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By Himanshu Yadav
Assistant Manager - Investment Research at Aranca
The recent number for the Chinese preliminary Purchasing Managers Index (PMI) in July
surprised many on the downside, as it stood at 48.2 versus the Bloomberg consensus
estimates of 49.4. The PMI (previously known as HSBC PMI) from Caixin Media and Markit
Economics indicates a contraction below the value of 50. Growth concerns spurred by the
low PMI number also find support in lower crude steel output.
In its latest release on July 22nd, the World Steel Association (worldsteel) posted a 1.3%
decline in Chinese crude steel output for H1 FY15. Worldsteel represents approximately 170
steel producers (including 9 of the world's 10 largest steel companies), national and regional
steel industry associations, and steel research institutes. China continues to see lower steel
output due to a slump in the housing market, persisting credit crunch and weak
infrastructure investments. This negatively impacts the steel demand in the region that
accounts for 50% of global steel consumption.
It is being argued by the market participants that Chinese steel industry may have peaked in
2014 and now the days of record-high steel consumption are over. This is also the result of
the fact that China has been trying to move from an investment lead to a consumer driven
economy.