China's Purchasing Managers' Index (PMI) for steel sector slid to 49.2 in July from 49.3 a month earlier, data from the CFLP Steel Logistics Professional Committee (CSLPC) showed on Jul 31, indicating a further slowdown in the pickup momentum in the sector.
The gauge remained under the 50-piont mark separating expansion to contraction. Sub-indexes showed a slowdown in production while demand remained under pressure.
In July, torrential rain and flood in the south weighed down infrastructure construction, which dampened steel demand to a certain extent. However, due to the continuous recovery of the domestic economy, the downward trend in the steel demand has eased. Compared with June, the sub-index of new orders picked up 1.3 percentage point to 47.7.
In addition, driven by restart of the economy in Europe and the US during the epidemic, steel exports have also improved. The new export order figure was 42.8, an increase of 11.6 percentage points from the previous month, ending the trend of running below 40 for four consecutive months.
In July, due to weakened demand and transport affected by the flood, steelmakers had to produce at a slower pace. The production index was recorded at 54.5, a drop of 3.0 percentage points from the previous month, ending the rising momentum for four consecutive months.
According to statistics from China Iron and Steel Association, the average daily steel production of key steel companies in July fell by 1.09% month on month, despite a rise of 11.07% year on year.
Declining production growth and limited logistics have reduced the raw material purchases of steel mills, and the consumption of raw material inventories was also accelerated when the use exceeded the purchase. The purchase of raw materials was 47.3, a decrease of 1.3 percentage points from the previous month, and the raw material inventory was 43.2, down from 44.2 in June.
In July, steel prices were largely range bound over the first half of the month and posted a mild rise in the second when the rain and flood came to an end in the south.
Data showed the spot price of Shanghai rebar was 3,556 yuan/t on July 1, then peaked at 3,673 yuan/t on July 22 and slid to 3,621 yuan/t on July 28.
The steel prices were lower than the same period last year, but since the epidemic was contained and steel demand rebounded, the performance of steel mills can still be guaranteed.
According to statistics from the China Iron and Steel Association, the profits of member companies in June were higher than the same period last year.
In August, as the rainy season ended and floods receded, the steel PMI is expected to rise into the expansion zone, with demand and production pick up along with the strong economic recovery.
(Writing by Alex Guo Editing by Tammy Yang)
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