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China steel industry PMI falls to near nine month low in Nov

Official data showed that the purchasing manager's index (PMI) of Chinese steel sector fell to a near nine month low in November, pointing to prolonged sluggishness in steel market.

According to data released by China Steel Logistics Professional Committee of CFLP on December 1, the steel industry PMI stayed below the 50% threshold for the seventh consecutive month and dropped to 43.4% last month, down 2.7 percentage points from the previous month.

An analyst said that "Given the reduced demand from downstream buyers, high sales pressure facing steelmakers and weakening cost support from raw materials, there is still room for steel prices to fall."

Chinese steel mills’ production and buying activity has subdued towards the year end with strict environmental protection measures in the country and cash crunch.

The sub index for production declined to 38.6% in November, the lowest level in almost nine months, and below the 50% line for the third straight month. The sub index for purchasing volume also dipped into contraction territory, which was down 5.8 percentage points to 46.2%. The sub index for imports of raw materials retreated 5.4 percentage points from a month ago to 50.2%.

According to the China Iron and Steel Association, daily crude steel production of CISA’s member mills hit a near two year low of 1.635 million tonnes in early November and it recorded the second lowest level since this year in the middle of the month despite a modest gain of 0.44% to 1.6421 million tonnes.

The analyst said that China’s crude steel production is expected to keep falling in November with the market entering the off season and mills normally starting annual maintenance and the overall crude steel production in the Q4 would be lower than the Q3.

The demand from downstream buyers was also weak, as evidenced by the sub indices for new orders and new export orders, which pulled back 7.2 percentage points and 5.4 percentage points from the previous month to 40.2% and 49.5% respectively, in November.

The slack demand has dampened agents’ buying enthusiasm and put steel mills in great pressure for digesting inventories. In November, the sub index for inventory of finished steel products, which remained in expansion territory since this year, rebounded to 53.9%, a gain of 0.8 percentage points from October’s reading.

The supply pressure in the steel market is expected to be eased with a rally in property sector and accelerating infrastructure investment. The better expectations for the economy following the central bank’s announcement of interest rate cuts will also be good news for the steel market.