STEEL NEWS

Factory output declines

The HSBC preliminary China manufacturing purchasing managers index (PMI) fell to an 11-month low of 50.1 in June, significantly lower than the final PMI of 51.6 in May.

But the index still stood above the 50 level, indicating expansion of the manufacturing industry activity in the 11th consecutive month.

The PMI is an indicator for economic activity. A PMI over 50 indicates that the economy is expanding, while anything below 50 means that the economy is contracting.

“Demand is cooling thanks to the effect of tightening measures and the slackness in external markets. This, plus the ongoing inventory destocking, has led to a slowdown in output growth,” said Qu Hongbin, the British banking conglomerate’s chief economist in China.

The bank’s preliminary China manufacturing output index in June stood at 50, also an 11-month low, compared with the final output index of 51.6 in May. 

The HSBC flash China manufacturing PMI is published on a monthly basis approximately one week before the final PMI data are released, giving an early indicator of the manufacturing sector’s operating conditions in the country.

“A decline in June PMI data is widely expected, and the final PMI to be released by the China Federation of Logistics and Purchasing may stand between 50 and 51,” said Lian Ping, chief economist at the Shanghai-based Bank of Communications.

Lian said he would not rule out a decline of PMI data to below-50 territory in a future month, but added that it would not mean a hard-landing.

Import and export growth are still high, domestic consumption is recovering, and social housing projects are expected to bolster investment, he said, predicting an optimistic 9 to 9.5 percent GDP growth for 2011.

Economists at Credit Suisse were not so certain when they downgraded the China GDP forecast for this year to 8 to 8.5 percent from an earlier forecast of 8.9 percent, and predicted a weakened demand and longer-than-expected slowdown Wednesday.

The domestic demand has moderated as reflected by a slower increase in logistics revenues. The logistics revenues in the first five months of the year reached 60 trillion yuan ($9.3 trillion), or an increase of 13.7 percent year-on-year, the China Federation of Logistics and Purchasing said on its website Thursday.