China's steel market feels pressure from weak flash PMI

Sentiment weakened in China’s steel market after activity in the country’s manufacturing sector dropped to its lowest level in seven months, according to preliminary data released by HSBC on Thursday February 20.

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The bank’s flash purchasing managers’ index (PMI) for February stood at 48.3 points, compared with a final reading of 49.5 points in January. A reading below 50 points indicates a contraction in manufacturing activity.

“February’s flash reading of the HSBC China Manufacturing PMI moderated further as new orders and production contracted, reflecting the renewed destocking activities. The building-up of disinflationary pressures implies that the underlying momentum for manufacturing growth could be weakening,” Qu Hongbin, chief economist of HSBC China commented.

“We believe Beijing policy makers should and can fine-tune policy to keep growth at a steady pace in the coming year,” he said.

The continuous slowdown in the manufacturing sector could further erode steel market confidence, amid the persistently high output and subdued demand, market participants predicted.

“Sentiment is already weak, as end-user demand has shown no signs of revival after the week-long Chinese New Year holidays. I’m afraid the negative economic data could put more pressure on the fragile spot market,” a Shanghai-based trading source told Steel First.

A recovery in steel prices before the end of the month is unlikely in the absence of any momentum, a Beijing-based analyst said.

“All the key indicators, including daily crude steel output, finished steel inventory, as well as the PMI are negative so far, and dealers are facing tighter liquidity at month-end, so there is still downside risk for prices,” he warned.

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