China's Dec manufacturing PMI rises, uptrend likely to continue in early 2022

The Chinese manufacturing purchasing managers index continued to rise in December at 50.3 points, with several steel market sources expecting China's manufacturing activity to continue improving in the first half of 2022.

The PMI, published by the National Bureau of Statistics, rose in December from 50.1 points in November and 49.2 points in October.

The uptrend is expected to continue as more proactive monetary and fiscal policies implemented from December would lend support to both consumption and construction-related manufacturing sectors in early 2022. Flat steel demand and prices, in tandem, are likely to gain upward momentum.

The sub-indexes of manufacturing production in December retreated to 51.4 points, down from 52 points in November after rising from 48.4 in October.

The downtrend of production was partly seasonal, and partly as controls of energy consumption and environmental protection measures to reduce winter smog remained in place, especially in northern China.

However, the energy consumption controls will usually become much looser at the beginning of each year, while measures to reduce winter smog will be eased after the Winter Olympics held in Beijing over Feb. 4-20.

China's manufacturing production, as a result, is likely to rebound in January or February.

Meanwhile, manufacturing new orders in December, although remaining in contraction, improved for the second consecutive month to 49.7 points, up from 49.4 points in November and 48.8 points in October.

Some sources expected infrastructure construction to improve after the Chinese Lunar New Year (Jan. 31- Feb. 6) from proactive fiscal spending starting December, benefiting construction-related manufactured goods in the coming months.

Some steel traders in eastern China's Shanghai and southern China's Guangdong province said China's steel production was almost certain to increase in January-February, but they still expected steel prices to trend upwards after the Chinese Lunar New Year, as steel demand from manufacturing sector should continue improving in early 2022.

However, some of them were that worried China's domestic market, of both long and flat steel, might lose its steam in the second half of 2022.

This is partly because improvement in infrastructure construction is unlikely to fully offset the slowdown in China's property sector.

And more importantly, overseas demand for Chinese manufactured goods, a key driver behind the recovering manufacturing sector since mid-2020, may decline rapidly in the second half of 2022, when most factories overseas will return to normal, and the US may begin to tighten its monetary policy.

According to NBS, manufacturing's new export orders dropped to 48.1 in December, down by 0.4 points from November, and was in contraction for eight months straight.