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 rose 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 increased by 1.2% week-on-week, whereas that of flat products fell by 2.8%. Concurrently, steel output adjusted accordingly: weekly production of long products declined by 0.9%, and that of flat products dropped by 3.0%. Capacity utilization among 247 sampled blast-furnace steel mills fell by 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 Morgan Stanley Asia Limited analysts Rachel L. Zhang, Hannah Yang, and Chris Jiang. 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 front, both shipment volumes 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. Apparent consumption of flat products totaled 5.351 million tonnes, down 6.6% year-on-year—a markedly 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 its year-on-year decline is widening. The report does not provide a detailed downstream breakdown; however, judging from data patterns, 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 earlier. 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. A mere 0.9% year-on-year decline in long-product consumption indicates 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 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 relative figure. 2. Steel Mill Inventories and Recent Data Observations Steel mill inventories stood at 4.448 million tonnes, down 1.3% week-on-week but up 8.6% year-on-year. Trader inventories totaled 11.911 million tonnes, up 1.0% week-on-week and 26.4% year-on-year. The year-on-year growth in trader inventories significantly outpaces that of steel mills, indicating substantial inventory accumulation at the intermediate distribution level. As output adjusts downward yet trader inventories rise, steel 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 foreign traders starting July 3, broadening the channel 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.” Issuance of local government bonds, science-and-technology innovation (Sci-Tech) bonds, and offshore RMB-denominated bonds issued by Chinese entities stayed robust. 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 projected timing for the Fed’s first rate hike from October to December. Pressure on the U.S. dollar interest-rate front eased marginally, further enabling domestic monetary policy to maintain its accommodative stance. Growth remains steady, inflation mild, and policy constraints non-binding. The primary 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 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 “Opinions on Promoting High-Quality Development of the Industrial Internet,” and the Ministry of Industry and Information Technology, 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—rather than implementing broad-based tightening. The core transmission chain of macroeconomic causality this week is clear. U.S. nonfarm payrolls for June rose by only 57,000—well below expectations—and prior-month data for April and May were substantially revised downward. This unmistakable 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 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 prices 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, Meta’s reported plan 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%. This formed a cross-market shockwave: “tech giant selling compute capacity → concerns about peaking capital expenditures → repricing of memory and semiconductor valuations.” From an asset-allocation perspective, the current “no-inflation-growth” regime is friendly to equities—but structural risks of further downside remain. A-share trading volume nearly doubled in the first half of the year, with turnover heavily concentrated in AI ecosystem segments—including computing power, memory, and optical modules. Zhongji Xuchuang ranked first with RMB 2.83 trillion in turnover—more than four times that of Kweichow Moutai.

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