Chinese crude steel production dipped again in May to a three month low, defying optimism from a solid rise in iron ore imports in the month.
Data from China’s National Bureau of Statistics showed 90.62 million tonnes of crude steel was turned out last month, down from 92.64 million tonnes in April and more than 96.6 million tonnes in May 2022.
Chinese iron ore imports were up 3.95% in May from the same period from a year earlier at a strong 96.18 million tonnes. That was up from 92.52 million tonnes in May 2022, and much higher than the 90.44 million tonnes imported in April, the customs data showed.
Iron ore imports in the first five months of this year totalled 481 million tonnes, up 7.7% from the previous year, according to the customs data and the much forecast slump in demand has still to appear.
Crude steel output stood at 440 million tonnes over January-May, a year-on-year increase of 1.6%, down sharply from the 5.6% jump in the combined total for January and February.
At the same time iron ore exports to China from Port Hedland topped 40 million tonnes in May – one of the seasonal peak months and unchanged from the same month in 2022 but up more than 14% from April’s 35.52 million tonnes
Despite the weakening steel output, global iron ore prices traded around $US112 a tonne in Singapore on Thursday afternoon.
That’s unchanged from the previous Friday, but up sharply from the $US93.17 reported on the SGX on Friday, May 25.
That’s a rise of 20% and yet the performance of the steel industry in China hasn’t been as strong as the price gains.
But analysts say the main price driver has been expectations of an easing in Chinese monetary policy, which emerged this week.
That will be confirmed with a cut to the one and five year key lending rates of China’s Central Bank next week.
That’s likely to be followed in August with an easing in the reserve asset ratios the central banks requires Chinese banks to maintain.
Reuters reported that production cuts by electric arc furnace operators were a major factor in the weaker crude steel output in May.
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China’s final data drops yesterday for May were patchy – there was growth in retail sales, investment and industrial output but all the reported rises were short of previous months and market forecasts.
As expected the small fall in the reverse repo rate engineered earlier this week by China’s central bank has been followed up by a similar cut to another key rate on Thursday and means the vital one and five year lending rates will see similar reductions next week.
The move by the People’s Bank of China (PBoC) to cut the one-year medium-term lending facility (MLF) by 10 basis points to 2.65% from 2.75%, was the first cut of its type in 10 months and came after another weak set of economic figures from the government.
Retail sales, industrial production and investment were all weaker than forecast (even as they expanded) while the unemployment rate for young people ages 16 to 24 rose to 20.8% in May, a record and above the high set in April. The jobless rate for people of all ages in cities was steady at 5.2% in May.
The cut in the MLF means the PBoC will lop 10 points from the one year and five year benchmark lending rates when they are set next Tuesday.
Data this week showed a sharp slowdown in broad credit growth in May.
The central said on Thursday it lowered the rate on 237 billion (CNY) yuan of MLF loans to some financial institutions by 10bps to 2.65%. The PBOC also injected CNY 2 billion through a seven-day reverse repurchase operation while keeping borrowing costs unchanged at the 1.9% level set earlier this week (it was 2.0%).
The weak data yesterday confirmed the picture of an economy rattling around at the bottom of the growth curve with no real driver.
Trade was weak, inflation is really morphing into deflation at the consumer level and deep in deflation for producers. Bank lending is weak and car sales, especially New Energy Vehicles (NEVs) seem to be the only bright spot
China’s industrial production grew 3.5% year-on-year in May 2023, slightly below market forecasts of 3.6%, and well down on the 5.6% growth in April. While it was the 13th straight month of growth in industrial output but the softest pace in three months.
In the first five months of the year, industrial production expanded by 3.6% from the same period in 2022. In 2022, industrial production grew by 3.6%, so the economy has, in effect, marked time so far as activity in the huge manufacturing and producing sectors.
While China’s retail sales grew by a solid 12.7% in May from a year ago, that was down from the 18.4% jump in April. While the fourth straight monthly rise, May was below market forecasts of 13.6%. Over the January – May retail trade rose 9.3%.
China’s urban investment grew by 4.0% in the first five months of this year, from the same period in 2022 which was hit by Covid lockdowns.
That was less than market forecasts of 4.4% and down from the 4.7% in the four months to April. Investment in real estate fell 7.2%.