China’s steel industry purchasing manager’s index for June hit its lowest level in over a decade, with the government’s pledge to go all-in on infrastructure spending to rescue the economy yet to register with producers. The steel PMI tumbled to 36.2, deep in contraction, with new orders plummeting to 25.9, according to official figures released on Thursday. Both were the lowest index readings in data going back to 2011. In contrast, the construction gauge showed a pickup in activity, rising to 56.6. A mark of 50 divides whether activity is expanding or shrinking.
The disconnect between increased work being done on building sites, and lackluster production of the most important construction material, is probably explained by the enormous inventories of steel that built up during the worst of China’s virus restrictions earlier this year. The stockpiles are even higher than during the early stages of the pandemic, and are having to be drawn down.
Moreover, property development is usually even more crucial to the steel industry than government spending on public works,and China’s real-estate sector remains in a funk. Cash flow problems at developers continue to limit land purchases and construction starts on projects already acquired, Bloomberg Intelligence analysts Kristy Hung and Lisa Zhou said in a report.
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