Strong points

April manufacturing output falls below 2021 and 2022 levels

Demand for manufacturing steel was dismal in May

China’s manufacturing activity, particularly in the country’s economic hub of Shanghai and neighboring regions, has shown signs of recovery since mid-May. However, the pace of recovery has remained slow so far and demand for steel from the sector is expected to remain sluggish until manufacturing output can return to normal in June.

China’s manufacturing steel consumption index produced by S&P Global Commodity Insights came in at 102 points in April, dipping 28 points from the same period in 2021 and 16 points from 2020. .

The slump in manufacturing output was in line with market expectations as the virus outbreak disrupted China’s manufacturing activity and hit supply chains across the country in April.

The production index is based on data from the Chinese National Bureau of Statistics for 18 steel-related manufactures, classified into seven sectors and weighted according to their share in steel consumption. The monthly production average in 2018 is used as a reference of 100.

In April, all seven sectors, including machinery, vehicles, household appliances, shipbuilding, containers, railway facilities and power generation facilities, recorded declines both year-on-year another and from month to month.

As the pandemic had a much smaller impact on steel production in April than on demand, oversupply in steel markets caused Chinese hot-rolled coil margins to fall to minus $45/ mt at the end of April, against around 86 $/mt at the beginning of April. , data from S&P Global showed.

In particular, vehicle production was hit hard by the outbreak in April, dropping 44% year-on-year as shutdowns in Shanghai and northeast Jilin city not only disrupted production local but also the supply chains of the whole country.

Each of these two cities produces about 11% of the country’s total vehicle production, according to the China Passenger Car Association.

China’s home appliance sector, another major consumer-related manufacturing industry, saw output fall 21% year-on-year in April.

Along with the disruption caused by the pandemic, factors such as slowing real estate sales, sluggish household incomes as well as lower foreign demand have also played a role in slowing consumption and production of appliances. appliances.

Output of excavators, an indicator of construction-related machinery, fell 59% year-on-year in April as problems from already sluggish construction activity were compounded by movement restrictions in response to epidemics.

Slow recovery in May

The recovery in China’s manufacturing activity and related steel demand remained slow through May 19 as places where cases were contained were still cautious about lifting restrictions, market sources said.

Nearly 65 percent of Shanghai-based small and medium-sized enterprises resumed operations on April 19, but 80 percent of those operating businesses saw a dismal utilization rate below 50 percent, according to state-owned newspaper People’s Daily.

A few market sources said excess supply in China’s steel market is unlikely to ease in May and even June, which would keep steel prices and operating margins under pressure, unless steelmakers cut output from April’s level.

China’s crude steel output in April was 5% lower than the year at 92.78 million tonnes, but was still high to balance with falling steel demand.

“Manufacturing sector operations may more or less return to normal in June, but citizens’ confidence in income and consumption, i.e. demand for manufactured goods, has been hit by the resurgence of the COVID-19, which will take longer to recover,” a source said.

As of May 19, HRC’s Chinese domestic sales margin was still minus $44/ton.