China manufacturing PMI slips into contraction, weighs on HRC demand

China's manufacturing activity returned to contraction in July after four consecutive months of expansion, raising concerns about domestic steel demand and dampening sentiment in the hot-rolled coil market.

China's manufacturing Purchasing Managers' Index fell to 49.2 points in July from 50.3 in June, according to data released by the National Bureau of Statistics on July 31. A reading below 50 indicates contraction.

The PMI's production, new orders and new export orders sub-indices all reverted to contraction in July, declining to 49.9, 48.5, and 49.6 points, respectively, from 51.4, 51.2, and 50.1 points in June, National Bureau of Statistics data showed.

The equipment manufacturing and high-tech manufacturing sectors remained in expansion territory, with PMIs at 51.4 and 53.3 points, respectively, according to the data. However, the consumer goods and high-energy-consuming industries weakened, as their PMIs declined to 47.8 and 47.0 points, down by 2.4 points and 0.1 point month over month, the data showed.

A mill source said that overall domestic end-user demand for HRC in July appeared to be slower than a year earlier, with little evidence of growth.

"While manufacturing activity has been sluggish, the continued downturn in the property and infrastructure sectors has reduced demand for steel structures, which has also weighed on HRC consumption," the mill source said.

Mill and trading sources said steel demand from manufacturing sectors could experience a seasonal recovery in late August and September. However, they cautioned that any rebound may not surpass the level seen in 2025.

Expectations for further policy support have diminished following the Communist Party's Politburo meeting on July 30, which did not introduce new stimulus measures targeting the property and infrastructure sectors or domestic consumer goods consumption.

"The tone of the meeting suggests there may be no additional stimulus for major steel-consuming sectors such as property and infrastructure in the second half of the year," a second mill source said. "Meanwhile, there are no signs of a meaningful recovery in domestic consumption, making it difficult for steel demand to improve substantially in the second half of 2026."

Some Chinese steelmakers have reduced HRC production amid weaker demand and lower prices. However, the two mill sources, three traders and a steel industry analyst said current output reductions remain insufficient to offset the decline in consumption.

According to the latest data from the China Iron and Steel Association, HRC inventories at major spot markets reached 2.25 million mt as of July 20, up 26.4% from a year earlier.

Platts, part of S&P Global Energy, assessed the Chinese domestic HRC price at Yuan 3,280/mt ($486/mt) on July 31, down Yuan 70/mt from the end of June and Yuan 160/mt lower than a year earlier.