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05 May 2022 | 12:38 UTC
Highlights
China's manufacturing activity further contracts in April
Overseas demand for Chinese manufactured goods shrinks
More easing expected in infrastructure, property sectors
Steel demand from China's manufacturing sector is expected to remain in a contraction in May despite some recovery expected end-April, as shrinking overseas demand for Chinese manufactured goods compounds problems for the country's steel sector, industry sources said.
China's manufacturing industry purchasing manager index (PMI) contracted for the second straight month in April because of a COVID-19 resurgence in the country.
China's new COVID-19 cases have been steadily declining since reaching a peak on April 28. Logistics and manufacturing activity have gradually recovered in some of the COVID affected regions.
Related blog: 6 key drivers shaping China's steel market amid the latest COVID-19 surge
However, Shanghai and Beijing, as well as cities in at least 11 provinces were still facing some sort of lockdown or social restrictions as of May 5 to contain the outbreak.
Both Shanghai and Beijing are major economic centers in China pivotal for industrial growth.
The PMI, published by the National Bureau of Statistics, fell to 47.4 points in April, from 49.5 point in March. The PMI is a key indicator of China's major flat steel consumption sectors.
The country's manufacturing activity was also the lowest in April since March 2020, according to NBS data released end-April. A reading below 50 points indicates a contraction.
The PMI's sub-index of manufacturing production dropped to 44.4 points in April, from 49.5 points in March.
Manufacturing sector's new orders fell to 42.6 points in April, from 48.8 in March, while export orders were down at 41.6 points, from March's 47.2, according to NBS data.
The sub-indexes of production, new orders and new export orders were at their lowest levels since the COVID-19 outbreak ran rampant in China in February.
Manufacturing activity could see a slower recovery in May as it will take time to stamp out the highly contagious omicron coronavirus variant, sources said.
China employs a zero-tolerance approach toward COVID-19.
The recovery in the manufacturing sector is also likely to be hampered by sluggish domestic consumption at a time when household incomes are under pressure, sources said.
"Actually, the adverse impact from the COVID outbreaks on manufacturing production will abate sooner or later, while I'm more concerned about the decline in overseas demand," a market source said.
Soaring energy prices have led overseas consumers to cut back on non-essential purchases, while operations at overseas manufacturing factories have almost returned to normal levels, reducing their reliance on Chinese goods, the source said.
Some sources said exports of manufactured Chinese goods have played a big role in supporting China's manufacturing activities since 2020, but the slowdown in exports could accelerate in the second quarter.
China's Politburo, the top political and economic planning body, said April 29 that China will make all efforts to achieve its 2022 economic targets.
China would have to step up its gross domestic product growth in second-half 2022 to at least over 6% to meet its 5.5% GDP growth target for the year, sources said.
The market expects China to offer a stronger stimulus to support its infrastructure sector, while easing financing for property developers and home buyers, and optimizing policies to contain COVID-19.
The construction and its related manufacturing sectors are likely to gain traction sometime later in the second quarter or early third quarter, sources said, adding that steel demand in the country's construction and manufacturing industries is expected to be better in second-half 2022 than the first half of the year.