Steel yourself for a rough day, manufacturing stock owners.
Steel producers are taking a hit today, after China and the euro-zone reported weak purchasing managers index (PMI) numbers this morning, continuing a trend of contraction in global manufacturing. A PMI number under 50 represents contraction, and HSBC estimates a PMI of 47.8 for China this month, up just two tenths from August. The euro-zone’s flash PMI composite of 45.9 represents the sharpest contraction since summer of 2009.
The euro-zone’s drop was driven by harsh numbers in France, where manufacturing orders and production fell at the fastest rate since April 2009. Even a strong month in Germany, the euro-zone’s largest economy, couldn’t support the overall composite. In China, the weak PMI numbers represent continued mediocrity in the manufacturing sector and mark the eleventh consecutive month of contraction in factory activity there.
“Manufacturing activities remain lackluster, thanks to weak new business flows and a longer than expected destocking process. And this is adding more pressures to the labor market and has prompted Beijing to step up easing over the past weeks. The recent easing measures should be working to lead to a modest improvement from 4Q onwards,” writes Hongbin Qu, co-head of Asian Economic Research at HSBC, in the PMI release.
Raw materials like steel, copper and aluminum tend to be economically sensitive, and stock prices are often influenced by manufacturing prospects. As a result, steel stocks and mining companies have dropped in trading this morning.
Cliffs Natural Resources is the big name leading the downward charge, down 4.6% on the day so far. Brazil mining company Vale, which provides iron ore for integrated steel producers, is down 1.5%. Across the board, ore and steel producers are being knocked down as investors worry about demand for manufacturing materials. Copper stocks are also feeling the PMI pressure. Miners FCX and SCCO are both down around 2%. Steel ETF SLX is also down nearly 2% this morning.
