Market Analyst: China Steel PMI Revenue

Clyde Russell is a Reuters market analyst. Iron ore and steel prices have boosted the company's strength, China's manufacturing index, but the market's focus on the wrong indicators is risky. Official Purchasing Manager Index (PMI)? ? It hit an 18-month high of 51.4 in October, while HSBC measures reached a peak of 50.9 in 7 months. Two improvement conditions in China's huge manufacturing purchasing managers index show that this is enough to stimulate the increase in iron ore and steel prices.

But while the manufacturing index has soared, other ways of the Chinese steel industry PMI.

The steel PMI declined for the second consecutive month, falling from 49.2 in September to 47.5 in October. According to the logistics and procurement of China Overseas Federation, the index was compiled.

Far below the 50-level distinction between expansion and contraction, the monthly drop led to a decline in overall production, finished inventory and new orders, according to Morgan Stanley's research report on November 5.

Suitably with some other evidence, it is not a sector where everything is fine, and the average steel production has dropped by one. The drop was the second consecutive year of decline, with output falling 1.1% after October 10th, according to the China Iron and Steel Association data.

There are also signs that steel stocks are rising, with figures showing inventory of 13.2 million tons, an increase of 3.1% from the end of August.

It is very likely that this accumulation of stocks has continued in recent weeks, which means that the mismatch between steel production and consumption may increase. Under normal circumstances, the comparison of purchasing managers' indices is not necessarily the opposite of each other.

This, of course, can simultaneously produce and weaken the conditions under which the fundamentals of steel have improved.

In theory, improving the industrial sector PMI as a spur to increase the demand for metal products in the steel industry, but it may still be a backup, in the case of China's steel production capacity is greater than any potential increase in consumption.

The steel PMI shows that there are still sectors that may be over-produced, which means that the recent rebound in the benchmark Shanghai Stock Exchange rebar may not continue to occur.

If it is a comparison in the steel industry, the profitability between iron ore and steel producers is weaker, and continued strong demand. Although the recent increase in the manufacturing purchasing managers index is likely to increase in the coming months, the issue of structural overcapacity remains.