**Abstract**
Yesterday, the domestic steel industry PMI index for July was reported at 52.5%, marking the second time this year that it has crossed above the 50% threshold, signaling a recovery in the sector. However, despite the improvement, the persistent rise in steel prices throughout July has kept the market in an upward trend even as August began. Yet, transaction volumes remain weak, and merchants are struggling to move inventory, with only a slight and uncertain increase in market prices. Therefore, while the July PMI rebound may have had some positive impact on the steel market, its influence on August is likely limited.
The official manufacturing PMI for China’s manufacturing sector in July stood at 50.3%, up 0.2 percentage points from the previous month. In contrast, the final HSBC PMI dropped to 47.7%, a decrease of 0.5 percentage points, hitting an 11-month low. This suggests that the downstream demand for steel remains weak, particularly among small and medium-sized enterprises (SMEs), which are showing signs of sluggish activity.
Despite this, the new orders index for the steel industry in July reached 57.3%, and the new export orders index was 52.7%, both indicating a recovery in market demand. While steel prices continued to rise throughout July, the demand from downstream sectors did not weaken, reflecting a certain level of resilience. However, with the high-temperature weather persisting into August, the release of demand has been significantly constrained, leading to stagnant transactions.
In addition, the production index for the steel industry in July was 52.6%, still above the 50% threshold, showing that production enthusiasm remains strong. With the rebound in steel prices and improved profitability, more plants have resumed operations, resulting in increased output and higher inventories. By the end of July, the inventories of key member companies had risen to 1,309,500 tons, up 347,000 tons from the previous year and 2.72% from the prior month. If these stocks are released into the spot market, supply pressures could surge, which would be unfavorable for further price increases in August.
Moreover, the finished goods inventory index for the steel industry in July was at a low of 33.6%, suggesting a noticeable destocking trend. According to the latest data, total social stock of five major steel products in 22 cities nationwide reached 12.369 million tons in July, a decrease of 784,200 tons from the previous month, or 5.96%. This marks the fourth consecutive month of decline, though the rate of reduction has slowed compared to the previous two months. Notably, the inventory of cold-rolled coils, one of the five major products, saw a slight increase.
The purchase price index for the steel industry remained elevated at 63.2%. This reflects the sharp rise in imported iron ore prices during July, which surged by 11.78% in a single month. This increase has pushed up production costs for steel mills. Previously, ex-factory prices were raised, but the spot market prices remained stable due to cost support.
However, even with rising costs, steel prices can only maintain stability at best. Downstream demand remains weak, transactions are slow, and merchants continue to face shipping difficulties. If production enthusiasm does not ease, crude steel output will keep increasing, deepening the supply-demand imbalance and making price declines inevitable. In the short term, steel prices have already retreated, and steel mills have slowed down their price hikes. It is expected that the steel market will enter a consolidation phase in the near future.
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