China Suffers Another Dismal Month Of Steel Production

China’s economy continues to look wretched.

We know this because steel production continued to drop for yet another month. It fell 6.4% in July, and is down 6.4% for the first seven months of year, according to new data from the World Steel Association.

For years China has been the world’s largest steel producer with output of 1.3 billion metric tons of the metal in 2021, or more than half of global production.

Month-to-month changes in Chinese steel production can also be used to get realistic a read on the health of communist country’s economy. That’s important because China’s official government economic data has a reputation for being more aspirational than actual.

What we do know for sure is that steel is a vital component in two of China’s key industries: manufacturing and real estate construction. When steel production is down its likely that one or both of those industries is in trouble.

To put the production pullback in a broader context, among the top ten global producers only two countries suffered a worse drop in July. They were Russia (down 13.2%, and Turkey off by 20.7%. The former is getting sapped by western sanctions following its invasion of Ukraine. The latter has long been an economic basket case caused by misguided government policies.

Should we worry about China’s continued economic weakness? Probably so. As the world steadily weans itself off the countries exports in favor of sourcing goods from other countries, China’s economy may weaken even further.

Peter Tchir of Academy Securities, writing in a recent report, puts it this way:

• “How bad is the economy? (It seems bad) will their stimulus be enough? Will they take actions on the geopolitical front (more support for Russia, more agitation around Taiwan) to distract their population from the problems at home?”

Put simply, as China’s economy slumps the Chinese Communist Party may want to boost domestic support by launching an attack on Taiwan. That might sound crazy, but it is exactly what happens in 1982 when the Argentina’s military junta decided to invade the Falkland Islands, a British territory off the coast of South America.

Let’s hope China doesn’t make the same decision.