[SMM Hot Topic] Review of Construction Steel Market in H1 2025 and Outlook for H2

Review of Construction Steel Market in H1 2025 and Outlook for H2 2025

I. H1 Review

(I) Price Trend Review
In H1 2025, influenced by macroeconomic policy disruptions and weak end-use demand, the national average rebar price fluctuated downward, with the overall price center moving lower.Specifically, the national average rebar price in H1 2025 was 3,242 yuan/mt, down 515 yuan/mt from the national average rebar price in H1 2024, representing a YoY decline of 13.71%.

Figure 1: National Average Rebar Price Trend in H1 2025

Specifically, in January-February, as the Chinese New Year holiday approached, market resource circulation basically stalled except for a small amount of procurement from some key projects that continued normal construction before and after the holiday, and spot prices stabilized. In March, the Two Sessions concluded with relatively limited substantive positive news, slightly disappointing market sentiment and weakening price trends. In April, the escalation of the US-China trade war, with the US announcing a 104% tariff on China, significantly exceeding market expectations, led to the spread of market pessimism and an accelerated decline in steel prices. In May, tariff negotiations eased, coupled with frequent rumors about crude steel in the market, slightly boosting rebar prices. Subsequently, as high temperatures arrived in north China and rainy weather prevailed in south China, the progress of construction projects was hindered, and construction material demand began to transition into the off-season, putting significant pressure on rebar price trends and causing the price center to continue moving lower.

(II) Fundamentals Review

From a fundamental perspective, in January, as the Chinese New Year holiday approached, blast furnace steel mills on the supply side added new blast furnace maintenance in multiple regions, with some areas implementing production control, and EAF steel mills conducting centralized annual maintenance. On the demand side, market merchants and downstream end-users gradually took holidays and returned home for the festival. Meanwhile, with merchants' willingness to conduct winter stockpiling weakening, winter stockpiling volumes significantly decreased compared to previous years. With demand decreasing more, inventories rapidly accumulated. In March, downstream construction sites gradually resumed work and production, with limited supply increases and sustained demand recovery. The inventory inflection point came earlier than in previous years, and the overall fundamentals of construction materials were relatively healthy, entering a destocking phase. From April to May, most blast furnace steel mills still had profits from producing construction materials, with steel mills in north China resuming production. However, steel mills in east China had better billet orders and chose to reduce construction material output and sell billets externally, with overall production changes being minimal. On the demand side, downstream feedback indicated that short-term funding situations were unlikely to improve significantly, with new project starts being relatively slow. Demand would mainly continue to come from existing projects, with overall demand growth likely being limited. During the stage of weak supply-demand balance, inventory destocking slowed down.

In June, the raw material side continued to make concessions, and blast furnace steel mills maintained profits, but some steel mills adjusted their production structures, shifting to increase production of premium special steel and strip steel and other product varieties. Meanwhile, EAF steel mills' production losses intensified, and they also had plans to reduce production hours and suspend production. Demand side, entering the traditional off-season, demand remains sluggish and difficult to reverse. Amid the simultaneous decline in both supply and demand, the fundamental contradictions in the building materials market are gradually accumulating. According to the SMM survey, as of June 26, 2025, the total rebar inventory stood at 51.666 million mt, relatively low compared to previous years. However, the current trends of in-plant inventory and social inventory have begun to diverge, with in-plant inventory starting to accumulate, increasing by 35,400 mt WoW. Additionally, agents are primarily opting for direct factory shipments to reduce their own inventory pressure. Therefore, in the short term, the trends of in-plant inventory and social inventory are likely to continue diverging.

Figure 2: National Rebar Total Inventory Trend from 2021 to 2025

II. Outlook for H2

(I) Raw Material Side

In H1 2025, the total supply of iron ore decreased, but mines are expected to commence production in H2, with the annual increase primarily concentrated in the second half of the year. Furthermore, as the industry enters the off-season, combined with the current high production levels, crude steel production restrictions, and subsequent annual maintenance at steel mills, the future supply-demand imbalance is expected to intensify, and pig iron production at steel mills is likely to decline. Therefore, under the scenario of increased iron ore supply and decreased demand, it is estimated that ore prices will be more likely to fall than rise in H2.

