Steel market still faces downward pressure in June, stay committed to self-disciplined production control without wavering

In May, domestic steel prices rallied and then fell back. Looking ahead to the steel market in June, prices are still under phased downward pressure. Therefore, we should continue to actively practice the “Three Fixes and Three Don’ts” operating principles and remain committed to self-disciplined production control and inventory reduction without wavering.

Recently, the counter-cyclical increase in supply has been the main factor dragging down steel prices. According to data from Shanghai Steel Union, in the week of May 21, the average daily hot metal output of 247 blast-furnace mills nationwide returned to a relatively high level of 2.4081 million tons for the first time since November last year; the weekly output of the five major steel products increased by 219,600 tons from the previous week, returning to a high level of 8.622 million tons. In the week of May 28, the average daily hot metal output of those 247 mills rose further to 2.41 million tons, and the five-major-product weekly output reached 8.6372 million tons, still growing slightly. Given that steel enterprises’ resource placements in early June are expected to be stable with a slight increase, unless there is strong policy-driven restraint, it is likely that supply will not decrease in June, continuing to weigh on the market. The steel industry PMI for May stood at 48.7%, still in contraction territory but flat month-on-month, while the new orders sub-index fell by 2.4 percentage points month-on-month, indicating increasing supply-demand pressure.

Demand for construction steel is likely to weaken further, potentially undermining market confidence. Recently, many parts of the country have experienced high temperatures and frequent rainfall, which have significantly disrupted construction activities. In June, the intensity of work at construction sites is expected to further decline, and demand for construction steel will fall month-on-month. Although urban renewal, energy infrastructure, water network construction, new power systems, and other areas can still provide some support, real estate investment remains at a low level, offering limited stimulus to construction steel demand. The latest weekly survey by an industry institution shows that the weekly cement delivery volume of 250 cement producers nationwide dropped from 2.9145 million tons to 2.6805 million tons, and demand for construction steel is expected to fall further in June.

In contrast, steel demand from the manufacturing sector has been relatively better, but it is still not optimistic. At present, industries such as automobiles, home appliances, machinery, shipbuilding, and new energy equipment maintain a certain level of prosperity, especially with export orders providing strong support for flat steel demand. Recently, global manufacturing prosperity has marginally improved, with the manufacturing PMIs of Europe and the US generally remaining in expansion territory, and overseas restocking demand supporting China’s exports of steel and steel-containing products. Judging from current export order books of steel companies, some flat-product mills have full export orders, and flat steel products are expected to outperform rebar in June. However, given that the momentum for incremental demand releases in the flat steel segment is weakening in the short term, this will also drag down steel prices.

Although the manufacturing PMI held at 50% in May, the sub-indexes show that the new orders sub-index fell by 0.7 percentage point month-on-month, and the new export orders sub-index declined by 1.7 percentage points, both entering contraction territory. This suggests that while manufacturing steel demand has some resilience in June, it also faces downward pressure.

From a macroeconomic perspective, the current market fundamentals are not optimistic. Liquidity may tighten temporarily in June. By the end of May, the cumulative issuance progress of new special-purpose bonds nationwide in 2026 reached 34%, down RMB 138.5 billion year-on-year, and the pace lagged behind the same period last year. Actual issuance of new special-purpose bonds in May was only 58.6% of the monthly plan, leaving a shortfall of over RMB 110 billion. This is not conducive to boosting investment and consumption in June. Recently, relevant authorities have called on banks to increase credit supply, and the effects remain to be seen.

At present, RMB 755 billion of central budget investment and RMB 1 trillion of ultra-long special treasury bonds have been basically allocated, but there is a lag between fund allocation and the formation of physical work volumes. In addition, according to data on accounts receivable of industrial enterprises above a designated size released by the National Bureau of Statistics, the figure reached RMB 27.44 trillion in April, an increase of RMB 410 billion from the previous month. Despite repeated high-level calls to “reduce overdue payments,” corporate accounts receivable have risen rather than fallen, weakening the flexibility of commodity prices.

On the monetary policy front, although the overall tone remains “moderately accommodative,” the likelihood of further interest rate cuts or significant reserve requirement ratio cuts by the central bank in June is relatively small, given the further weakening of expectations for a Fed rate cut and the moderate rebound in domestic CPI. Market liquidity may become tight in phases, leading to higher funding costs and suppressing speculative demand. Should the economic growth rate in the second quarter fall short of expectations, market trading logic could shift from “expectation-driven” to “reality-driven,” reverting to weak fundamentals, thus capping any upside in steel prices.

The coal mine accident in Shanxi in late May had some impact on coking coal and coke prices, and also caused fluctuations in steel prices. However, without substantial improvement in supply-demand relationships, no trend can last long.

In terms of operations, the author suggests that steel companies should continue to adhere to the “Three Fixes and Three Don’ts” principles, intensify production controls, especially by managing spot inventory; traders should act cautiously, mainly with quick-turnaround strategies; end-users should purchase on an as-needed basis. Relevant authorities should actively guide credit expansion, accelerate the allocation and efficiency improvement of special-purpose bond funds, promote prompt project starts to generate physical work volumes, and stabilise demand expectations. At the same time, national policies should strengthen guidance and constraints on steel supply.