consecutive month in January 2025. The latest report from the CFLP Steel Logistics Professional Committee, released on January 27, reveals that the PMI fell to 43.3%, marking a significant 4.2 percentage point drop from December 2024. This drop places the PMI firmly in the contraction zone, signaling that the steel sector is facing sustained challenges.
Key Indicators Reflect Weak Demand and Production
January’s decline in the PMI reflects a broader weakening in China’s steel market, particularly with a notable decrease in both demand and production. According to CSLPC, raw material prices also faced downward pressure in the month, contributing to the overall sluggish performance of the domestic steel industry.
The sub-index for new steel orders, which indicates future demand, fell sharply in January to 41.7, down from 48.7 in December. This marked decline is attributed to the seasonal lull in demand typically seen during the winter months, exacerbated by the Chinese New Year holiday period, which took place from January 28 to February 4. During this period, steel demand from end-users, such as fabricators and construction companies, saw a marked drop, further deepening the contraction in the market.
Declining Steel Production and Maintenance Stoppages
The steel production outlook has also been adversely affected by weak demand for finished steel products. The sub-index for steel production dropped by 5.8 percentage points, landing at 42.5% in January. In response to the low demand, many domestic steelmakers implemented maintenance stoppages during the month, further impacting production.
In addition, stricter environmental protection regulations in northern China during the winter season created further hurdles for steel production. These regulations, aimed at reducing pollution during the colder months, forced steel mills to cut back on output, limiting their ability to meet market demand.
Falling Raw Material Prices Impact Steelmakers
One of the more significant aspects of the January report is the sharp decline in procurement prices for steelmaking raw materials. The sub-index for these prices dropped to 22, down from 29.5 in December. This drop reflects lower prices for critical raw materials, including iron ore, coke, and ferrous scrap. Metallurgical coke, in particular, saw a significant price decrease following seven consecutive price cuts imposed on coke makers by steel mills during December.
The falling prices for raw materials are partially driven by the supply-demand imbalance in the market, where excess inventory and slower consumption have created downward pressure on prices. This price reduction has put steelmakers in a challenging position, as they are not seeing the anticipated market recovery while still facing high input costs and logistical disruptions.
Looking Ahead: Recovery May Be Slow After the Holiday
The CSLPC committee has warned that the steel market in China is likely to require considerable time to recover after the Chinese New Year holiday. Both the demand and supply sides are expected to face continued challenges during the first half of February 2025, as the holiday mood lingers, and businesses resume normal operations at a slower pace.
The committee also highlighted that the market is grappling with several long-term issues, including high energy costs and the ongoing competition from international producers, particularly from China's excess industrial capacity. These issues, combined with the seasonal factors at play, indicate that the market may continue to experience weak conditions for the foreseeable future.
As China’s steel industry navigates these difficulties, attention will likely turn to any government interventions or new trade policies that could help stimulate demand and stabilize the market in the coming months. For now, however, the sector remains in a period of stagnation, with no immediate signs of a major recovery on the horizon.
