In March this year, the purchasing managers index (PMI) for the Chinese steel sector was at 42.2 percent, up 5.6 percentage points as compared to February, as announced by the China Steel Logistics Committee (CSLC), which is part of the China Federation of Logistics and Purchasing (CFLP). In March, since the epidemic prevention and control measures in China have taken effect, downstream enterprises have gradually resumed production, exerting a positive impact on the demand for steel. At the same time, steel sector PMI still remained below the 50 mark, which means that the industry is still showing a weak trend, but a slower one.
In March, the production index for the Chinese steel sector increased by 8.0 percentage points compared to the previous month to 39.3 percent. Meanwhile, in March the sub-index for new orders in the steel sector saw a rise of 5.8 percentage points month on month to 38.5 percent. However, the new export orders index indicated a drop of 15.2 percentage points month on month to 27.3 percent due to the quick spread of the coronavirus pandemic worldwide.
In the given month, due to the normalization of transportation and demand recovery in downstream industries, the finished steel inventory index decreased to 41.6 percent, down 15.9 percentage points month on month.
At the same time, the purchase price index of raw materials in the Chinese steel sector stood at 40.7 percent, indicating a drop of 1.0 percentage point month on month.
As for April, amid effective control measures for the coronavirus, downstream industries will speed up the resumption of production, which will boost the demand for steel. Meanwhile, traffic constraints have been loosened, which will help steelmakers produce and sell products. However, the current high levels of inventory in the steel market will negatively affect steel prices for a certain period.
In the January-March period this year, the average sub-index for new orders in the steel sector stood at 38.3 percent, down 10.9 percentage points, while the average production index was 39.1 percent, down 8.8 percentage points, year on year, respectively.
As for the second quarter, CSLC has forecast that demand for steel will improve significantly due to the speed-up in real estate and infrastructure construction. Meanwhile, steel production will increase, which will result in sufficient supply in the steel market.
However, unlike the better situation in the local market, the global steel market will worsen amid the severe impact of the coronavirus, which will result in reduced export orders for Chinese steelmakers. Accordingly, finished steel prices will likely fluctuate instead of rising sharply.