China's Purchasing Managers' Index (PMI) for the steel industry fell for the second consecutive month in July, dropping by 5.3 points to 42.5, marking the lowest level since June 2023, as reported by the CFLP Steel Logistics Professional Committee. This decline is attributed to the seasonal slowdown during the summer, characterized by high temperatures and frequent rains across many regions, alongside the introduction of new rebar standards which have negatively affected domestic market sentiment. In July, the new order index decreased to 40.3 percent, down 9.1 percentage points from June. Meanwhile, the finished steel inventory index rose for the third consecutive month to 54.4 percent, an increase of 7.0 percentage points from the previous month. The production index for the steel sector fell to 38.5 percent, down 7.4 percentage points from June, indicating steel producers' reluctance to maintain production levels amid rising inventories and weak downstream demand during the traditional offseason. Additionally, the raw material purchase price index plummeted to 20.8 percent, a significant decrease of 17.8 percentage points from June, marking the second consecutive month of sharp decline.
In June, China's steel production remained on an uptrend and was still not showing any signs of slowing down, data from the National Bureau of Statistics showed mid-July, a trend that remains solid despite weak demand in the construction sector. Pig iron production in June was 3.3 percent lower year-on-year at 74.49 million tonnes, while crude steel output was 0.2 percent higher year-on-year at 91.61 million tonnes. Daily pig iron and crude steel outputs increased by 1.1 percent and 1.9 percent month-on-month, respectively, to 2.483 million tonnes and 3.054 million tonnes. These figures represent the highest daily pig iron output since July 2023 and the highest daily crude steel output since April 2023. For the first half of 2024, pig iron and crude steel outputs fell by 3.6 percent and 1.1 percent year-on-year to 435.62 million tonnes and 530.57 million tonnes, respectively.
The combination of robust production and sluggish demand has led to increased inventories. As of July 10, rebar and hot rolled coil inventories at major spot markets monitored by CISA rose to 4.68 million tonnes and 2.37 million tonnes, up 10.9 percent and 15.1 percent from the same period in 2023. Additionally, in the first two months of 2024, Chinese steel exports surged by 32.6 percent year-on-year to 15.9 million tonnes, the highest level for this period since 2016. Analysts believe Chinese steel exports are on track to match or exceed last year’s levels, which saw exports rise to about 90 million tonnes – the highest in seven years – as China struggles to stimulate its economy and initial efforts to reduce production appear insufficient. Reflecting this trend, steel exports increased by 24 percent year-on-year in January-June to 53.4 million tonnes, with the annual total likely approaching the record high of 110 million tonnes set in 2015.
In light of these developments, ArcelorMittal SA said exports from China had left the steel market in an “unsustainable” position, as it reported a drop in quarterly profit. Steelmakers in the US and Europe are under pressure from an influx of cheap imports and weak demand, leading to declining prices. ArcelorMittal, the largest producer among Western nations, has revised its forecast for steel consumption outside China, a key indicator of global economic health. The company now expects apparent consumption outside China to rise between 2.5 percent and 3 percent this year, down from an earlier projection of up to 4 percent. The Luxembourg-based steel manufacturer stated, “China’s excess production relative to demand is resulting in very low domestic steel spreads and aggressive exports. Steel prices in both Europe and the US are below the marginal cost.”
The current state of the Chinese steel industry – characterized by waning domestic demand, robust production, and increasing exports – is placing substantial pressure on global steel markets. Adding to these challenges, iron ore inventories at Chinese ports remain notably elevated, standing 20 percent higher than the same period last year. Given these dynamics, Capesize daily rates have sharply declined, dropping from $32,000 on July 2nd to $19,299 by the end of this week.
Data source: Doric