Armco Metal Holdings, Inc. (AMCO) to Benefit from China Factory Activity Hitting Multi-Month Highs

Armco Metals Holdings, a distributor of imported metal ores and a steel recycler in China, should benefit from recent indications of rising manufacturing activity in the second largest economy in the world. According to data released on July 1, 2014, China’s factories boosted output suggesting that government stimulus efforts are injecting vigor into the market.

Earlier this year, there were serious concerns that a slowing economic growth caused the build up of China’s inventory of steel to a few hundred million tons. Many markets were rattled earlier in the year by worries that China’s slowing growth would turn into what is referred to as a hard landing, creating a drag on economic activity around the world. A hard landing is an economic state wherein an economy is slowing down sharply or is tipped into outright recession after a period of rapid growth, usually due to government attempts to rein in inflation. Back in May, the price of iron ore fell below $100 a ton for the first time since September 2012 on concerns over reduced demand in China. Since then, the market appears to have rebounded from that low and is consolidating at around $110 a ton. As China is the world’s largest consumer of iron ore, its economy will have the greatest impact on iron ore’s pricing.

The Chinese government’s recent stimulus measures, including targeted credit easing, more spending on railways and business tax breaks, have helped boost investors’ confidence. The stimulus also kicked in manufacturing activity as measured by the HSBC/Markit purchasing managers’ index (PMI). The PMI is calculated based on data from surveys of purchasing managers in the manufacturing sector on five different variables, namely, production level, new orders from customers, speed of supplier deliveries, inventories and employment level. For June, the HSBC/Markit purchasing managers’ index (PMI) rose to 50.7 from May’s 49.4, surging past the 50-point level that separates growth in activity from contraction for the first time since December. Stronger orders and the improving business outlook prompted services firms to hire more workers last month, as indicated by the employment sub-index, which rose to a three-month high.

Other metals have been moving up in pricing as well due to Chinese demand. For instance, China is also the biggest consumer of copper, and that metal also recently picked up to a four month high at around $7,098.75 per ton. Ongoing infrastructure spending is expected to continue pushing economic growth and demand for metals. The only major concern is the sluggish property market which hurt China’s economic growth in the second half of the year, but investors are confident that the Chinese government can keep the growth sustainable through accommodative fiscal and monetary policy.

Armco Metals Holdings continues to position itself to be China’s largest scrap steel processor and has a growing business in metal and nonferrous metal ore procurement. China’s current economic environment should be a driver of this company’s top line growth.

For more information, visit www.armcometals.com

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