China steel downstream investment rises in Jan-Aug, but realty declines

• Manufacturing, infra, auto investments rise
  
  
• Real estate investment down 9% y-o-y
  
  
• Steel demand stages modest recovery in peak season
  
  

Morning Brief: That China's demand for steel is improving can be gauged from the fact that industrial production is accelerating. According to data, the added value of industrial enterprises increased by 3.9% y-o-y from January to August, as per data from the National Bureau of Statistics (NBS). The added value of industries increased 4.5% y-o-y in August 2023. The added value growth rate is the actual growth rate after deducting price factors. From a m-o-m perspective, in August, the added value inched up by 0.50% compared to July.

Downstream industry trends

There is a sense of positivity in most segments except for real estate.

Manufacturing investment up: According to NBS data, in January- August 2023, the national fixed asset investment (excluding rural households) was at RMB 32.70 trillion, a y-o-y increase of 3.2%. Among them, manufacturing investment increased 5.9%, and the growth rate was 0.2 percentage points faster than that from January to July. From a m-o-m perspective, fixed asset investment (excluding rural households) increased 0.26% in August. From January to August, private fixed asset investment was at RMB 16.95 trillion, a y-o-y dip of 0.7%.

In terms of industries, investment in mining increased 2%, and in power, gas and water production and supply industry, by 26.5%.

Infra sees a boom: Infrastructure investment (excluding power, heat, gas and water production and supply industries) increased 6.4% y-o-y. Investment in railway transportation increased 23.4%, while that in water management increased 4.8%, and in road transportation by 1.9%. But investment in public facilities management dipped 0.6%.

The national manufacturing purchasing managers index (PMI) in August was 49.7%, a m-o-m increase of 0.4 percentage points from July. Manufacturing boom is expected to increase further soon.

Real estate investment down: NBS data reveals, from January to August, 2023, national real estate development investment was at RMB 7.69 trillion, a y-o-y decrease of 8.8%; in which, residential investment was RMB 5.8425 billion, down 8% y-o-y.

From January to August, housing construction area was at 8,064.15 million square metres, a y-o-y decrease of 7.1%. Residential construction area was 5,677.92 million square metres, a decrease of 7.3%. The area of newly started housing construction was 638.91 million square metres, a decrease of 24.4%.

From January to August, sales area of commercial housing was 739.49 million square metres, a y-o-y decrease of 7.1%, of which the residential sales area decreased by 5.5%. Commercial housing sales touched RMB 7.8158 trillion yuan, down 3.2%.

From January to August, real estate development companies had RMB 8.7116 trillion of funds in place, a y-o-y decrease of 12.9%.

Automotive accelerates in off-season: Despite being the traditional off-season, domestic automobile production and sales in August this year exceeded expectations and achieved both y-o-y and m-o-m growth.

Recent China Association of Automobile Manufacturers data shows that in August, automobile production and sales hit 2.575 million units and 2.582 million units respectively, an increase of 7.2% and 8.2% respectively m-o-m, and an increase of 7.5% and 7.5% y-o-y respectively. From January to August, production and sales were at 18.225 million vehicles and 18.21 million vehicles respectively, y-o-y up 7.4% and 8% respectively.

Crude steel production up in Aug

According to National Bureau of Statistics data, China's crude steel production in August was at 86.41 million tonnes (mnt), a y-o-y increase of 3.2%. Pig iron production touched 74.62 mnt, up 4.8% y-o-y. Finished steel production rose 11.4% y-o-y to 116.52 mnt. Overall, steel production showed a moderate growth trend in August, but the output of finished steel continued to grow significantly - faster than the growth rate of crude steel production.

Although the output of steel and finished products has continued to increase this year, steel inventory has dropped from the high point at the beginning of the year.

Outlook

The current season is the one to watch out since it is traditionally characterized by peak demand. However, steel futures have been rather volatile, having risen last week but showing a weakened trend so far this week.

Domestically, prices may find support if mills resort to production cuts, to fall in line with the diktat that volumes should not overshoot 2022 levels.

The short to medium term may see domestic demand recovering, but may be not remarkably, while exports may remain on the higher side.