Key Summary

According to the market price fluctuations of important production materials in the circulation sector in late June 2026, as released by China's National Bureau of Statistics, out of 50 major production materials, the prices of 34 declined, 13 increased, and 3 remained stable. This data clearly indicates that China's industrial sector continues to face deflationary pressures. Notably, the decline in prices of basic industrial materials such as steel, non-ferrous metals, and coal was prominent, suggesting a continued slowdown in manufacturing production activities and weak domestic demand.

Why It Matters

As the 'world's factory' and a major consumer of raw materials, China's economic trends have a significant impact on global industry and raw material markets. The continuous decline in production material prices in late June indicates that China's economic recovery is slower than expected, or that certain sectors are still struggling. This is an extension of the news from mid-June, which reported that 36 out of 50 production material items saw price declines, indicating persistent industrial deflationary pressures. [cite: CwFO3U2eVJM2JS8O1MXd] Such deflationary pressures can worsen corporate profitability and dampen investment sentiment, thereby delaying overall economic recovery. Furthermore, the decline in China's production material prices could exert downward pressure on global raw material prices, potentially having a positive effect on inflation moderation in other countries, but simultaneously deepening concerns about a global economic slowdown. Particularly, with the real estate market slump still unresolved, the weakness in the industrial sector will likely heighten expectations for additional stimulus measures from the Chinese government.

Impact on the Korean Market

The decline in China's production material prices is expected to have complex effects on the Korean economy. Firstly, Korean companies exporting intermediate goods such as steel and petrochemicals to China face concerns about deteriorating performance due to falling export unit prices and reduced demand. Major industrial material companies like 005490:POSCO Holdings and 051910:LG Chem could be directly affected by intensified price competition and slowing demand in the Chinese market. Conversely, companies importing raw materials from China could benefit from cost reductions. However, an overall slowdown in the Chinese economy is highly likely to lead to a decrease in Korea's exports to China, negatively impacting the domestic economy as a whole. In the raw materials market, slowing demand from China will exert downward pressure on prices of key industrial raw materials such as copper and WTI crude oil. This could heighten concerns about a global economic recession and stimulate a preference for safe-haven assets. In the bond market, China's deflationary pressures could reinforce a global low-growth, low-inflation trend, acting as a factor for a decline in KR10Y government bond yields.

Future Scenarios

The continuous decline in China's production material prices is likely to prompt additional stimulus measures from the Chinese government in the short term. Measures such as interest rate cuts or reserve requirement ratio reductions by the People's Bank of China, and increased fiscal spending, can be expected. In an optimistic scenario, these stimulus measures could prove effective, leading to a gradual recovery of the Chinese economy from the second half of the year, with production material prices also stabilizing. In this case, the export environment for Korean companies to China would also improve. However, in a pessimistic scenario, risks from China's real estate market could spill over, and a deepening global economic slowdown could prolong deflationary pressures. This would pose significant downside risks to the global economy, including Korea. Investors should closely monitor the intensity and effectiveness of the Chinese government's policy responses, as well as the pace of global economic recovery. In particular, the stabilization of the real estate market, along with China's key economic indicators (PMI, industrial production, retail sales), will be crucial variables.