Recovery in Major Steel Downstream Sectors Not As Strong As Data Shows

Shanghai, Feb. 29 (SMM) - According to a recent Steelease’s survey, the Steel-PMI in major steel downstream industries was 57.71 in February, up 17.21% MoM, a sign of strong recovery. Steelease, however, believes that the recovery is not as strong as the data shows for the following reasons.

First, the Steel-PMI for February is closely related with holiday factors. During the Chinese New Year holiday, operating rates and the number of employees are low, and business climate usually improves during the first month after the holiday compared with the earlier month. The Chinese New Year holiday for 2010 and 2011 both fell in February, and the Steel-PMI in March of the two years was 63.86% and 62.25%, respectively, the highest level of 2010 and 2011. Compared with the two data, a 57.71% reading of steel-PMI during the first month after the holiday is not high. The recovery in steel downstream industries is lower compared with earlier years.
 
Second, the performance in domestic major steel downstream industries was weak due to complicated internal and external conditions. In domestic markets, tight cash flow at some downstream enterprises from the tightening monetary policy negatively affected production and orders. In international markets, the lingering European debt issues and a slow recovery of global economy worsened the conditions for those with heavy reliance on exports. From September 2011 to January 2012, the steel-PMI data in China was below 50% for five months in a row, and slid to 40.49% in January 2012, a new record low. The composite index in some industries, like in the machinery industry, remained below 50% for ninth consecutive month, and in the transportation industry, fell below 50% for eight months in a row. Business activity in domestic steel downstream industries has dropped to a level, which is approaching the bottom.

To sum up, Steelease understands that a 57.71% reading of steel-PMI for February is not solid enough to indicate robust recovery in downstream demand. The Steelease survey shows downstream enterprises remain wary of purchases due to pessimistic outlook. Time is still needed for strong recovery in domestic major steel downstream industries.