The latest steel inventory data released last Friday suggests that steel demand in China is finally picking up.
Since they peaked in early/mid-March steel product inventories held by traders dropped by an average of 1 million tonnes per week over the past five weeks.
Although destocking is seasonal, and happens around this time of the year, the pace of the draw-down is the highest on record; it is more than twice the second-fastest observed in 2013.
This is happening on the back of rising steel production; output rose by 4.5% year-on-year in March to its 3rd highest level on record. High frequency data indicates that production increased further in early April. Average daily output was up by 5% during the first 10 days of the month compared to the previous ten days.
That said, some of the preliminary macro data is less rosy and paints a mixed picture of the health of the industry. While the property investments picked up rapidly in March, investments in infrastructure appear to be slowing down. Manufacturing investment has also dropped back recently, perhaps due to the uncertain outlook for global trade.
The recent slow-down could be due to temporary disruptions such as the two-week long National People’s Congress and the trade tensions between the US and China. Or it could be more structural, driven by the Chinese Government’s determination to bring debt down.
We will not know the actual cause until the release the official data set for April. Until then, we advise caution in reading too much into the latest figures.
Sources:Arrow
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