In August 2024, the purchasing managers index for China's steel sector dropped to 40.4%, a decline of 2.1 percentage points from July. This data, released by the China Steel Logistics Committee, which operates under the China Federation of Logistics and Purchasing, highlights the ongoing difficulties faced by the industry. A PMI below 50% indicates a contraction in the sector, suggesting that many companies are experiencing reduced activity levels.
The new order index, which measures demand for steel, also fell to 38.5% in August, down 1.8 percentage points from the previous month. This decline reflects a decrease in new contracts and orders for steel products, indicating that customers may be holding back on purchases due to economic uncertainties or excess inventory. Major steel producers like Baowu Steel and Ansteel are likely feeling the effects of this reduced demand as they adjust their production strategies in response to the shifting market conditions.
Production in the steel sector has been particularly hard hit, with the production index plummeting to 34.9% in August, a significant drop of 3.6 percentage points from July. This marks the third consecutive month of declining production levels, suggesting that manufacturers are scaling back operations in light of lower demand. The decrease in production not only affects the companies' output but also has broader implications for the supply chain, potentially leading to shortages of steel products in the future if demand rebounds.
The index measuring raw material purchase prices also reflected the challenging conditions, standing at 19.6% in August, down 1.2 percentage points from July. This low figure indicates that steel producers are purchasing fewer raw materials as they cut back on production. The index has remained around 20% for two consecutive months, highlighting the ongoing struggle for manufacturers to balance their inventories and production levels.
In contrast, the finished steel inventory index recorded a reading of 50.6% in August, which, while still above the neutral 50% mark, represents a decline of 3.8 percentage points from July. This suggests that while steel producers are managing their inventories, the reduction in new orders is leading to a buildup of finished steel products. Companies may need to implement strategies to clear excess inventory, which could further pressure prices in the short term.
Looking ahead to September, there is cautious optimism that demand for steel may improve, particularly as the traditional peak season approaches. The easing of adverse weather conditions, which have historically impacted construction and manufacturing activities, could lead to an uptick in demand for finished steel products. Analysts anticipate that this seasonal demand may help stabilize or even rebound finished steel prices, providing some relief to producers who have been grappling with declining orders and production.
