China Watch: Stimulus Is Working, Steel Demand on the Rise

Includes: CLF, X
by: Kelvin Schulle

According to a China's report that the first massive stimulus package in the world, China's $680B stimulus is making progress, the economy has shown signs of recovery at the end of 2008. An official from National Bureau of Statistics said the monthly PMI pilot index has revealed that in December 2008 industrial production appeared to be stabilized. In December 2008, the CFLP China Manufacturing Purchasing Managers Index [PMI] rose to 41.2 percent from a 38.8% reading of November, a clear sign of recovery.

More importantly, after a few months of steep reduction of production , state-owned steel mills began to ramp up their full production in December due to the demand of steel products. China Business reported that Shougang Group in Beijing, last October, cut production by 15% ~ 20%. In December the company basically resumed full production, and raised its steel prices in January. This is a new sign that raw material demand is coming back amid the recovering economy. Other steel companies including Bao steel of Shanghai and Anshang Steel of Henan province also experienced high demand.

Investors should pay attention to US steel (NYSE:X) as the company exports steel products to China and Asia. Companies such as Cliff Natural Resources (NYSE:CLF), an iron ore producer, will also benefit from China demand if China's economy continues to recover in 2009.

Disclosure: None