The Chinese steel industry experienced a challenging month in December 2024, with the Purchasing Managers Index falling to 47.5%. This marked a 3.1 percentage point decrease from November, signaling a slowdown in production and orders. The data, released by the China Steel Logistics Committee, part of the China Federation of Logistics and Purchasing, paints a picture of a sector grappling with weakening demand and diminishing production momentum.
The PMI, a key indicator of economic activity, reflects the health of the manufacturing sector, including output, new orders, and inventory levels. A PMI below 50% indicates contraction, and the decline in December points to difficult conditions within the Chinese steel market.
Several sub-indices tracked by the CSLC also showed contraction in December, highlighting the breadth of challenges facing steelmakers:
• New Order Index: The new order index for December stood at 48.7%, 1.8 percentage points lower than the previous month. This indicates that demand for steel, particularly from construction and manufacturing sectors, weakened during the month.
• Production Index: The production index recorded 48.3%, a sharp drop of 5.3 percentage points from November. This suggests that steel production slowed as manufacturers faced reduced orders and higher costs, exacerbating the overall slowdown.
• Raw Material Purchase Prices: The index for raw material purchase prices fell significantly to 29.5%, a decrease of 8.6 percentage points. This sharp decline suggests that steel producers are seeing lower prices for the raw materials needed for steel production, signaling a reduction in production activities.
• Finished Steel Inventory Index: The finished steel inventory index stood at 44.3%, a substantial decrease of 13.6 percentage points. This suggests that steel inventory levels were lower, likely due to reduced production and slower sales.
Looking ahead to January 2025, the outlook for China’s steel sector remains bleak due to seasonal factors. The approach of the Chinese New Year, typically celebrated in late January or early February, is expected to cause a significant dip in steel demand. During this period, construction and manufacturing activities tend to slow down as many businesses halt production or scale back operations to accommodate the holiday. This decrease in demand is likely to put further pressure on steel prices and exacerbate the challenges faced by steelmakers.
Additionally, environmental protection measures in place for the winter season are expected to have a negative impact on steel production. These measures, which are designed to reduce pollution, have historically resulted in production cuts for steelmakers during the colder months, further reducing output and capacity.
