China's macro indicators improve in Q1; crude steel output, realty in negative zone

• Crude steel decline eases inventories, margin squeeze
  
  
• Manufacturing, infra investments rise m-o-m in Mar'24
  
  
• Weak realty drags down rebar prices, cement output in Q1
  
  

Morning Brief: China's macro indicators showed a y-o-y improvement in the first quarter (Q1, January-March) of 2024, as per data tracked by BigMint. Performance in key parameters like GDP and industrial production grew y-o-y but realty did poorly.

Crude steel production falls m-o-m

Importantly, China's crude steel production, after surprising markets in the first two months, showed a decline of 1.90% to around 256.55 million tonnes (mnt) in Q1, which actually helped to deplete inventory and ease mill's losses. The production drop was goaded by lack of domestic demand from the key driver, real estate. In such a scenario, a sustained increase in output would obviously have created an inventory glut and gnawed away at prices and margins.

Though real estate was down, demand from other sectors like manufacturing, infrastructure and automobiles rose. This somewhat kept up the momentum of iron ore imports, which rose a nominal 5.33% y-o-y to 310 mnt in Q1. Increased exports also supported iron ore imports. With home demand down, Q1 steel exports rose nearly 31% to 26 mnt while imports were down 8.60% to 1.75 mnt.

Q1 GDP up 5% y-o-y

The country's GDP, as per data from the National Bureau of Statistics (NBS), in Q1 was at RMB 296,299 billion ($40,925 billion), a y-o-y growth of 5.3% at constant prices and a q-o-q increase of 1.6% over the fourth quarter (October-December) of 2023.

In terms of industrial growth, the added value of the primary industry was at RMB 1,153.8 billion ($159 billion), up 3.3% y-o-y. The added value of the secondary industry rose 6% to RMB 109,846 billion ($15,172 billion), and of the tertiary industry by 5% to RMB 174,915 billion ($24,160 billion).

Industrial production rises 6% y-o-y in Q1

In March 2024, the added value of industrial enterprises above a designated size increased by 4.5% y-o-y (the growth rate of added value is the real growth rate after deducting price factors). M-o-m, in March, however, the added value of these enterprises decreased by 0.08%. From January to March, the added value increased 6.1% y-o-y.

Manufacturing, infra investments up m-o-m

In Q1, national investment in fixed assets (excluding rural households) rose 4.5% y-o-y to RMB 100,042 billion ($13,818 billion), a y-o-y increase of 4.5%. The growth rate was 0.3 percentage points faster than that from January to February.

Within the investment basket, that in manufacturing increased 9.9% in March 2024, against 9.4% in February and 8% in January 2024. Automobile production, also a key barometer of flat steel demand, rose 5.30% to 6.63 million units in Q1.

Infrastructure investment (excluding the production and supply of electricity, heat, gas and water) increased 6.5%, compared to 6.3% in February and 6.1% in January. On a m-o-m basis, investment in fixed assets (excluding rural households) increased by 0.14% in March. From January to March 2024, private investment in fixed assets was RMB 5,159.7 billion ($713 billion), up a slight 0.5% y-o-y.

Real estate investment down 9.5% y-o-y

Real estate development investment in Q1 was at RMB 2,208.2 billion ($305 billion), down 9.5% y-o-y, of which residential investment was down 10.5%. Construction area development dropped 11% y-o-y. Residential construction area was down 12%.

In Q1, the sales area of newly-built buildings was down 19.4% y-o-y, of which residential buildings decreased 23.4% and commercial buildings by 28%.

From January to March, funds in place for real estate development decreased 26% y-o-y.

In March, real estate development growth dropped further by 9% m-o-m.

With the poor performance of the real estate sector, cement production in Q1 fell nearly 12% to 337 million tonnes.

Rebar impacted: Realty had a direct impact on construction steel as well. Around 15 of China's major steel bar producers have unanimously called on authorities for measures to restrict rebar output to support prices.

Rebar prices have seen "irrationally" sharp declines amid the persistent weakness in China's real estate and infrastructure sectors, leading producers to face narrowing margins and losses. Demand from infrastructure construction has contracted due to spending cutbacks by debt-riddled local governments. Around 12 cities with high debt burdens have delayed or halted projects. Rebar prices have fallen 10% in Tangshan y-o-y in Q1 and by 14% on the Shanghai Futures Exchange since the start of the year

Outlook

China's manufacturing and infrastructure construction sectors may continue to do well on the back of government-induced demand drivers. The Chinese government is seen focusing on job creation and economic growth which will allow some of the key parameters to perform better in the near term.

However, real estate is not likely to see any recovery in the short-to-medium term.