Steel sector output in China takes a dive
Chinese factories unexpectedly throttled back production in key sectors from steel, cement and ethylene to sedans in December 2016
Chinese factories unexpectedly throttled back production in key industries from steel, cement and ethylene to sedans in December 2016, nipping a budding uptrend that had only started in October and smacking headline industrial growth back down to a five-month low.
The culprit evidently lies with the rustic industrial metal of steel, with total value added by the ferrous smelting and processing industry contracting by a massive 13.1% in December, which is more than twice the 6.3% contraction witnessed by the sector during the height of the global financial crisis in November 2008.
The surprise slump in the steel sector poses a stark contrast to the sharp turnaround of China’s Producer Price Index in the second half of last year, reaching 5.5% from minus 5.9% just 12 months earlier. It implies that China’s steel industry is under tremendous pressure from the latest surge in coking coal prices and having difficulties finding a market for the now costlier base metal.
Net-net, while surging commodities delivered additional relief to the mining sector, which saw contraction narrowing further to minus 2.5% from November’s minus 2.9%, the mainstay manufacturing sector is still in the woods with growth falling back to a multi-year low of just 6.3% in December.
China’s red hot automobile industry remained stellar at its 16.2% growth in December, but easing from November’s 19.5%. The sector produced 1.242 million sedans last month (up 0.6% year on year) compared with 1.281 million (up 6.4%) in November.
Cement production for December totalled 199.79 million metric tons, down 1.2% from a year earlier and 6.4% less than November’s 213.51 million metric tons.
December industrial production rose 6% from a year earlier, below November’s 6.2% and market expectation of 6.1%. The full year growth of the industrial sector remain unchanged at 6% from a month ago.