On July 31, the China CFLP Steel Logistics Professional Committee released the July steel industry PMI, which stood at 33.0, a month-on-month decrease of 3.2 points. The steel industry continued to be muted. In terms of sub-indexes, the market demand stayed poor, and the production of steel mills declined during the seasonal low. In addition, the prices of steel and raw materials both continued to decline. It is expected that in August, the market demand will pick up, and the production of steel mills tends to resume, driving the prices of steel and raw materials to rebound slightly.

On the demand side, the domestic steel demand was muted in July, and the recovery process was quite slow. There are three major causes leading to the lack of market demand. First, the continuously high temperature and lasting rainy weather has pushed the steel market into a short-term seasonal off. Second, the investment in real estate, a major steel consumer, was not optimistic, and the demand for steel kept weakening.  Third, the international complexity turned more complex, and the rising downward pressure on major economies has resulted in contracted international demand. To sum up, the demand for steel continued to shrink in July, and the new order index was only 25.9, flat from the previous month and remaining below 30 for two consecutive months. The new export orders index was 39.4, down 7.7 points MoM.

Steel mill production dropped slightly in July. There are two reasons accounting for the decline. First, poor demand weighed on the business performance of steel mills. On the other hand, the high temperature and rainy weather also endangered production safety, so the maintenance of blast furnaces became more frequent. Overall, the market supply declined. The production index was 26.1 in July, down 8 points MoM. 

In terms of steel prices, due to the sluggish market demand and insufficient market confidence, the prices of steel products continued to fall without a turning point in sight. According to the Shanghai rebar price index, on July 1, the rebar price stood at 4,278 yuan/mt, the highest in July, which then fluctuated all the way down. By July 21, the price dropped to 3,800 yuan/mt, a record low in nearly 20 months.

In terms of raw material prices, the purchase price index in July was 24.6, down 5.1 points from the previous month, showing a downward trend for three consecutive months. The prices fell partly because the contracting steel production led to a decline in the demand for raw materials, which has weakened the support for raw material prices. Meanwhile, the US Fed's rate hike also led to the correction in global commodity prices. Based on the feedback from enterprises, the profits of steel varieties rallied to varying degrees in July under the circumstance that the production cuts has prevented steel prices from falling quickly, while raw materials fell significantly. 

The CFLP Steel Logistics Professional Committee expects that the steel market will recover in August, and the steel demand will also pick up. The meeting of the Political Bureau of the Central Committee on July 28 clearly pointed out that it is necessary to actively expand the demand, maintain the bottom of security in all aspects, and adopt reform and opening up to boost economic development. After these guidance are translated into real projects, infrastructure investment is expected to speed up again, and the real estate industry may improve marginally, finally booming the steel market.

For the production, many steel mills carried out blast furnace maintenance in July to reduce the production voluntarily. With the completion of blast furnace maintenance and the ongoing recovery of profits, the production enthusiasm of mills has rebounded. Therefore, if the market demand recovers smoothly, the supply side will also increase steadily.

From a market perspective, prices may bottom out. With the supply and production side expected to revive, steel prices may rebound slightly following continuous declines. At the same time, August is a break time for the commodity market before the next US Fed rate meeting in September, hence commodity prices are likely to usher in a rally. As the production of steel mills resumes, the demand for raw materials will also come back, with prices likely to reverse the downward trend.