China’s Stimulus Helps to Lift the Gloom Over Steel Markets

China’s raw materials prices steadied after factory activity shrank less than expected in August, and while the purchasing managers’ index for steel stayed in contraction, the pace of its decline narrowed sharply.

The improvement in the steel gauge across all areas follows the restart of operations at some mills and suggests that the government’s efforts to lift the economy may be gaining traction, although new export orders was the only segment to show an expansion. 

It means that China’s ferrous metals markets may have bottomed out as the government “puts a floor under steel and iron ore price declines,” said Ian Roper, commodity strategist at Astris Advisory Japan.

Still, the data continue to signal an economy operating under duress. Stringent virus restrictions and power shortages have stifled manufacturing, affecting metals consumption, while the crisis in the property sector has crushed steel demand and depressed output. Building sites also suffered during the month as much of China sweltered in an unprecedented heatwave, although government spending on infrastructure helped keep the construction PMI in expansion even as it fell on the month.

China’s steel industry has been sounding the alarm over crisis conditions for weeks. The listed unit of the world’s top steelmaker, Baoshan Iron & Steel Co., warned on Tuesday of severe challenges in the third quarter as it reported first-half earnings that missed estimates, citing squeezed margins after prices plunged more than raw material costs.