China's macro indicators lack shine in Jan-Nov; but exports steal show

• Crude steel production dips amid maintenance schedules
  
  
• Iron ore imports increase but will intake see slowdown?
  
  
• Chinese steel exports hit 2nd-highest level in 11MCY'24
  
  

Morning Brief: China's macro indicators did not yield any fireworks in 11MCY'24, amid a moribund real estate sector. Manufacturing showed y-o-y growth but stagnated m-o-m. Infrastructure investments were down both y-o-y and m-o-m, underscoring weak fundamentals. Exports stole the show, of course, crossing 100 mnt.

BigMint goes behind the scene:

Crude steel output dips amid downtime, tight margins: China's crude steel production fell 3% y-o-y over January-November, 2024 to 929 million tonnes (mnt), as the after-effects of two back-to-back stimulus packages wore off. Production declined as many of the mills turned off their blast furnaces for maintenance downtime amid thinning margins. Capacity utilisation dropped to 87.33% by end-November-early December. Many of the mills showed little interest in production as margins remained squeezed. By end-November, almost 50% of the mills were nursing negative margins.

In tandem with crude steel, pig iron production fell 4% in this period to 783 mnt.

Iron ore imports rise on higher port stocks: China's iron ore imports, however, rose 4% in this period under review to 1,124 mnt. However, this volume was lesser than that seen over January-October, which does raise a question whether iron ore intake is going to slow from here? Meanwhile, in 11MCY'24, higher port inventories allowed flexibility in sourcing. Some mills which had maintained low stocks relied on last-minute procurement, supporting steady import volumes. Iron ore inventory at Chinese ports rose to 142 mnt in January-November 2024 compared to 124 mnt in the same period last year, according to SteelHome data. Spot iron ore fines (Fe 62%) prices dropped to $110/t CFR China in January-November 2024 against $118/t in the year-ago period, which also supported procurements.

Steel exports hit 2nd-highest level in 11MCY24: China's steel exports crossed last year's 90-odd mnt and also crossed the 100 mnt threshold to touch 101 mnt over 11MCY'24, an increase of 23% y-o-y and second-highest-ever, playing catch-up with the all-time high of 115 mnt seen in 2015. Slack home demand twinned with overcapacity are impelling Chinese steel mills to dump steel at predatory prices across importing geographies.

Naturally, against such a beleaguered domestic backdrop, China's steel imports fell 11% y-o-y in this period to 6.2 mnt.

EV sales driving Chinese manufacturing?: Manufacturing investment showed a growth over 11MCY'24 to 9.3% against 6.6% seen in CPLY. However, on a m-o-m basis, growth stagnated at 9.3%. Automobile production accelerated 3% to 27.90 million units especially since China is driving the EV sales momentum globally. It contributed to two-third of global EV sales in November. However, the narrowing price gap between Chinese and foreign steel products, rising trade frictions, and expansion in steelmaking capacities overseas are proving to be challenges to Chinese manufacturing growth. Lastly, the dull performance can also be attributed to the poor performance of the industrial sector.

Infra spend down y-o-y, m-o-m: Infrastructure investment growth showed a y-o-y and m-o-m decline. Over 11MCY'24, it fell to 5.26% from 7% in CPLY. M-o-m, the dip was slight, at 4.20% from 4.30% in October.

Government spending has been reined in because of over-exposure to debt, leading to financial instability. Plus, the housing sector collapse has also contributed to negative sentiments in infrastructure spending. Moreover, as per indications, China is shifting its infra focus from traditional steel-intensive projects like roads and bridges to new-age areas like cutting-edge telecom networks, EVs, high-speed rails, which require low-volume but specialised steels. These are innovation-related but intrinsically linked to its economic growth.

Realty investment slide continues: The slide in real estate sector investments continued. Y-o-y, the decline was -9.9% on average against -7.8% in CPLY. M-o-m, it dipped to -10.4% from -10.3% in October. Property investments in January-November fell 14.3% y-o-y and from 10.30% seen over January-October, 2024.

New construction starts measured by floor area declined 23% y-o-y, after a 22.6% decline in 10MCY'24. Many feel the stimulus effect has been short-lived and the real estate construction sector slide continues to create mayhem in domestic steel demand, being the largest end-user.

With realty losing ground drastically, production of cement, a key construction material, fell 10% y-o-y to 1,671 mnt.

Coal production range-bound: China's coal production upped a mere 1% to 4,320 mnt over 11MCY'24 and coal imports by 15% to 490 mnt. China's domestic coal production dropped, which created a case for higher imports. Northern China's Shanxi province, the largest producer of coal, saw output lowering in November by 3.6% y-o-y and 5.1% m-o-m, respectively. Overall domestic coal production remained range-bound because of safety checks amid mining accidents, higher hydro-power usage. In the first half of 2024 (January-June) only 9GW worth of power plants received permits - an 83% reduction compared to H1CY2023 - because of carbon emission issues.

Outlook

The short-to-medium term looks bleak as China enters the peak winter season when construction traditionally takes a hit, dragging down steel consumption with it. Thus, realty investments will continue to slide further.

However, steel demand from China's manufacturing sector is expected to see some growth in 2025, and, partially offset losses in the property sector. Specifically, steel consumption from shipbuilding and machinery sectors is projected to rise over 6% and 3% y-o-y, respectively, in 2025. Similarly, demand from the home appliance and automobile industries may grow 3% and 1.5%, respectively, from 2024 estimates.

Steel exports have already crossed 100 mnt and will end the calendar with a flourish.