China May Steel, Copper Output Softens On Weak Demand

Growth in China's production of industrial metals including bellwether crude steel mildly slowed in May from the previous month as broader macroeconomic demand weakened, National Bureau of Statistics data showed Monday.

Output of key industrial commodities in the world's second-largest economy is a good gauge of producer confidence, and last month's declines were largely in line with market expectations.

Crude steel output, most of which feeds China's all-important construction sector, rose 2.5% on year and 1.1% on month in May to 61.23 million metric tons, the second-highest monthly volume on record.

However, on a daily-average basis--a more accurate adjustment--production in May fell 2.5% compared with April to 1.97 million tons, according to the data.

Lackluster downstream demand kept steel makers from fully running furnaces, after bellwether economic indicators in April, including industrial output and manufacturing indices pointed to a sharp slowdown.

"In volume terms, inventory at the mills fell almost 2% [in May], suggesting that smaller mills are reducing output," Macquarie Commodities said in a note.

Iron ore spot import prices fell 8% through most of May, suggesting a slowdown in demand from steel makers. Steel prices on the Shanghai Futures Exchange declined 4% during the same period.

On a daily-average basis, China's crude steel output had reached a record 2.02 million tons in April.

Copper production followed a similar trend, as the economic slowdown damped consumption.

Output of the red metal fell 1.4% on month, its second consecutive month of decline, although it rose 5% on year to 484,000 tons.

Analysts said copper production is likely to stay weak, as high levels of refined copper inventories, estimated by analysts at nearly 1 million tons, continued to weigh on smelters.

Copper output remained weak also "because most of the copper [usage] is in the national [electricity] grid which has not boosted investment," said an Australian base metal analyst.

Still, not all sectors were softer. Tire production, a key indicator for the automotive industry, rose 2.8% on year and 3% from April to reach 76.6 million units in May, the bureau said.

Key automotive brands including General Motors Co. (GM) posted strong sales growth in China in May, boding well for the sector's second-quarter performance.

Overall industrial production growth also accelerated to 9.6% May, from 9.3% in April, despite slightly undershooting the median forecast of a 9.9% gain in a Dow Jones Newswires survey of 14 economists.

Write to Chuin-Wei Yap at chuin-wei.yap@dowjones.com

Copyright ? 2012 Dow Jones Newswires

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