Writing for Forbes, Gordon G. Chang states, “It is now clear August will be the 10th-straight month of decline for the vitally important manufacturing sector in China.”

This conclusion comes after the HSBC Flash Managers’ Index (an indicator of the Chinese economy) for August fell to 47.8. August’s final PMI will be released in early September.

The news came as a surprise to many analysts who had predicted economic growth in China, especially after Premier Wen Jiabao’s attempts to stave off the slowdown.

Says Chang:

It’s hard to see how manufacturing will recover soon. Manufactured goods are stockpiled at record highs across China.

This certainly applies to Chinese-made steel.

The price of benchmark hot rolled steel has fallen 19% since April. In the first half of this year, the profits of steel companies dropped 96% from the corresponding period in 2011. Steelmakers have been defaulting on their obligations to purchase iron ore, a sure sign production will tumble soon. Daily output this month, according to the analysts at Mirae Assets Securities, could be as low as 1.85 million tons. Record production in the face of weak demand suggests inventories must be rising.

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Photo of Baosteel by Flickr user Erik Charlton, used following Creative Commons license guidelines.