Steel hovers at four-month high

Steel futures in China surged to CNY 3,280 per tonne in July before paring some of the gains, yet still advanced by 10% since the start of the month, reaching the highest level since March.

The rally was fueled by growing optimism around a tighter supply outlook coupled with signs of recovering demand. Chinese policymakers reiterated their commitment to reform industrial policy, aligning with broader efforts to eliminate excess capacity in the steel sector.

These reforms are expected to alleviate margin pressures for steel mills and blast furnaces, which have been squeezed by the prolonged property market downturn and increasing global protectionism from major steel-importing countries, both of which have weighed heavily on export demand.

Reinforcing the tightening supply narrative, leading steelmaker Baosteel projected that China’s national steel output could drop by as much as 50 million tonnes in 2025, underscoring the shift away from overproduction that has long plagued the industry. This anticipated reduction in output has been a key factor in buoying prices, even in the face of subdued downstream activity.

Meanwhile, bullish sentiment received a further boost following the announcement of a massive CNY 1.2 trillion hydropower project. The scale of the project not only increased expectations for immediate demand for ferrous metals such as rebar and hot-rolled coil but also signaled that Beijing remains committed to using large-scale infrastructure spending as a tool to stabilize the economy.

This strategy comes as part of broader efforts to counteract the adverse effects of the country’s ongoing property crisis and weak private sector investment.

In the broader context, the convergence of output curbs, stimulus-driven demand, and structural reforms has started to realign the steel market's fundamentals. While questions remain about the sustainability of demand in the second half of the year, particularly amid a still-uncertain global economic environment, the near-term outlook has markedly improved compared to the first half of 2025.