Chinese steel output falters on weaker data

Friday, February 21, 2014

Weaker manufacturing PMI readings coming out of both China and the US has put significant pressure on crude steel output in China which has dropped 3.2% in January y/y. Optimistic market participants would argue that late January and early February production will have suffered from the week long Lunar New Year celebrations which temporarily halted production. These same investors also chose to ignore the significant increase in Chinese port stocks of iron ore which surpassed levels seen in mid-2012 earlier this month, putting significant pressure on SHFE rebar contracts which have lost 13% since summer last year.

Despite the holidays, with finished steel inventories rising rapidly m/m and the Chinese flash manufacturing PMI reading deteriorating further, February flash PMI came in at 48.3 from 49.5 the previous month, any rebound in Chinese crude steel output is likely to be limited as momentum slows. With the growth outlook in the US looking tentative as the Fed withdraws QE domestic Chinese prices could fall further as both flat and long steel stocks continue to rise. It seems the shift in equity markets from emerging to developed economies is starting to translate to the steel sector, with early signs of European output bouncing back against the backdrop of emerging market woes as central banks around the world pull the plug on stimulus.

Rising iron ore port stocks have put pressure on rebar prices

SIVCTOTL Index Steelhome China 2014 02 21 09 45 01

Seasonal builds in finished steel stocks could put further pressure on output

RBCITOTL Index Steelhome China 2014 02 21 09 43 27

Topics: China, PMI, Iron Ore, Steel
More from: Kash Kamal