China steel survey: Sentiment improves, destocking ends Link Here. The July results of Macquarie’s proprietary China steel sector survey point to a marked improvement in sentiment across the 40 steel mills, 30 steel traders and 30 iron ore traders interviewed. Orders have improved somewhat at the mills, profitability is rising (although most are still losing money) and the destocking of raw materials appears to finally have ended. However, traders report flat sales, and are only modestly optimistic about August volumes. Latest news Base metal prices initially followed major Asian equity indices lower on Monday, following an "ultra-urgent notice" from China's State Council of a nationwide audit of local government debt. This new round of auditing suggests that local government debt remains an ongoing concern of the leadership; there have been two rounds already since 2011. The first audit also covered the whole nation and found total local government debt stood at Rmb10.7trn by 2010; the second was on 36 selected local governments and suggested a 13% increase in their total debt from 2010 to 2012. While the details in the notice are limited, we would assume that the audit is in part driven by Beijing’s desire to institutionalize its effort to monitor local government leverage. Although the term "ultra urgent" does suggest that the concerns have increased in 2013, our China economist Chen Shao expects limited impact on fiscal spending, and given the time frame of previous audits we would expect results to take around three months to be published. Latest high frequency CISA data suggested Chinese daily crude steel production was 2.13mt in the mid ten days of July, up 2.3% from the previous ten days. The daily production of key mills was 1.72mt, up 1.4% from the previous ten days. The sequential improvement in Chinese production provides a slight surprise, however the data is consistent with the recent stabilisation in Chinese steel prices and improvement in steel sector sentiment evidenced within our sector survey in the feature article.
Any expressed market opinion is my own and is not to be taken as financial advice
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