Steel Pressured by Weak Fundamentals

Steel rebar futures remained below CNY 3,100 per ton, staying under pressure as weak market fundamentals continued to weigh on prices. Elevated coke prices continued to squeeze steelmakers’ profit margins, prompting some producers to scale back operations and undergo maintenance. Industry data showed that steel mill profitability in China fell sharply to 7.79% in the latest week. Chinese steel demand also weakened further in the third quarter amid a continued slowdown in construction activity. Data showed that China’s new home prices extended their declines in August, highlighting the persistent drag from the country’s prolonged property downturn. Meanwhile, China’s leading industry association reportedly urged steelmakers last month to voluntarily reduce output, aiming to lower inventories and restore profitability following a challenging first half.

Steel rebar futures slipped toward CNY 3,060 per ton, reaching a three-week low as worsening profitability across China’s steel sector weighed on sentiment. Industry data showed that steel mill profitability in China dropped sharply to 7.79% in the latest week, as persistently high coke prices continued to squeeze margins. Chinese steel demand also weakened further in the third quarter amid an ongoing slowdown in construction activity, while overseas steel demand remained relatively resilient but showed signs of a delayed recovery. Meanwhile, China’s leading industry association reportedly called on steelmakers last month to voluntarily curb output, with the aim of reducing inventories and restoring profitability after a challenging first half. However, analysts see limited willingness among mills to implement substantial production cuts, particularly as steel demand shows signs of stabilizing.

Iron ore futures fell below CNY 720 per ton, extending losses for a third straight session as weakening steel margins in China clouded the demand outlook for the key steelmaking ingredient. Industry data showed that only around 8% of Chinese mills remained profitable, down on both a weekly and annual basis from roughly 30% and 60%, respectively. The figure also marked the lowest level since September 2024, as persistently elevated coke prices continued to squeeze profitability. China’s state-owned iron ore importer, China Mineral Resources Group, has also reportedly advised several steelmakers to avoid purchasing Rio Tinto Group’s key Pilbara Blend ore. Meanwhile, South Korean logistics and shipping company HMM signed a long-term shipping agreement with Brazilian miner Vale worth around US$3.5 billion to transport iron ore starting in 2030.