Market Overview

China's steel market faces a critical seasonal transition characterized by "strong expectations vs weak reality." Futures volatility exceeds spot movements, while macro optimism fuels sentiment rather than actual demand. Post-off-season inventory confidence shows tentative recovery, but demand divergence intensifies (hot-rolled coils outperform rebar). With macro policies entering a lull and potential production cuts looming, steel price upside remains constrained. Four key contradictions demand attention: export shrinkage's profit impact, overseas demand sustainability, low inventory accumulation's buffer role, and tariff-induced export channel narrowing.

Export Contraction Squeezes Profits

• Export Slowdown: Steel export growth plunged from 31.2% to 18.5% YoY (Jan-Jul 2025), triggered by US 100% inspections and retroactive penalties on Southeast Asian transshipments (e.g., Vietnamese exports requiring non-Chinese origin proof).

• Profit Erosion: Domestic competition intensifies as mills shift from exports; margins compress to 100-150 RMB/ton

• Industry Response: Production control becomes critical to: Break upstream cost pressure (iron ore/coke) and counterbalance weak domestic and export demand

Diverging Demand: Domestic Resilience vs Global Weakness

Domestic Support

• Infrastructure Boost: National projects (Yangtze River restoration, urban pipelines) lock 25M tons demand

• Fiscal Stimulus: 600B+ RMB/month special bonds (Aug-Sep) to accelerate construction procurement

Overseas Headwinds

• Geopolitical risks: US election policy uncertainty reduces China's steel share in Middle East/SE Asia projects

• Manufacturing contraction: Global PMI new orders index fell to 49.8 (July), breaking expansion streak

• China's export orders index dropped to 47.1% (-0.6% MoM), confirming external demand weakness

Market Outlook & Pressures

• Inventory Paradox: Slow accumulation buffers but can't fully offset demand risks

• Structural Challenges: Prolonged global destocking cycles; "wait-and-see" procurement behavior

• Tariff Threats: US cold-rolled steel anti-dumping investigations against 8 countries heighten export costs

Conclusion

Steel markets navigate a high-stakes seasonal transition. Export barriers and weakening global demand create dual profit pressures, forcing production discipline. While domestic infrastructure spending provides partial relief, it can't fully counterbalance external headwinds. With limited macro support and potential output restrictions, price upside remains capped. Market balance hinges on mills' ability to navigate export contraction while managing supply-demand risks. Participants should brace for sustained Q3 export pressure.