From SAIL To JSW: Steel Stocks Rise With Industrial Output Growth In China
China's economic performance often influences steel prices due to its significant share in global steel production, consumption.
Iron ore prices are on the move again, hovering around the $100-per-tonne mark, mirroring the intricate web of China's economic landscape.
Last week witnessed a drop of over 13% in futures, plunging to $97 a tonne in Singapore, only to rebound shortly after. This reflects the mixed picture of China's economic health.
Key Highlights Of Chinese Economic Data
January–February retail sales grew 5.5% year-on-year against economists' expectations of a 5.6% growth.
Industrial production increased 7% against estimates of 5% growth.
January–February fixed-asset investment, excluding rural households, grew 4.2% YoY against economists' expectations of 3.2% growth.
January–February property investment declined 9% YoY.
Surveyed jobless rate stands at 5.3% as of February vs 5.1% as of December.
Impact On Indian Companies
Economic performance of China often influences global steel prices due to the nation's significant share in global steel production and consumption. Given the 7% growth in Chinese industrial production, it can lead to higher global steel prices, benefiting Indian steel manufacturers by improving their revenue and profitability outlook.
Strong Industrial Output Vs Sluggish Steel Production
China's factories have been busy. Factory output and investment exhibited a robust growth, surpassing economists' estimates for the January– February. But steel production, a key part of China's economy, has not kept pace. Despite the overall economic growth, nationwide steel production saw only marginal growth in the initial two months. The underlying cause is lingering concerns over demand, particularly within China's steel-intensive property sector.
Iron Ore Stockpiles Grow
Even as steel production slows, there's plenty of iron-ore around. This has sparked apprehensions about demand sustainability. In response, some mills have scaled back production, reflecting the industry's cautious stance amid economic flux.
Analysts note the emergence of demand weakness, as Chinese smelters announce output cuts. In fact, stockpiles at China's ports are at their highest level in over a year, with holdings swelling to 140.9 million tonnes last week.
A Bright Spot: Retail
China's retail sector shines as a beacon of resilience. The January–February retail sales surged by 5.5% YoY against economists' expectations of 5.6%. This displays strong consumer confidence amid economic uncertainties.
Indian Steel Manufacturers' Shares Rise
Steel manufacturers in India are benefitting from the recent drop in iron ore prices as it is a key raw material for steel manufacturing.
Looking Ahead
As China navigates through its economic complexities, the road ahead remains covered in uncertainty. While strong industrial output and resilient retail sales hint at underlying economic strength, challenges loom large, particularly within the steel sector.
