en.Wedoany.com Reported - Since mid-May, the steel market has generally shown a volatile downward trend, with prices stabilizing and shifting to range-bound fluctuations in June. Analysts believe that the room for further price declines is limited, and a periodic rebound is possible in the third quarter.
The surge in steel prices in early May was mainly supported by macroeconomic expectations. After these expectations materialized in mid-May, market focus shifted to weak demand fundamentals. On one hand, April economic data released in mid-May showed a broad weakening in indicators related to domestic steel demand, including real estate, infrastructure, automobiles, and home appliances. On the other hand, as the steel demand off-season arrives, high-frequency indicators have simultaneously weakened. The apparent consumption of the five major steel products has declined for four consecutive weeks since peaking in mid-May, reaching 8.4502 million tons as of the second week of June (June 8-12), down 665,100 tons from the May peak.
The period from June to August is the off-season for steel demand, with little likelihood of improvement in domestic demand. The marginal variable lies in external demand. In May, steel exports reached 10.341 million tons, up 8.9% month-on-month and down only 2.2% year-on-year. In terms of price spreads, the export window briefly closed in early May but reopened after prices fell in mid-to-late May, with spreads widening between China and Turkey, India, and the CIS for hot-rolled coils. In the first five months, China's electromechanical product exports grew 22.4% year-on-year, accelerating by 1 percentage point from the January-April period. Leading export indicators performed strongly in May and June. In May, South Korea and Vietnam's total exports grew 53.37% and 17.98% year-on-year, respectively. From June 1-10, South Korea's total exports surged 85.93% year-on-year. The Ningbo Containerized Freight Index has risen for seven consecutive weeks, reaching 2263.76 as of the week ending June 12 (June 8-12), up 26.36% year-on-year. Overall, steel export resilience may persist in July and August. If this assumption holds, daily average blast furnace hot metal output may remain above 2.35 million tons, and a negative feedback effect in the industrial chain may not occur.
If daily average blast furnace hot metal output stays above 2.35 million tons in July and August, furnace feed demand is not expected to decline significantly. On the supply side, as of the week ending June 12, 77 of the 137 coal mines in Shanxi that were shut down due to accidents have resumed production, and coking coal prices have recently corrected. However, safety supervision remains stringent, and the impact of Shanxi coal mine accidents on coal supply may be prolonged. On June 12, two coal mines in Shanxi were ordered to halt production due to major safety hazards. Data shows that coking coal supply is still contracting. As of the week ending June 12, daily production of coking coal at 523 national coal mines was 674,200 tons, down 148,600 tons from pre-accident levels; coking coal inventories stood at 1.7496 million tons, down 373,500 tons from pre-accident levels, both at five-year lows for the same period. The correction in coking coal futures prices in early June was more about repairing high premiums rather than a weakening of fundamentals, and prices may still rise after the premium repair. The seventh round of spot coke price increases has been implemented. For iron ore, although the trend of increased supply this year is established, the current price adjustment has reached 8.5%. It is estimated that the iron ore futures price is 730 yuan per ton, equivalent to about $91 per ton, with limited room for further short-term declines. Overall, cost support for steel remains relatively strong in July and August.
Beyond fundamental factors, the adjustment in commodity markets since mid-May has also been significantly driven by heightened market risk aversion due to expectations of Federal Reserve interest rate hikes. Recently, ceasefire negotiations between the U.S. and Iran have made significant progress. According to a resolution by Iran's National Security Council, the text of a memorandum of understanding to finalize the end-of-war negotiations (Islamabad talks) was finalized on June 14 and will be formally signed on June 19. U.S. President Donald Trump stated that, under the agreement with Iran, the Strait of Hormuz will be permanently and freely open. This development has led to a sharp pullback in crude oil prices. Based on this change, it is unlikely that the Federal Reserve's June 16-17 meeting will release a "hawkish" signal. The slowdown in the U.S. dollar index's rise and the decline in 10-year Treasury yields over the last two trading days of last week (June 11 and 12) also reflect this expectation. Domestically, weak April macroeconomic data has suppressed steel prices but simultaneously strengthened expectations for policy reinforcement after the third quarter. In mid-June, the National Development and Reform Commission emphasized the need to fully utilize macroeconomic policies and leverage the combined effect of existing and incremental policies. It is expected that the Central Political Bureau meeting in late July may introduce further incremental policies. In recent months, some macroeconomic indicators have been moving in a positive direction. In May, the Producer Price Index (PPI) grew 3.9% year-on-year, and the spread between PPI and the Consumer Price Index (CPI) widened to 2.7%, with the overall inflation center shifting upward. The M1-M2 gap (narrow money minus broad money), reflecting the degree of monetary activation, has also stabilized at a low level, rising by 0.5 percentage points in May. These indicators have a certain leading effect on steel prices. Overall, June to August remains the demand off-season, but external demand resilience may persist throughout this period. The impact of the Shanxi coal accident shows signs of being prolonged, and coking coal prices may still rise amid supply contraction. Iron ore prices have fallen to relatively low levels, with limited room for further declines, providing cost support for steel prices. With the U.S.-Iran memorandum of understanding reached, expectations of Fed rate hikes may diminish. Some domestic macroeconomic indicators are improving, and additional incremental policies may be introduced in the next two months. Therefore, the room for further declines in the steel market at current levels is limited, and a periodic rebound is possible in the third quarter.
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