The latest CISA 10-day production data for the start of April suggests steel production remains strong despite the disappointing macro data in March. The 10 day annualised rate hit a record of 775mt, although this probably below the rates seen earlier in the year given the underestimation of production from small mills.
While overall GDP and industrial production has been disappointing, there are strong areas as far as steel is concerned. Property sales and construction in particular continue to fly along at very strong rates of 60%YoY YTD and 17%YoY YTD respectively, while auto production was also up 10%YoY in March.
The problem here is that the areas that steel is benefitting from are under attack from policy makers. If measures don't work, it seems likely they will be tightened further, which will only unsettle investors further. So seems to me to be a case of good news being bad for those exposed to this sector.
One area that has been very weak is power generation. While industrial production has weakened to a bit below 9%, power generation has been in the low single digits all year. Thermal power generation has been even worse, slipping into negative territory of -0.5%YoY as hydro generation has surged again this year by over 20%.
This is a huge deadweight on domestic and international coal markets. There are some signs that stocks are perhaps coming down more due to supply. The level of stock at key power plants has come down by over 10mt since the end of February, but at 20 days of consumption, power producers are by no means stretched for coal.
