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China’s Manufacturing PMI Falls Below 50 In December

Mark O'Hara

Must-read: Global factors drag down US steel plays (Part 10 of 15)

(Continued from Part 9)

China’s manufacturing PMI

The manufacturing PMI (or Purchasing Managers’ Index) is a key indicator of economic activity. We’ll analyze HSBC’s manufacturing PMI for China in this part. It’s released on a monthly basis and is based on the following five components:

  1. New orders – 30%

  2. Inventory levels – 10%

  3. Production – 10%

  4. Supplier delivery times – 15%

  5. Employment environment – 20%

The index is based on replies to monthly questionnaires sent to purchase executives in more than 420 companies. Readings above 50 generally indicate economic expansion, while a reading below 50 indicates a contraction. Analysts track PMI figures closely. They can provide crucial insights into future GDP (or gross domestic product) levels.

China’s December PMI falls

The previous chart shows China’s manufacturing PMI. The reading fell to 49.5 in December. This is below the final reading of 50 observed in November. Analysts had forecast a reading of 50 in December.

This is the first time since April that China’s manufacturing PMI has gone below 50. This is a negative sign for China’s industrial sector. The industrial sector is a major steel consumer in China.

US steel companies

The slowdown in the world’s largest steel-consuming country has an impact on the global steel industry. Even US steel companies such as AK Steel (AKS), ArcelorMittal (MT), Nucor (NUE), and U.S. Steel Corporation (X) are negatively impacted by the Chinese slowdown.

The SPDR S&P Metals and Mining ETF (XME) can give you exposure to the US steel industry without the hassles of picking individual stocks.

Another key indicator investors should track is steel production in China. We’ll discuss this in our next part.

Continue to Part 11

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