March China steel PMI slides on lower output

China's steel purchasing managers index (PMI) fell by 3.8 points to 46.8 in March to 46.8, indicating a contraction of the sector last month on the back of lower production and the booking of fewer new orders.

The drop in the steel PMI was in contrast to the manufacturing PMI that rebounded to 50.5 in March, after spending the previous three months in contraction territory below 50.

Worsening air quality in north China had resulted in restrictions on some aspects of steel production, such as sintering and rolling, which affected output. Some steel mills also voluntarily opted for maintenance shutdowns last month. The production sub-index fell by 7.5 points to 44.7, said the China steel logistics professionals committee (CSLPC) that compiles the steel PMI.

There was sharp drop in raw material imports and build in inventories by steel mills last month.

New domestic orders sub-index dropped by 1.5 points to 46.3, showing a further fall in order bookings. There was a modest rebound in new orders booking for most of March but it was undone by the sluggish pace of bookings in the last week of the month, said the CSLPC. Warmer weather should gradually lift steel sales in April, although there are no indications that demand growth will be "explosive", said the CSLPC.

Steel stocks with trading firms increased by 10.5pc from the previous month at 16.45mn t in late March in 20 cities across China, according to the China iron and steel association Cisa.

Average price of steel products may fall this month as the value-added tax (VAT) rate is cut to 13pc from 16pc, with the CSLPC expecting the benefit of the tax cut to be passed down to end products of the steel sector.

The feelgood factor of the lower VAT rate and seasonal demand push may lift steel prices in April, said the CSLPC.