Continued Downtrend! Can the Steel Market Turn a Corner During the Off-Season?

Overall, steel prices dropped by 20-40 yuan/ton this week, with short-term transactions improving slightly but overall performance remaining lackluster. Compared to the same period last year, daily building materials transactions decreased by over 30,000 tons, while profile steel transactions remained relatively unchanged, clearly reflecting the still-weak situation in the real estate industry. On a macro level, recent economic data has been mixed with concerns over economic fluctuations rising, and small and mid-cap stocks dragging down the market. In the medium to long term, policy easing and corporate supply and demand remain key influencing factors.

macro-level positive stimuli need to be sustained

Recent data shows that the year-on-year increase in the Consumer Price Index (CPI) remained unchanged at 0.3% in May, while the Producer Price Index (PPI) decline narrowed significantly to -1.4%, both in line with expectations. The ultra-long-term special government bonds continue to be issued, with the supply peak mainly from June to October. It is necessary to continue monitoring the changes in the issuance pace and liquidity pressure, as well as the policy risk of regulators' stance on long-term interest rates. Overall, the domestic economy is temporarily maintaining a trend of recovery and re-inflation, with output continuously rising, infrastructure investment slowing down in the short term, and external demand remaining stable. However, continued policy support is needed to drive the favorable trend.

Overseas, the EU is poised to impose tariffs on Chinese electric vehicles, which could impact auto exports. In the U.S., both the May CPI and PPI exceeded expectations, slowing down, but the interest rate decision indicated that the Fed's June meeting remains hawkish, with Powell reiterating on the subsequent press conference the need for more employment data to support rate cuts. Further attention is required on the status of subsequent U.S. economic data. The market sentiment remains bearish, and one or two positive data points are no longer enough to stir market sentiment and drive prices higher.

Supply-demand tensions are limited, but the impact on prices is significant.

The survey of 247 steel mills shows a blast furnace utilization rate of 82.05%, up 0.55 percentage points from the previous month and down 1.04 percentage points from the same period last year; daily pig iron production reached 23.93 million tons, up 35.6 thousand tons from the previous month and down 325 thousand tons from the same period last year. From the supply side, pig iron data significantly exceeded expectations, with improved blast furnace operation, benefiting raw materials like iron ore and coking coal products. However, the inventory pressure on iron ore is considerable, which to some extent抑制s price gains.

Overall performance from the demand side has been average. The introduction of favorable real estate policies may provide room for improvement in related demand, but it will take time to materialize. This week, the production of rebars slightly decreased, with a year-on-year demand decrease of over 20%; inventory continued to rise, with an expanded year-on-year increase. Demand for hot-rolled steel sheets increased year-on-year, but production continued to rise, and the rate of inventory reduction slowed down. The overall production and demand for cold-rolled steel plates remained stable year-on-year, with inventory remaining high and the growth rate not expanding further. In the short term, there is a certain resilience in the demand for plates, and there is no significant negative feedback risk at this level. However, the rebound space is also limited, and there is no strong directional performance.

Raw material support persists, yet upward pressure remains.

Iron ore production has shone brightly this week, exceeding expectations significantly. However, the market remains concerned about negative feedback on the prices of raw materials due to poor terminal demand. In the short term, there is a lack of urgency and willingness for steel mills to actively purchase more, with no noticeable increase in iron ore inventories within steel mills. Port iron ore inventories remain high, and the pressure of imported ore arrivals in June is increasing, making it difficult for the fundamental situation of iron ore to strengthen.

Coke prices have dropped by 50 yuan/ton, leading to a reduction in profit margins for coke producers. Weekly coke production has reached a turning point, decreasing slightly after an increase. However, the decline is modest. Steel mills show insufficient initiative in actively purchasing coke, and inventories within coke plants are rising. Domestic coal mines have increased their willingness to ensure supply, and some coke production capacity is expected to be phased out in the future. Demand expectations are weakening. Affected by weak demand, pit production and operating rates have decreased. The Shanxi region has basically achieved its annual reduction target, and future supply is expected to become more relaxed. Recently, the fundamentals of coke have weakened, with upstream inventory accumulation increasing, and the market remains concerned about a further decline in terminal demand triggering negative feedback on the price of furnace materials.

Overall, the Federal Reserve's June meeting statement was neutral, failing to provide further bullish signals. Both domestic and international macro environments have deteriorated since June. Without new macro stimulus or year-on-year improvement in self-demand, the rebound is relatively limited. From a fundamental perspective, the demand is mainly for the off-season's essential needs, with significant upward pressure on prices. The supply and demand structure at the raw material end has not changed much.As futures gradually retreat and bearish sentiment continues to ease, the market sees an increase in bullish and bearish competition. The key resistance area for rebar futures is around 3700, while the support level is near 3580. Operationally, it is recommended to focus on on-demand procurement, cash out profits from high inventory at higher prices, and exercise caution in chasing highs and selling-offs.