China's steel prices face pressure as supply outpaces demand

China's steel market is likely to remain under pressure in July as the steel supply stays elevated while end-user demand continues to weaken during the seasonal slowdown, several China-based mill and trading sources said this week.

Finished steel inventories at major spot markets in China monitored by the China Iron and Steel Association reached 9.35 million mt as of June 30, almost unchanged from end-May but up 21.6% year on year, CISA data showed July 3.

In particular, hot-rolled coil inventories stood at 2.17 million mt at the end of June, up almost 22% from a year earlier, while rebar inventories rose 29% year over year to 3.86 million mt.

Meanwhile, China's blast furnace utilization rate averaged around 91% in early July, largely unchanged from late June and about one percentage point higher than a year earlier, according to some trading sources and one steel industry analyst.

Two mill sources and two traders said that, although the Chinese domestic rebar sales had already slipped into losses and hot-rolled coil margins in general had narrowed to around breakeven levels, most steelmakers were still facing only limited financial pressure.

"Only a small number of mills have announced production cuts so far," one mill source said. "Pig iron output remains at relatively high levels and is broadly on the same level of a year ago."

The source expected pig iron production to decline slightly in July from June levels but said the reduction would likely be limited.

"End-user steel demand is expected to soften further during the summer low season," the source said. "As a result, the steel market will continue to face downward pressure from production remaining stronger than demand."

Some traders shared a similar view, saying steel prices would struggle to sustain an upward trend unless mills implement substantial output cuts.

Dim downstream

Demand fundamentals have remained weak across key steel-consuming sectors in China.

The value of new home sales by China's 100 largest property developers totaled Yuan 1.586 trillion ($233 billion) in January-June, down 13.6% year over year, according to China Index Holdings. The decline narrowed modestly from a 14.9% year-over-year decrease recorded in January-May.

According to several mill and trading sources, the property sector is likely to continue weighing on steel demand in the second half of 2025, making any meaningful recovery in construction steel consumption unlikely.

Meanwhile, consumer-related steel demand also shows signs of weakness.

China's domestic retail sales of passenger vehicles totaled 1.651 million units in June, improving by 9.3% from May, but down 20% year over year, according to data released by the China Passenger Car Association on July 3.

At the same time, combined July production plans for air conditioners, refrigerators and washing machines totaled 29.17 million units, down 7.1% from a year earlier, the latest data from ChinaIOL, a Chinese manufacturing data provider, showed.

Some market participants said they were hoping for fresh measures to be announced at the Communist Party Politburo meeting expected later in July to support domestic consumption. However, one macroeconomic analyst said any new policies were more likely to focus on stabilizing economic growth than introducing large-scale stimulus for either the property sector or consumer spending.

A mill source said he did not expect any meaningful improvement in end-user steel demand in the following months.

"Only larger-scale production cuts by mills can provide sustained support for steel prices," the source said. "Otherwise, steel prices are likely to continue fluctuating within a narrow range at currently low levels for the foreseeable future."

The Platts-assessed domestic rebar was at Yuan 3,060/mt ($450/mt) on July 6, unchanged from the end of June, but down by Yuan 270/mt from the latest peak seen on May 11.

Platts assessed the domestic HRC prices at Yuan 3,330/mt on the same day, down Yuan 20/mt from end-June, and Yuan 190/mt lower from May 11. Platts is part of S&P Global Energy.