China’s Purchasing Managers’ Index (PMI) for the steel industry for August hit a new low since December 2015, reaching 44.9 amid imbalance in the fundamentals, steel price declines amid higher production and stocks while the growing challenges in sales, according to the latest release on August 31 by the official index compiler CFLP Steel Logistics Professional Committee (CSLPC).

The August steel PMI fell for the fourth successive month by another 3 basis points on month, and “the conflict of demand and supply was more protruding, as the supply side had been adding pressure to the market, while demand had failed to achieve any explosive growths amid the scorching weather and frequent rains,” the committee highlighted in the release.

Last month, the sub-index for new steel orders decreased further by 8.3 basis points on month to 37.5, or in the contraction zone for four months, as China’s steel demand recovery was below expectation, and domestic steel prices, as a result, slipped substantially, according to CSLPC.

In contrast, the sub-index for the country’s steel production reversed up 1.6 basis points on month to 50.1 in August, or back to the expansion zone after having hovered below the threshold of 50 for two months, which was attributed to the widespread production increase among the steel mills, the “capacity expansion in the process of old-for-new capacity swaps and relocation, and the reincarnation of some zombie capacities”, according to the committee.

China’s inventories of five major finished steel products at the warehouses in 20 major cities including those at their ports rose further by 10.3% or 1.3 million tonnes on month to 14 million tonnes by the end of August, among which, rebar witnessed the sharpest month-on-month increase of 17.2%.

In August, China’s steel market sentiment was seriously dampened by the slow-down in downstream demand, the escalation of the Sino-US trade friction, as well as the explicit message from the People’s Bank of China that “property market will not be used as a short-term economic stimulus means”, and the rebar price in East China’s Shanghai, for example, slumped by nearly Yuan 300/tonne within the month to Yuan 3,591/t on August 27, CSLPC noted.

For September, the domestic steel demand is expected to revive, as “construction works will pick up in pace with a cooler climate, and steel prices are expected to spiral up moderately, as the imbalance in the market fundamentals is expected to mitigated”, CSLPC stated.

However, short-term suspension in construction works over the Mid-Autumn Festival on September 13 and National Day holiday over October 1-7 may affect both the steel demand and supply, and related preventative measures should be adopted, CSLPC warned.

China’s steel export market will remain challenged for the rest of 2019 because of the escalation in international trade friction, and further build-up in trade barriers, CSLPC reiterated.