A dim economic outlook in China does not bode well for the steel industry, analysts claim. Prices have hit rock bottom too and have little room for manoeuvre, it is claimed.

The country's CPI grew 2% – a four-month low – and PPI dipped 1.2% in August. In July the PPI dipped just 0.9%.

Industrial added value rose 6.9% year-on-year in August, down 2.1 percentage points from July, and the steel consuming industries – metal manufacturing, equipment making, transportation facility making, automotive and electrical machinery all showed lower growth rates in August when compared with the previous month.

Car manufacturing's growth rate dropped 4.3 percentage points month-on-month in August. Auto sales rose just 2.22% and production by 4.04% – both figures exhibiting the lowest growth within the year.

China's manufacturing PMI stood at 51.1% in August, down 0.6 percentage points over the previous month according to the National Bureau of Statistics (NRB). Production, new orders and new export orders were all lower than in July, although finished product inventory witnessed a marginal rebound, suggesting weaker demand for manufacturing goods and higher de-stocking pressure for manufacturers.

With all this in mind, Chinese manufacturers are said to be 'more prudent in purchasing raw materials such as steel'.

Slower investment growth is the reason behind less vigorous economic growth, according to analysts. Between January and August of this year fixed asset investment grew 16.5%, down 0.5 percentage points from that of January to July.

National fiscal revenue rose 6.1% year-on-year in August, down 0.8% from July, but fiscal expenditure grew 6.2% year-on-year in the same month, down 3.4 percentage points from July.

Infrastructure investment decelerated due to less real estate tax revenue and more strict supervision on local government debt, leaving local government with less cash.

Conversely, rail construction investment in August was up 81% over the previous month. Between January and August 2014, railway fixed asset investment climbed 29% over the previous year and stood at 40.5 billion yuan (US$6.5 billion). The China Railway Corporation is expecting a similar sum to be spent between now and the end of 2014.

Between January and August 2014, real estate investment was up 13.2%, but down 0.5 percentage points on the figure for the period January to July. Property sales saw bigger declines and analysts expect the figure to dip even lower over the coming months.

Such economic conditions do not bode well for the steel industry as there are also problems surrounding prices, which have little room to dip further.

Source: China Metals.