The China steel PMI is a very volatile animal but it is worth looking at and today shows very nicely what is happening in the Chinese steel market. The headline numbers were an ongoing fall in activity at 46 points (50 marking the line between expansion and contraction), output at its weakest in six months at 42.2, new orders rebounding but still contracting at 47.4, new export orders powering at 54.9, inventories of finished goods rising at 53.1 and inventories of raw materials falling at 43.1. When we look at the six month chart, we find that all of these are basically unchanged in trend terms:
Basically, the local Chinese market for steel is shrinking very consistently. The export market is booming. Steel inventories are growing and raw materials are being structurally destocked as oversupply lifts yesteryear’s shortage fears.
That’s a market that’s in oversupply, that is struggling to reduce output enough to stabilise inventories, is dumping product offshore and passing all of its problems back up its supply chain.
