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Chinese steel cycle improves marginally

Steel sales have firmed a little further, building on the promising signs seen in March. They are now rising at 8.0%yr, up from 6.7%yr in March and the average of 3.7%yr in Jan-Feb, but still well below the run of 11.2% average growth seen from Sep-Dec 2013. Output firmed to 7.2%yr in April, having decelerated to 6.1%yr in March from an average of 6.7%yr in Jan-Feb, and 11.9% in Sep-Dec 2013.

The growth of steel stocks has decelerated to 10.4%%yr in April from 12.0% last month and 38.6%yr in January. That puts the growth on inventories below where it was in November (12.4%yr), when sales and stocks were in reasonable harmony.

So, with sales/output/stocks now growing at 8.0/7.2/10.4% respectively, the market is much closer to balance now than at any stage so far this year.

Output may have to slow a little further while the remainder of the stock build is worked through, but the worst is clearly past in a sequential growth sense.

Taken together with the aggregate signals from the business surveys, there are now modest upside risks to the forthcoming May heavy industrial output outturn, the reverse of the situation in the year to date.

Source – macro business

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