China’s steel output likely to rebound in Aug after July fall; demand remains muted

China's crude steel production fell for the fourth straight month in July as weakening domestic demand pressured the sector, but improving profit margins from higher steel prices may encourage mills to increase output in August, potentially reversing the ongoing decline since April, market participants said Aug. 18.

Chinese steel mills have been witnessing improved profit margins recently, mostly driven by higher prices that were caused by production and capacity cut expectations, they said.

But as steel output rises, this could soon undermine steel market momentum, as both the construction and manufacturing sectors face several headwinds.

Production to rise

China's pig iron and crude steel output in July fell to 70.8 million mt and 79.66 million mt, down 1.4% and 4% year over year, respectively, data from the National Bureau of Statistics showed Aug. 15.

Daily pig iron and crude steel output averaged 2.284 million mt and 2.57 million mt in July, down 4.7% and 7.3% from levels in June.

Over January-July, China's pig iron and crude steel output fell 1.3% and 3.1% year over year to 505.83 million mt and 594.47 million mt, respectively, the NBS data showed.

Some China-based market participants were skeptical about the sharp decline in crude steel output, pointing out that NBS data showed finished steel production in July had jumped 6.4% from a year ago.

"The growth rate of finished steel production is usually slightly higher than that of crude steel, as there is some double-counting in finished steel production. However, the year-over-year growth rate of finished steel production in July exceeded that of crude steel even by 10 percentage points, which is hard to understand," said a market watcher.

"Since the beginning of July, steel prices have largely improved due to market expectations of government mandatory production cuts and capacity reduction, leading to quite decent profit margins at steel mills...I don't think steel mills have reasons to drastically reduce crude steel production in July," said another market source.

Some mill sources also said steel mills' profits in the third quarter may outpace those of the second quarter due to strong performance in July and August.

The Platts-assessed domestic rebar and hot-rolled coil prices rose to Yuan 3,260/mt ($454/mt) and Yuan 3,470/mt on Aug. 15, up 6.5% and 7.8% year from July 1.

As a result, the domestic profit margins for rebar and HRC rose to more than Yuan 250/ mt in early August, up from about Yuan 150/mt in late June, market sources said.

In tandem with the rising margins, the daily pig iron and crude steel production at member steel mills of the China Iron and Steel Association over Aug. 1-10 increased 3.2% and 4.7% from late July, and also 3.9% and 3.6% higher from year-ago levels, CISA data showed on Aug. 14.

Some market participants said steel prices are likely to face downward pressure in late August or September, as the rise is mainly fueled by output cut expectations.

In fact, steel production has started to rebound, and any seasonal demand recovery in September is also seen as modest, they said.

Some sources added that ensuring economic growth and stable employment remains the country's top priority, so that as long as steel mills are making decent profits, government-mandatory crude steel production cuts may not be strictly enforced.

Weak demand outlook

In July, China's property and infrastructure sectors showed signs of an accelerating slowdown.

In addition, with China's top decision-making body signaling no imminent monetary easing or further stimulus for the property and infrastructure sectors, market sources expected construction steel demand to fall further in the second half of 2025, and weaker seasonal demand recovery in September.

The floor space of China's new home sales over January-July fell 4% year over year, accelerating from a 3.5% year over year decline in January-June and 2.9% in January-May, the NBS data showed.

In tandem with weakening home sales, the floor space of China's new home construction starts, attributing to about 26% of China's total steel consumption, fell 19.4% year over year in January-July, and was down 70% from the same period in 2021.

Meanwhile, the infrastructure sector's investment increased 3.2% year over year during January-July, slowing further from a 4.6% year over year growth seen in January-June and a 5.6% year over year growth seen in January-May.

Some sources expected the growth rate in infrastructure investment to remain under pressure in the following months, due to a lack of local government funding and insufficient traditional infrastructure projects.

According to a state-owned media report, only 63% of China's newly issued local government special bonds over January-July were spent in infrastructure projects, compared with 77.1% in 2024. The rest were used for replacing existing local government debts and land reserve.

"But manufacturing steel demand, especially from the vehicle and home appliances sector, should continue to increase in the remainder of 2025, as strong exports of Chinese vehicles and home appliances are likely to last through 2025, partly offsetting the downward pressure from the construction sector," said a mill source.

He said that auto sheet orders received by his company in August are expected to increase 10% over the year.

However, the mill source added that according to his knowledge, some smaller manufacturers of machinery parts and metal hardware have already seen a decline in export orders, which could indicate a gradual slowdown in the overall export growth of the manufacturing sector.