China’s lower manufacturing PMI in December clouds steel market outlook

China’s economic growth showed some signs of slowing down in December, with both the official and HSBC purchasing managers’ indices recording drops.

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This has somewhat clouded the country’s steel market outlook, although the economic data remained in expansionary territory.

The HSBC manufacturing PMI for China saw a final reading of 50.5 points for December, unchanged from an earlier flash reading, but down slightly from November’s 50.8 points, figures published on Thursday January 2 show.

The moderation of HSBC’s PMI for December was mainly due to slower output growth. However, December marked the fifth month in a row for the bank’s PMI to remain above 50, thanks to a steady increase of new orders, Qu Hongbin, HSBC China’s chief economist said.

“The recovering momentum since August is continuing into 2014, in our view. With inflation still benign, we expect the current monetary and fiscal policy to remain in place to support growth,” Qu said.

China’s official PMI for the manufacturing sector was 51 points in December, compared with 51.4 points in the previous month, according to data released by the National Bureau of Statistics (NBS) on Wednesday January 1.

This was the first time that the official manufacturing PMI saw a month-on-month decline since June 2013, while December was the 15th consecutive month for the figure to stay above 50 points, a level that indicates growth, NBS said.

Meanwhile, the steel PMI for December was 47.7 points, down 1.3 points from November’s and its fourth straight month below 50 points, an indication that the industry remained under pressure, according to data released by the China Federation of Logistics & Purchasing (CFLP) on the same day.

Following the official PMI release on Wednesday, several eastern Chinese mills including Shagang announced that they would reduce their early-January ex-works prices by up to 130 yuan ($21) per tonne for long products.

“The weaker economic data, along with the lower list prices, has dampened market sentiment and disappointed those who wished for a good start to the year,” a Beijing-based analyst told Steel First.

Although cash flow pressure is expected to ease at the beginning of the year, it remains unclear whether the market could trend upwards under the current situation, a Shanghai-based trading source said.

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