Analysis from PMI Index: Supply and demand pressure increases, cost support weakens, and the steel market may continue to fluctuate and decline in July

As the most important leading indicator, the PMI index is of great significance to the steel industry. From the PMI analysis in June, it can be seen that the immediate demand for industrial steel in July is still guaranteed, but the sustainability of demand is difficult to guarantee. However, in terms of supply, overall steel production has weakened, and with the impact of the off-season, the tendency of steel mills to shift their molten iron may further increase industrial steel production. Therefore, it is expected that the overall supply and demand pressure on industrial steel in July may continue to increase on the basis of June. Considering the weakening support in raw material costs, it is expected that the steel market in July may continue to fluctuate and decline.

Specifically, according to the investigation and release of the PMI of the steel industry by the China IoT Steel Logistics Professional Committee, the PMI in June 2024 was 47.80%, a decrease of 2.00 percentage points compared to the previous period, and 2.2 percentage points away from the 50% boom line. The overall operation of the steel industry is weak. From the perspective of sub indices, the purchase price index decreased by 38.90 percentage points to 38.60%, indicating a significant weakening of the raw material sector. This is also closely related to the overall decline in steel production, with the production index dropping from 50.60% to 45.90%. On the demand side, the decline in finished product inventory continues to slow down; New export orders reached 46.00%, a decrease of 6.20 percentage points from the previous month, and there was a process of expansion to contraction in new exports; The new order index decreased by 0.20 percentage points to 49.40%, indicating further weakening of steel demand in July.

Overall, both supply and demand in the steel market are expected to weaken in July, and the supply-demand contradiction may weaken to some extent. The purchase price index is low, the raw material inventory index has narrowed, and the cost support for industry prices has weakened.

At the same time, data released by the Service Industry Survey Center of the National Bureau of Statistics and the China Federation of Logistics and Purchasing showed that in June 2024, the Purchasing Managers Index (PMI) of the manufacturing industry was 49.50%, unchanged from the previous month and continuing to remain below the 50% boom line, indicating a continuous decline in the overall manufacturing industry. From the perspective of sub indices, compared with last month, most sub indices of the manufacturing industry continue to decline, especially the new export orders, new orders, and production indices directly related to steel demand have not changed much, while the procurement volume index has shown a more significant decline. Among them, the new export orders, new orders, and procurement volume index remain below the 50% boom line, indicating that manufacturing demand continues to decline. However, from the perspective of enterprise production, although the index has declined, it still maintains an expansion state. In addition, the Caixin Manufacturing PMI index has reached a new high since June 2021, indicating that the overall economic activity of manufacturing enterprises is still acceptable. However, it is important to be cautious that finished product inventory continues to decline, but the digestion speed has slowed down.

For the steel industry, the manufacturing production index is still above the 50% boom line, and there is still some guarantee for immediate industrial steel demand. However, with the reduction of orders in hand, the purchasing power of manufacturing enterprises for raw materials continues to weaken, and the time and space for obtaining upstream steel and other raw materials are relaxed, which may further suppress demand release.

Based on this, combined with the situation of the steel industry and downstream manufacturing industry, for the steel market in July, the overall demand for steel may weaken. From the perspective of industrial steel demand, immediate demand may be guaranteed, but the sustainability of demand is still difficult to guarantee; In terms of supply, overall steel production has weakened, and with the impact of the off-season, the tendency of steel mills to shift their molten iron may further increase industrial steel production. The overall pressure on industrial steel supply and demand in July may continue to increase on the basis of June. Considering the weakening support in raw material costs, it is expected that the steel market will continue to fluctuate and decline in July.