China's macro indicators mixed in Jan-Apr'24 amid slow demand recovery

• Output fall supports inventory depletion in end-April
  
  
• Manufacturing remains supported, infra struggles
  
  
• Real estate decline may ease amid govt policy props
  
  

Morning Brief: China's macro indicators showed a mixed trend over January-April, 2024, as per data tracked by BigMint. Production of crude steel and coal fell y-o-y, while exports were up. Manufacturing looked up but infra faced challenging times while real estate further lost ground.

Crude steel output drops amid slow demand recovery

China's crude steel production declined 3% to 343.67 million tonnes (mnt) over January-April, 2024. The production drop was necessary for inventory depletion while it also dovetails with China's net zero efforts. Mills have been nursing squeezed margins for a protracted period amid the sustained low demand from the real estate and construction sector, which consumes the lion's share of around 60% of steel. Apparent crude steel consumption decreased 4.7% y-o-y to 232 mnt in Q1 (January-March) amid lack of effective downstream consumption and a slow demand recovery after the Spring Festival holidays. But, thanks to the production cuts, by end-April, social inventory of steel in 29 key cities dropped 16% m-o-m to 13 mnt, although this was an almost 1% increase y-o-y. The average daily trading volume of construction steel in 20 key cities in April was up 20% m-o-m but down 2% y-o-y.

That apart, the lower production dovetails with the government's emission goals of carbon peaking by 2030 and net zero by 2060. It was heard, as of April, 2024, around 136 steel mills have fully or partially completed ultra-low emission transformation and assessment monitoring.

Iron ore imports rise: However, iron ore imports rose 7% y-o-y to 412 mnt in the first four months amid the 1.6% increase in crude steel production over January-February, 2024, which warranted higher ore usage. Plus, buyers actively bought after the Labour Day holidays to stock up for the post-rainy season production cycle.

Exports increase: With domestic demand still in recovery mode, mills lost no opportunity in keeping exports buoyant. Volumes increased 27% y-o-y to 35 mnt in the period under review. With domestic demand down, steel imports, understandably, fell 3.70% to 2.41 mnt.

Manufacturing up in Jan-Apr; stress on high-value products

Manufacturing investment growth fell slightly to 9.7% in April 2024 from 9.9% in March. However, on a y-o-y basis, the average growth in January-April 2024 was at 9.25% compared to 7.48% in the same period in 2023. Demand for steel in manufacturing has grown over the years, with the sector accounting for 48% of the overall steel demand in 2023, up from 42% in 2020. The China Manufacturing Purchasing Managers Index (PMI) in April 2024 was at 50.4%, down 0.4 percentage points m-o-m, but still increasing, indicating that the economy continues to be in recovery mode.

Data reveals that automobile production rose almost 8% y-o-y in these four months to over 9 million units.

Mills have been gearing up with product innovation to meet increasing demand in manufacturing, especially in automobiles, ship-building and household appliances. The scanner is increasingly turning on more high-value items. As per a study, 40% of surveyed mills have applied three-dimensional visual simulation technologies on major production lines, almost 80% have piloted big data models, and 18% have already opted for partial artificial intelligence application.

Infra investment falls as construction struggles

Infrastructure investment growth showed a slight m-o-m dip in April to 6% from 6.5% in March. Y-o-y, January-April's average growth was at 6.23%, lower from the 8.88% seen in January-April, 2023.

Many, however, feel infrastructure investment will remain stable this year with a growth rate of at least 5%, amid implementation of national projects, while real estate policies are expected to further stabilize this market. However, the y-o-y decline in real estate investment will be difficult to reverse in the short term and will still be a drag on construction steel demand.

Demand for steel in energy and manufacturing is expected to keep growing, especially in fields like wind, solar and nuclear power, new energy vehicles, ship-building and marine engineering. Urbanization will continue to promote steel buildings and "new infrastructure" will also boost steel demand.

Implementation of China's policy of large-scale equipment renewal and trade-in deals for promoting consumer goods consumption is expected to create an additional over 14 mnt of annual steel demand.

Real estate loses ground further

Real estate development growth declined further to 9.8% in April from a drop of 9.3% in March. The average decline over January-April, 2024 was -9.35% against -6.48% in the same four months last year.

Because of the lack of demand from real estate segments, cement production, in tandem, fell by 10.30% y-o-y to 509 mnt over January-April, 2024.

Coal production

Coal production dropped 3.50% to 1,480 mnt in the first four months. Coal imports rose 13.10% to 160 mnt to cushion the production decline.

Last month, tightened safety inspections led to reduced output from miners in key producing regions like Shanxi and Shaanxi in north China. This, combined with low coal prices in April, dampened production enthusiasm among local miners. Conversely, China's hydro-electric plants boosted their output due to the abundant rainfall experienced throughout the month.

Additionally, Daqin Railway, the country's major coal-dedicated line connecting its top coal province Shanxi with Qinhuangdao Port in north China's Hebei, underwent a 30-day spring maintenance in April, which impacted logistics and production at mines in Shanxi to some extent,

Outlook

The decline in demand from the real estate sector may ease this year, as the country has doubled efforts to promote construction of government-subsidized housing, build dual-use public infrastructure and redevelopment of urban villages.

Despite challenges ahead, the steel industry will focus on opportunities arising in sectors like manufacturing and energy.

But, temporary severe imbalances in supply and demand, notable declines in steel prices and rising iron ore prices may be challenges ahead.