Steel demand has been falling on a weekly basis for six weeks in a row since mid- April as investment growth dropped sharply. Meanwhile, the country’s average steel products prices for May were down 1.9% from April, according to the China Logistics Information Centre.

Since mid April, steel prices in China have been falling and have reached the lowest level for two months. Compared the same period last year, steel prices dropped RMB470 or about 10%, while the price for raw materials for steelmaking fell by less than 5%.

A temporary rise in steel prices in early May did not stimulate the confidence of steel traders and steel mills also took a wait-and-see attitude towards the future market as the steel market suffered a lack of demand from downstream sectors.

China’s iron and steel PMI dropped to 48.8% in May, from 55.7% in April, according to the latest data released by the China Federation of Logistics and Purchasing on June 1. A value below 50.0% indicates that output is shrinking by more manufacturers than those expanding.

The iron and steel industry’s production index declined to 53.9% in May from 60.3% in April, while the sector’s new-order index in May dropped to 41.5% in May from 59.2% in April, indicating a weakness in demand.

China’s major steel makers achieved profits of only RMB1.148bn in the first four months of 2012, a drop of 96% from the RMB34.213bn in the same period last year, according to Qu Xiuli, CISA deputy secretary general.

The sales profit ratio was only 0.1% in the first four months 2012, the lowest level of the entire industrial sector in China. The poor performance of the steel industry was mainly attributed to its excessive production capacity leading to a downturn in steel prices under the existing conditions of slow demand growth.

Source: China Metals