Manufacturing activity in China increased in June, but the leading indices provided further evidence that the recovery of the steel market in the country will be largely driven by domestic growth.
The Manufacturing Purchasing Managers’ Index published by Chinese media company Caixin rose to 51.2 in June from 50.7 in May on the back of increased production and sales. It was the second consecutive monthly growth and the strongest since December last year, as shown by the PMI released on June 1.
The Caixin report showed new domestic orders rose for the first time since January as factory activity recovered following the COVID-19 outbreak and subsequent restrictions. But new export orders continued to decline “amid reports of weak external demand.”
The manufacturing PMI, released by the National Bureau of Statistics (NBS) on May 30, showed that new export orders rose 7.3 percentage points from May to 42.6 in June. But a reading below 50 meant that part of the sector continued to contract.
Overall, new orders of 51.4 in June rose from 49.9 in May, while the overall 50.9 was better than 50.6 in May, according to NBS.
Hot rolled steel prices in China averaged 3,677 yuan per tonne ($ 520 per tonne) in June, up from 3479 yuan per tonne ($ 492 per tonne) in May, according to S&P Global Platts.
HRC’s internal margin averaged $ 38 /t in June, up slightly from $ 36 in May, but was eased by high iron ore prices.
Caixin said in its PMI that prices for materials such as steel rose for the first time in four months in June due to tighter market conditions. But manufacturers found it difficult to bear the higher costs of the factory gate.
This could put some downward pressure on direct steel prices as production demand is expected to be modest this year, well behind infrastructure and real estate development.
Steel exports from China in January-May fell 14% year-on-year to 25 million tons, while steel imports to China rose 12% to 5.464 million tons over the same period.
The Chinese steel market has been much stronger than other global markets since emerging from the pandemic in late March. Exports were less attractive due to subdued demand in Asian markets, lower prices and a lot of competing materials.