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Chinese steel output hits another record in July





Steel production in China reached a new high in July, the third monthly record in the last four months. According to the latest figures released by the National Bureau of Statistics total crude steel production was 81.24 million tonnes in July, up 1.3% month-on-month and 9.6% year-on-year. Total production during the first seven months of the year was also up by 6.8%. 
 
Chinese steel industry appears to be unaffected by the ongoing trade disputes with the US, at least for the time being. Despite macro headwinds production is running at an all-time high, prices are at their highest1 since December last year, steel mills are highly profitable and inventories are lingering near record lows2. 
 
However, the latest set of macro data also suggests that the tension between the two countries is expected to take its toll on demand in the second half of the year. Fixed asset investments slowed down to 5.5% during the first seven months of the year, down from 6% in 1H18. On a monthly basis, this means that growth declined from 5.7% year-on-year in June to 3% in July, the slowest pace on record. A pick-up in property investment was offset by slower investments in manufacturing and infrastructure.
 
In an attempt to counter the effects of trade tensions, the Chinese government announced last week that it plans to adopt “a more proactive fiscal policy” and prop up the economy in the second half of the year. Although details have so far been few and far between the government pledged to speed up infrastructure investments, widen the scope of tax cuts that are currently in place and improve liquidity. 
 
To that end, state-owned China Railway Corporation announced today that it plans to increase spending on railway construction by nearly US$10 billion from the initial budget of RMB732 billion for 2018 to over RMB800  billion. This will be achieved by expanding existing projects such as the planned railway line linking Sichuan Province and the Tibet Autonomous Region as well as by restarting approvals on subway construction in various parts of the country. 
 
It is difficult to quantify the impact that this will have on the economy without further details. In the past, such stimuli boosted overall demand for commodities in China. Although we expect demand to improve in the second half of the year, we believe the Government will take a more measured approach this time around, as it is not only fighting to counter the effects of the trade tensions but also trying to tame the spiralling corporate debt.
 
Sources:Arrow

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