China’s manufacturing steel demand worsens as COVID-19 hits consumption

China’s manufacturing activity and steel demand in April extended the decline from March levels as widespread COVID-19 cases sent the country reeling, a development that would continue to keep the manufacturing sector under pressure in May.

China’s manufacturing production index of steel consumption published by S&P Global Commodity Insights stood at 128 points in March, up 16 points on the month due to seasonal factors. However, the index was down by 18 points on the year, indicating the pandemic continues to weigh on the steel sector.

Lockdown measures were extended to more Chinese cities in April compared to March, and the year-on-year decline in manufacturing activity and steel demand is expected to deepen in April.

The production index is based on production data from China’s National Bureau of Statistics for 17 steel-related manufactured goods, categorized into seven sectors and weighted according to their share of steel consumption. The monthly production average in 2018 is used as the baseline of 100.

In March, only the production of shipbuilding and power generation facilities saw a year-on-year increase, while that of machineries, vehicles, home appliances, containers and railway facilities were all lower than a year earlier.

Decline in April

China’s production of manufactured goods in general fell in April from March, as over 50 major cities across 21 provinces imposed certain social restrictions to tackle the COVID-19 resurgence, disrupting both supply chains and end-user demand for these goods, sources said.

Diminished demand could be indicated from the bearish expectations for China’s car and excavator sales in April. Both sectors are major consumers of steel.

China’s passenger car retail sales in April are expected to drop 31.9% on the year, worsening from the 10.5% year-on-year decline seen in March, according to the China Passenger Car Association.

Meanwhile, China’s Construction Machinery and Equipment estimated domestic excavator sales in April would fall by roughly 60% on the year, similar to that in March. The excavator sector is an indicator of construction-related machineries and sets the tone for the construction activity in the near term.

Some market sources said sales of freezers in some of the COVID-19-affected regions surged in April as people rushed to stock up food in fear of lockdowns. However, these one-off purchases were not big enough to reverse the downward trend in the home appliance sector, mostly caused by slowing property sales and stalled household income.

Moreover, a source targeting steel end-users in southwestern China’s Chongqing municipality said orders received by some local producers of passenger cars, heavy trucks and motorcycles dropped by 40%-60% on the year in April, although orders for shipbuilding, wind power and environmental protection equipment were stable.

So far this year, Chongqing hasn’t been hit by the pandemic. Therefore, the slowdown in its manufacturing sector indicates that social restrictions in the COVID-19-affected areas have impacted national economic activity adversely, the source said.

Some sources expect the recovery in manufacturing activity to be slower in May, as lockdowns in some major Chinese cities, such as Shanghai, would almost certainly continue into early or even mid-May, while places that reported no COVID-19 cases would be careful about lifting social restrictions.

Steel consumption weakens

China’s steel-related consumption in the first quarter of 2022 dropped 9.5% on the year to 235 million mt, according to the China Iron & Steel Association.

S&P Global’s calculations, based on crude steel output, net exports and steel inventories, showed steel-related consumption dropped 6.3% on the year in Q1, while March saw a 3.8% decline on the year.

Steel-related consumption in April is expected to fall by up to 20% on the year, calculations by S&P Global showed.

— Staff