In H2 2025, the price center of coke prices may continue to decline, but the decline space is limited. On the supply side, coking enterprises exhibit strong production resilience, and unless significant losses occur, it is difficult for coke supply to decrease significantly. On the demand side, the steel industry is performing poorly, with the real estate market sluggish, infrastructure support limited, and weak domestic and external demand in the manufacturing sector. Steel mills are maintaining a low inventory strategy, being cautious about restocking, and purchasing as needed. Cost side, the growth rate of domestic coking coal production has narrowed, with stricter safety inspections at coal mines, slower customs clearance at the China-Mongolia border, and restricted imports of seaborne coal, providing a floor for coking coal prices. In summary, the fundamentals of coke are under long-term pressure, with insufficient upward driving force, but cost support remains, and downward driving force is also insufficient. It is expected that the dry quenching price of quasi-first-grade coke will operate within the range of 1,200-1,400 yuan/mt in H2.

(II) Supply Side

On the supply side, currently, the production profits of some blast furnace steel mills continue to hover around 100 yuan/mt, and short-term production enthusiasm remains high, with no new maintenance plans added for the time being. However, some inland steel mills, due to their location disadvantages and high operating costs, are operating at a break-even point or with slight losses. They have already arranged production cuts or switched to producing other varieties of steel in the early stage. EAF steel mills have been operating at a loss throughout the year, and some blast furnace steel mills purchase steel scrap models that overlap with those of EAF steel mills, leading to continued difficulties in scrap collection. Except for Sichuan, where there are electricity price subsidies during the summer, production in other regions primarily relies on off-peak electricity, and the operation of EAF steel mills is expected to continue at a medium-low level in the later period, with no significant increase expected.

Figure 3: Recent Rolling Mill Maintenance and Production Resumption Plans Affecting Building Materials

Specifically: 1. Recently, there have been rumors of production control in the Shanxi region. Currently, it is understood that only a few steel mills have blast furnace maintenance plans, while other steel mills have no plans for the time being. However, the possibility of advancing annual maintenance in Q4 cannot be ruled out. 2. A military parade will be held on September 3 this year. It is expected that environmental protection inspections and traffic controls will be tightened in the Beijing-Tianjin-Hebei region around September, which will, to a certain extent, restrict the production rhythm of steel mills and logistics and transportation. 3. Steel mills will arrange annual maintenance plans in Q4, with limited production increases. Additionally, this year's crude steel production reduction plan is entering its final stage, and some steel mills may have significant production cuts, potentially alleviating pressure on the supply side. Overall, it is expected that steel mill production will experience a certain pullback during the period from late August to early September. In Q4, steel mills nationwide will arrange annual inspection plans, and periodic maintenance and production reductions will continue to exist.

(III) Demand side

Figure 4: Estimated production, sales, and inventory of construction steel nationwide from July to August 2025 (10,000 mt)

Regarding real estate, it is currently still in a comprehensive downturn phase. The growth in capital turnover for land acquisition and new construction starts will still require a quarter or more to mature. Real estate continues to face the awkward situation of a continuous decline in new construction starts and an increase in completed projects. It is expected that real estate demand will remain in a long-term downturn phase.

Regarding infrastructure, in 2025, it is planned to arrange 4.4 trillion yuan of local government special bonds, an increase of 0.5 trillion yuan compared to the previous year, setting a new record high. However, according to feedback from downstream sectors, although the issuance of special bonds has increased, it is mainly in the "debt-for-debt" phase, and the funding for new projects is still relatively slow. Currently, Q3 is in the traditional off-season phase. In mid-to-late September, some regions will launch large-scale new projects, and there is a possibility of rushing to meet deadlines for some projects in Q4, which may lead to a periodic increase in demand at that time.

(IV) Overall

In Q3, domestic macro policies are in a vacuum period. During the traditional off-season phase from July to August, the seasonal decline in demand is relatively rapid, and fundamental contradictions will accumulate periodically. It is difficult to support the bottom prices of building materials. However, considering the recent abundance of news on the raw material side, it is difficult for building materials to develop an independent market trend. It is expected that the spot price of construction steel in the early stage may operate in the doldrums. Later, with the improvement of high-temperature weather and the commencement of some projects in September, the gradual recovery of demand may drive the repair of market sentiment, and prices may have upward momentum as demand improves. Overall, it is expected that the price of building materials in Q3 may show a trend of first declining and then rising. Subsequently, SMM will continue to track and share the analysis of the price trend of building materials in Q4. Please stay tuned.