
The current steel market is showing signs of recovery, driven by a combination of factors such as supply adjustments, inventory reductions, and financial pressures. First, the production of crude steel remains high, but there are indications that it may soon decrease. According to the latest data from the China Iron and Steel Association, key steel producers maintained a daily output of 1.7455 million tons in mid-June, an increase of 14,000 tons compared to the previous period, or 0.79%. This figure is slightly below the peak of 1.748 million tons recorded in early May, making it the second-highest level this year. Meanwhile, the estimated national crude steel output reached 2.264 million tons, up by 0.8 million tons month-on-month, reflecting a 0.37% rise. Non-key enterprises saw a drop in crude steel production, with output falling by 0.6 million tons to 419,000 tons, accounting for 19.4% of total output—a decline of 0.3% from the prior month.
Steel mills have seen improved profitability this week due to lower iron ore prices. While losses per ton of steel were still around RMB 200, the trend is gradually shifting toward better margins. In the Tangshan area, blast furnace operating rates have remained stable at approximately 91%, indicating that production is still active despite financial constraints. These constraints have led to a floor price for steel, which could be beneficial for long-term industry stability. Additionally, recent financial pressures may be accelerating industrial restructuring, potentially leading to some smaller mills exiting the market earlier than expected.
Second, steel inventories have continued to fall, signaling improved fundamentals since mid-February. Social steel stock levels have declined for 14 consecutive weeks, reaching 17 million tons as of last week. Inventory levels dropped to 7.6 million tons, down 1.95% month-on-month and 2.72% from the previous week. In Tangshan, steel billet inventories also fell sharply, from a high of 1.97 million tons to 880,000 tons—down 56%. With supply and demand dynamics remaining unchanged, steel prices are likely to hit a bottom. However, the timing and extent of any rebound will depend on further supply cuts and shifts in demand.
Third, capital shortages have intensified their impact on the steel industry. Since late June, rising interest rates and tighter liquidity conditions have caused the Shanghai interbank offered rate (SHIBOR) to surge to 9.67%. This shortage of funds has not only affected steel trading but is now beginning to spread to end-user markets. Many banks plan to reduce their exposure in the second half of the year, and some steel mills are already feeling the pressure due to delayed fund returns. In Jiangxi, several small steel mills have halted operations due to cash flow issues. The broader implications of tight financing extend beyond these cases, particularly in the real estate sector. Tighter credit conditions could push the industry back into a contraction phase. As real estate developers face funding challenges, construction activity may slow, affecting new housing starts and overall construction volumes. This, in turn, could negatively impact steel demand, with downstream sectors like machinery and infrastructure also being affected.
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