Morgan Stanley: Weekly Update on Chinese Steel and Iron Ore

KC Desktop — Premium Translations for Foreign Institutions Morgan Stanley: Weekly Update on Chinese Steel and Iron Ore Apparent steel consumption has diverged: long products rebounded week-on-week, while flat products continued to decline. Morgan Stanley’s latest weekly update on Chinese steel and iron ore (covering the week ending July 26) shows that apparent consumption of long products rose 1.2% week-on-week, whereas that of flat products fell 2.8%. Output adjusted accordingly: weekly production of long products declined 0.9% week-on-week, and that of flat products dropped 3.0%. Capacity utilization among 247 sampled blast-furnace steel mills fell 0.6 percentage points to 89.2%, while 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 the steel sector; demand-side trends have diverged between long and flat products; and on the iron ore side, both shipment volumes rebounded and mill inventories declined. Observations on Research Themes and Industry Developments Weekly apparent consumption of long products stood at 2.768 million tonnes, down only 0.9% year-on-year—essentially flat versus last year. Apparent consumption of flat products 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-product consumption rose 1.2%, while flat-product consumption fell 2.8%. Weak flat-product demand is not new, but its year-on-year decline is widening. The report does not provide a detailed downstream breakdown. Judging from the data pattern, flat products primarily serve manufacturing demand, whereas long products serve construction demand. Near-flat year-on-year consumption of long products suggests construction demand remains supported—not collapsing as some market participants had feared. In contrast, the widening year-on-year decline in flat-product consumption points to a marginal weakening in manufacturing orders. KC Commentary: The divergence between long and flat products warrants attention. A mere 0.9% year-on-year decline in long-product consumption signals underlying support for construction demand; the 6.6% year-on-year drop in flat-product consumption reflects greater uncertainty on the manufacturing side. Going forward, the key signal to watch is whether flat-product consumption can halt its week-on-week decline—this trend matters more than any single week’s relative figure. 2. Steel Mill Inventory Dynamics and Recent Data Observations Steel mill inventory stood at 4.448 million tonnes, down 1.3% week-on-week but up 8.6% year-on-year. Trader inventory totaled 11.911 million tonnes, up 1.0% week-on-week and 26.4% year-on-year. The year-on-year growth in trader inventory significantly outpaces that of mill inventory, indicating substantial inventory accumulation at the intermediate distribution level. As output adjusts downward yet trader inventory rises, mills appear to be shifting inventory-related uncertainty onto traders.

Weekly Economic 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 overseas traders starting July 3, broadening the channel for foreign capital to participate in pricing China’s new-energy metals. In the bond market, the first-half 2026 underwriting landscape for banks and securities firms reinforced the “strong get stronger” dynamic. Issuance of local government bonds, science-and-technology innovation (Sci-Tech) bonds, and offshore RMB-denominated bonds issued by Chinese entities remained robust. Construction Bank overtook Industrial and Commercial Bank of China to rank second among banks in bond underwriting volume. Capital markets are thus delivering 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. Pressure on the U.S. dollar interest-rate front eased at the margin, further enabling domestic monetary policy to maintain its accommodative stance. Growth remains steady, inflation mild, and policy constraints non-binding. The central macroeconomic concern this week remains whether growth momentum can sustain—not whether inflation will spiral out of control or force the central bank into tightening. On central bank messaging: Although Fed Chair Powell maintained hawkish rhetoric, weaker-than-expected nonfarm payroll data has already led markets to downgrade the urgency of rate hikes—effectively embodying a “hawkish in name, dovish in practice” stance. Domestically, eight ministries jointly released the “Implementation Opinions on Promoting High-Quality Development of the Industrial Internet,” and the Ministry of Industry and Information Technology (MIIT), together with two other departments, issued three mandatory national standards on energy consumption and efficiency for photovoltaic products. Policy continues to target new-quality productive forces and supply-side upgrading—not broad-based tightening. The core transmission chain of this week’s macroeconomic causality is clear. U.S. nonfarm payrolls for June rose by only 57,000—well below expectations—and prior-month data was substantially revised downward. This soft labor-market signal directly triggered markets to push back their bet on the Fed’s first rate hike to December. The U.S. Dollar Index promptly broke below the 101 threshold, 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 plunged sharply during Asian trading hours—dragging down A-share petrochemical stocks. However, losses narrowed during overnight trading amid the dollar’s weakness, forming a mixed “supply shock → oil price pressure → easing input-cost pressures across the value chain” dynamic. At the same time, news that Meta plans to sell AI computing power and model access rights was interpreted as a signal of oversupply in computing capacity—triggering a second consecutive day of sharp declines in global chip stocks. The Philadelphia Semiconductor Index plunged 5.44%; South Korea’s Samsung and SK Hynix tumbled over 9% and 14%, respectively; and on the A-share market, GigaDevice hit its daily limit-down while Shannon Chip fell over 10%—generating a cross-market shockwave: “tech giant selling compute capacity → concerns about peak capital expenditure → repricing of memory and semiconductor valuations.” From an asset-allocation perspective, the current “no-inflation-growth” regime is friendly to equity assets—but structural risks of further downside remain. A-share turnover nearly doubled in the first half of 2026, with trading volume heavily concentrated in AI ecosystem segments—including computing power, memory, and optical modules. Zhongji Xunwei ranked first with RMB 2.83 trillion in turnover—over four times that of Kweichow Moutai.

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