Morgan Stanley: Weekly Update on China's Steel and Iron Ore

KC Desktop — Premium Translation by Foreign Institutions Morgan Stanley: Weekly Update on China's Steel and Iron Ore Apparent steel consumption has diverged, with long products rising week-on-week while flat products continue to decline. Morgan Stanley’s latest weekly update on China’s steel and iron ore (covering the week ended July 26) shows that apparent consumption of long products rose 1.2% week-on-week, whereas that of flat products fell 2.8%. Concurrently, steel output adjusted accordingly: weekly output of long products declined 0.9% week-on-week, while flat products output dropped 3.0%. Capacity utilization among 247 sampled blast-furnace steel mills fell 0.6 percentage points to 89.2%, yet electric-arc furnace (EAF) capacity utilization rose逆势 by 2.5 percentage points to 58.2%. This weekly data covers July 20–26 and is sourced from Mysteel. The report is co-authored by Rachel L. Zhang, Hannah Yang, and Chris Jiang of Morgan Stanley Asia Limited. The picture painted by the data is straightforward: supply-side adjustments are underway in steel production; demand-side trends have diverged between long and flat products; and on the iron ore front, both seaborne shipments rebounded and钢厂 inventories declined simultaneously. Key Themes and Industry Observations Weekly apparent consumption of long products stood at 2.768 million tonnes, down only 0.9% year-on-year—essentially flat versus last year. Flat product consumption totaled 5.351 million tonnes, down 6.6% year-on-year—a significantly larger decline than for long products. Their week-on-week trajectories also diverged: long products rose 1.2%, while flat products fell 2.8%. Weak flat-product demand is not new, but the year-on-year decline is widening. While the report does not provide a detailed downstream breakdown, the data pattern suggests flat products primarily serve manufacturing demand, whereas long products serve construction demand. Near-flat year-on-year long-product consumption indicates construction demand remains supported—not undergoing the rapid contraction some market participants had feared. In contrast, the widening year-on-year decline in flat-product consumption signals weakening marginal manufacturing orders. KC Commentary: The divergence between long and flat products warrants attention. Long-product consumption is down only marginally (0.9% YoY), suggesting underlying support in construction demand; flat-product consumption is down 6.6% YoY, reflecting greater uncertainty in the manufacturing sector. Going forward, the key watchpoint is whether flat-product consumption can halt its week-on-week decline—this trend reversal carries more signal value than any single week’s absolute figure. 2. Steel Mill Inventory Trends and Recent Data Observations Steel mill inventory stood at 4.448 million tonnes, down 1.3% week-on-week and up 8.6% year-on-year. Trader inventory reached 11.911 million tonnes, up 1.0% week-on-week and 26.4% year-on-year. The significantly higher year-on-year growth in trader inventory versus mill inventory suggests substantial inventory accumulation at the intermediate distribution level. Output adjustments…

Weekly Macroeconomic Analysis – July 3, 2026

In the latter half of the week, the Guangzhou Futures Exchange announced that lithium carbonate futures and options would officially open to foreign traders starting July 3, broadening channels for overseas capital to participate in pricing China’s new-energy metals. In the bond market, the first-half underwriting landscape for banks and securities firms remained dominated by 'the strong getting stronger.' Local government bond issuance, science-and-technology innovation (Sci-Tech) bonds, and offshore RMB bonds issued by Chinese entities all maintained high volumes. Construction Bank overtook Industrial and Commercial Bank of China to rank second among banks in bond underwriting volume. Capital markets are thus providing low-cost funding to support sci-tech innovation and infrastructure development. Although expectations of a Federal Reserve rate hike in July briefly disrupted global liquidity pricing, U.S. nonfarm payrolls for June came in at just 57,000—far below consensus forecasts. Markets promptly pushed back their expected timing for the Fed’s first rate hike from October to December. This marginal easing of pressure on U.S. dollar interest rates further supports China’s ability to maintain its accommodative monetary stance. Growth remains steady, inflation mild, and policy constraints non-binding. The dominant macroeconomic concern this week remains whether growth momentum can be sustained—not whether inflation will spiral out of control or force the central bank into tightening. On central bank stance: Although Fed Chair Powell maintained hawkish rhetoric, weaker-than-expected nonfarm payroll data has led markets to downgrade the urgency of rate hikes—effectively embodying a 'hawkish in name, dovish in practice' posture. Domestically, eight ministries jointly issued the 'Opinions on Promoting High-Quality Development of the Industrial Internet,' while the Ministry of Industry and Information Technology (MIIT), together with two other departments, released three mandatory national standards on energy consumption and efficiency for photovoltaic products. Policy continues to target new-quality productive forces and supply-side upgrading—rather than implementing broad-based tightening. This week’s core macroeconomic causal chain is clear. U.S. nonfarm payrolls rose by only 57,000 in June—well below expectations—and prior-month data was substantially revised downward. This clear signal of labor-market softness directly triggered markets to push back their bet on the Fed’s first rate hike to December. The U.S. Dollar Index promptly fell below 101, and London spot gold surged over 2.3% intraday, closing at USD 4,122 per ounce—exemplifying the classic transmission chain: 'weak employment → fading rate-hike expectations → dollar depreciation & gold rally.' Meanwhile, Saudi Aramco resumed Persian Gulf exports and shifted toward spot pricing; Iranian floating storage stockpiles exceeded 58 million barrels. These developments abruptly intensified supply pressure in the crude oil spot market. Coupled with Citigroup and other institutions lowering their year-end oil price targets to USD 60–65 per barrel, Brent and WTI crude prices plunged sharply during Asian trading hours, dragging down A-share petrochemical stocks. However, losses narrowed during overnight trading amid the dollar’s weakness—creating a mixed dynamic of 'supply shock → oil-price pressure → easing input-cost pressures across the value chain.' At the same time, news that Meta plans to sell AI computing power and model access rights was interpreted by markets as a signal of excess AI compute capacity…

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