Posted on 02 Jul 2025
China's manufacturing sector showed slight improvement in June compared with May, but modest demand recovery expectations are likely to keep pressure on flat steel markets in the coming months.
Actual end-user steel demand has gradually declined since June due to seasonal factors, China-based steel market participants said.
They added that any seasonal demand recovery in the manufacturing sector during August and September is expected to be modest, further weighing on the Chinese flat steel market.
PMI indicators
China's manufacturing purchasing manager index (PMI) remained in contraction for the third consecutive month in June, though the figure improved slightly to 49.7 points from 49.5 points in May, according to data from the National Bureau of Statistics (NBS) on June 30. A reading below 50 indicates contraction.
The PMI sub-index for new orders returned to expansion in June, rising to 50.2 points from 49.8 points in May. However, new export orders remained in contraction at 47.7 points, up from 47.5 points in May.
The sub-index for manufacturing production improved further to 51 points in June, compared with 50.7 points in May. Production and new orders in equipment manufacturing continued to expand, but output in the ferrous smelting and processing sector remained in contraction, the NBS said.
Shrinking construction steel demand has been a major factor behind the depressed steel market, some market participants said.
China's property sector, with new home sales yet to bottom out, is expected to continue dragging overall steel demand lower in the second half of 2025, they said.
"Compared with the construction sector, manufacturing steel demand has been much more stable, thanks to robust exports of steel-intensive manufactured goods and policy stimulus to domestic consumption. But any further growth in manufacturing steel demand could be limited in the second half of 2025, especially in cars and home appliances," a mill source said.
Some market sources said domestic demand for manufactured goods may remain generally stable, but manufacturing exports could face pressure in the second half of the year, denting steel demand in this sector.
They said the export rush of Chinese-manufactured goods in the first half of 2025 likely brought forward part of the overseas demand from the second half. Additionally, US tariff hikes could weigh on global economic growth later in 2025, further reducing overseas demand for Chinese goods.
HRC market under pressure
The Chinese hot-rolled coil market, a key indicator of the flat steel market, is expected to remain under pressure in the coming months due to limited room for manufacturing steel demand growth and strong HRC production, market participants said.
Medium-thick HRC production rose 4.8% year over year to 94.69 million mt over January-May, NBS data showed.
Few market sources said HRC production in June and July is likely to remain above year-ago levels, with the uptrend expected to continue in the coming months due to the commissioning of new hot strip mills.
China has commissioned one hot strip mill with a capacity of about 2.2 million mt/year so far this year, according to company announcements.
Meanwhile, 18 additional hot strip mills with a combined capacity of about 41 million mt/year are either under construction or in the planning stage, according to Platts calculations based on data from market sources and company announcements. Most of these mills are expected to be commissioned between 2025 and 2026.
Trading sources said that due to strong HRC production, if overseas economic growth slows in the second half of the year and impacts manufacturing exports and steel demand, HRC prices may struggle to gain upward momentum.
Platts, part of S&P Global Commodity Insights, assessed the Chinese domestic HRC prices at Yuan 3,220/mt ($449/mt) on June 30, down 2.1% from late May and 13.7% lower than a year ago.
Source:S&P Global Commodity Insights
