Steel Pressured by Demand Concerns

Steel rebar futures traded around CNY 3,160 per ton, hovering near five-week lows as China’s steel market entered its seasonally weak demand period earlier than usual this year due to persistent rainfall and the early arrival of summer heat. Construction activity typically slows during periods of heavy rain and high temperatures, reducing demand for steel products. Chinese steelmakers have also come under pressure from tighter profit margins, limiting their willingness to accumulate raw material inventories or ramp up production. Margins have been further squeezed by rising coal prices following the recent mine accident in China’s Shanxi Province. Meanwhile, the latest industry data showed domestic crude steel production fell 2.8% year-on-year to 83.6 million tons in April, marking the lowest April output level since 2018.

Steel rebar futures were at CNY 3,190 per tonne in June, their highest in two weeks to sustain an over 3% increase since the start of the year as aggressive stimulus measures by the Chinese government supported expectations on demand. Major ratings houses noted they expect home prices in China to halt their decline by next year, reflecting the bottom of a major source of rebar consumption globally. The signals are consistent with measures taken by local governments to boost property buying, with the Shenzhen area easing restrictions on home buying and Guangzhou increasing subsidies. Infrastructure spending is also due to support ferrous metal buying, including Beijing's push to set up industrial and commercial hubs in Western China. On the supply front, domestic steel output eased by 2.8% annually to 83.6 million tons, the lowest amount for the month since 2018.

Steel rebar futures held below CNY 3,190 per ton, hovering near their lowest level in a month as weak demand continued to weigh on prices. Steel margins in China remain under pressure amid persistent weakness in the country’s infrastructure and property construction sectors. Demand for Chinese steel exports has also softened, with overseas buyers showing limited appetite for purchases at elevated prices. China’s steel output declined 2.8% year-on-year to 86.63 million tons in April, marking the weakest April reading since 2018. Meanwhile, the latest monthly industry report from Mysteel indicated that long steel production is expected to increase as improved profitability encourages domestic steelmakers to raise output. However, the prospect of higher supply could create additional downward pressure later this month if end-user demand continues to deteriorate.