Activity in China's steel industry is collapsing, and it's bad news for Australia's exports

China Photos/Getty Images

While activity in China’s manufacturing sector recorded tepid growth in June, the same cannot be said for the nation’s steel producers.

Activity collapsed last month.

As this table shows, posted on Twitter by Luke Kawa, the separate steel industry PMI slumped to 37.4 from 42.4 in May.

Remembering that a figure of 50 separates industry expansion from contraction, it’s a terrible result.

Aside from an increase in new export orders, which rose to 50.7 from 43.7 in May, the rest of the report is dire. Output slumped to 34.2 from 40.7 while new orders, a gauge on domestic demand, slumped to 27.9. Indicative of building inventory levels, the gauge on finished goods jumped to 55.1 from 50.3.

This means despite a slump in output, inventory levels are continuing to expand. Not a very encouraging result, either for the month or period ahead.

Overnight the spot iron ore price slumped 3.2% to $59.35 a tonne according to Metal Bulletin — taking the price below the $60 level for the first time since May 22 this year.

Based on the June steel industry PMI report, it suggests the loss seen overnight may be the start of a longer-lasting trend.

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