SHANGHAI Sentiment weakened in Chinas steel market after activity in the countrys manufacturing sector dropped to its lowest level in seven months, according to preliminary data released Feb. 20 by HSBC Holdings Plcs China purchasing managers index (PMI).
The banks flash PMI for February stood at 48.3 points, down from a final reading of 49.5 points in January. A reading below 50 points indicates a contraction in manufacturing activity.
Februarys flash reading of the HSBC China manufacturing PMI moderated further as new orders and production contracted, reflecting the renewed destocking activities. The building-up of disinflationary pressures implies that the underlying momentum for manufacturing growth could be weakening, Qu Hongbin, HSBCs chief economist for China, said.
We believe Beijing policymakers should and can fine-tune policy to keep growth at a steady pace in the coming year, he said.
The continuous slowdown in the manufacturing sector could further erode steel market confidence amid the persistently high output and subdued demand, market participants predicted.
Sentiment is already weak, as end-user demand has shown no signs of revival after the weeklong Chinese New Year holidays. Im afraid the negative economic data could put more pressure on the fragile spot market, a Shanghai-based trading source told AMM sister publication Steel First.
A recovery in steel prices before the end of the month is unlikely in the absence of any momentum, according to a Beijing-based analyst.
All the key indicators, including daily crude steel output, finished steel inventory, as well as the PMI are negative so far, and dealers are facing tighter liquidity at month-end, so there is still downside risk for prices, he said.
A version of this article was first published in AMM sister publication Metal Bulletin.