China’s steel sector purchasing managers’ index (PMI) rose above the key level of 50 in May, indicating a continued recovery in the steel industry during the month, the China steel logistics professionals committee (CSLPC) said.

The steel PMI increased by five points from April to 50.9, rising above the level of 50 that indicates an expansion.

Sub-indexes showed both steel production and demand rising in May, lifting the pace of destocking for steel and raw materials. Prices for raw materials jumped substantially while industry employment was stable. Steel production growth is likely to ease in line with relatively slower steel demand in June, but feedstock prices may stay at a high level, the CSLPC forecasted.

The steel PMI’s sub-index for new domestic orders jumped by 13 points to 52.9 on accelerated investment in infrastructure and the resumption of large-scale steel enterprises. The export orders index was at 31.9, up slightly from April’s 27.8 but remaining below 40 for a third consecutive month because of weak overseas demand during the Covid-19 epidemic.

The steel production sub-index jumped by 3 points from a month earlier to 56.4. China iron and steel association (Cisa) data showed steel output at its key member mills averaged 2.1mn t/d in May, up by 6.39pc on the month and higher by 1.18pc on a year earlier.

Finished product inventories fell quickly at mills as downstream demand resumed, with the inventory sub-index dropping by 9.6 points to 29.2 in May, CSLPC said.

The sharp rise in raw material prices in May was the result of stronger demand and tight supply of imports, as overseas suppliers were hit by the pandemic and port maintenance. The higher prices are pressuring steelmakers’ margins, CSLPC said. Steel demand may fall as the offseason starts in June, while steel production is unlikely to increase further given environmental restrictions, it said.

Imports of iron ore will stay low if Brazil does not manage to control the coronavirus outbreak in June, which will push up iron ore prices and the production costs for steel enterprises, CSLPC said.

China’s manufacturing PMI fell to 50.6 in May from 50.8 in April, the national bureau of statistics said. This was the third month of expansion for factory activity after it cratered to 35.7 in February.