Looking back at the steel market in June, by June 28th, the steel market has been in a fluctuating downward trend, with almost no decent rebound. The comprehensive steel price index fell by 157 points, and the prices of rebar and wire rod fell by 200 and 198 points respectively. The prices of medium plate, hot-rolled, and cold-rolled fell by 157, 109, and 116 points respectively. The iron ore price fell by 8 US dollars, the scrap steel price fell by 89 points, and the coke price fell by 43 points, which was weaker than expected.

Looking forward to the steel market in July, there is downward pressure on the fundamentals, but there is also a macro rebound atmosphere; the price of raw materials has certain demand support, but there is also a loss that forces steel mills to reduce production, and the drag of demand decline, the market game intensifies, different regions, different varieties, different times may rise and fall alternately.

The price pressure of the steel market in July mainly comes from the increased pressure of the steel fundamentals.

According to the survey data of the Steel Union, the total of the small sample social inventory and the steel mill inventory of the Steel Union in June did not decrease, but slightly increased by 200,000 tons. Moreover, the inventory increase in the last week of June has expanded, and the inventory of rebar, wire rod, hot-rolled, cold-rolled, and plate increased by 5.5%, 16.7%, 14.3%, 25%, and 21.5% year-on-year respectively, and the total inventory increased by 12.2% year-on-year. Against the backdrop of insufficient market confidence, the high increase in inventory year-on-year and the increase in the accumulation of inventory, and the reality and expectation that the trend is difficult to change are intertwined, and there is still a fundamental pressure for the steel price to fall.

There are at least three reasons that restrict the release of demand in July:

Firstly, the low profitability of enterprises restricts the release of demand. The National Bureau of Statistics announced that the profit of enterprises above designated size fell from a year-on-year increase of 4% in April to 0.7% in May. The difference between the manufacturing PMI factory price index and the purchase price index in May continued to expand, indicating that the profitability of industrial enterprises in June still has downward pressure. The factory price index in June was still 3.8 percentage points higher than the purchase price index, and the former was still expanding, while the latter was in the contraction range, indicating that the profitability of enterprises in June was still not ideal, which will weaken the momentum of enterprise production and operation, and the enthusiasm for production and replenishment of inventory will continue to decline.

Secondly, the liquidity pressure not only does not decrease but increases, which suppresses the business activities of enterprises. The central bank data shows that the growth rate of M1 in May set a historical low record, with a year-on-year decrease of 4.2%, and the difference between M1 and M2 has greatly expanded, and the degree of capital activation has greatly decreased. From January to May, the national government fund budget revenue was 1,663.8 billion yuan, a year-on-year decrease of 10.8%. Looking at the central and local governments, the central government fund budget revenue was 176.4 billion yuan, a year-on-year increase of 9.8%; the local government fund budget revenue was 1,487.4 billion yuan, a year-on-year decrease of 12.8%, of which the state-owned land use right transfer income was 1,281 billion yuan, a year-on-year decrease of 14%.

As of June 23, the cumulative issuance scale of new local bonds was 1.6 trillion yuan, accounting for 35% of the annual quota, of which the cumulative issuance of new special bonds was 1.3 trillion yuan, which was significantly slow. The issuance plan for July is only 588.832 billion yuan. Due to the gradual tightening of urban investment and financing policies, the net financing amount of urban investment bonds has decreased by 771.051 billion yuan year-on-year.

The National Bureau of Statistics recently announced that the accounts receivable of enterprises above designated size at the end of May was 24.23 trillion yuan, a year-on-year increase of 8%, and the average recovery period of accounts receivable was 66.8 days, an increase of 3.4 days year-on-year. This will affect the expansion of corporate business activities from June to July, and thus affect the demand for steel.

Thirdly, the increased pressure on the fundamentals restricts the release of intermediate inventory demand from enterprises. The National Bureau of Statistics announced that the finished product inventory of scale enterprises in May was 6.79 trillion yuan, a year-on-year increase of 3.6%, and the value in April was 6.33 trillion yuan or 3.1%, while the PPI in May fell by 1.4%, indicating a decrease in price and an increase in volume. Although the data for June has not been announced, it is likely that the price will still fall (the manufacturing PMI factory price index in June fell to the contraction range of 47.9), and the volume will increase. This will to some extent restrict the enthusiasm of enterprises to replenish their inventory.

Of course, as the impact of the plum rain season on demand is about to end, the improved construction conditions in July will increase some demand.

There is still a phased pressure on supply in July. On the one hand, the relatively high inventory at the end of June has become a pressure on the market in July. On the other hand, the weekly output of rebar and wire rod in the small sample at the end of June increased by 142,300 tons and 53,100 tons respectively, and the two increased by 195,400 tons month-on-month, which at least poses pressure on the market in early July.

According to the sample survey of the Steel Union, the daily pig iron output in June increased by 30,000 tons/day month-on-month, to 2.388 million tons/day, and it is expected that the daily pig iron in July will fall slightly by 17,000 tons/day to 2.371 million tons/day. However, the current daily pig iron is at a relatively high level of more than 2.39 million tons this year, and the supply pressure in early July is greater than in late July. Against the backdrop of further narrowing profit margins and increasing loss margins for steel mills, the phenomenon of steel mill production cuts will increase in July. Clues can be seen in both Guangdong and Sichuan.

In summary, the pressure on the steel market fundamentals in the first half of July is expected to increase, and it should improve in the second half of the month. Pay close attention to the trend of steel mill production control to see if it exceeds many people's expectations.

The rebound momentum of steel market prices in July mainly comes from the following aspects:

Firstly, the repair rebound after the spot is oversold. On June 25, the comprehensive steel price index was 3839.1, which created a new low this year, lower than the low of 3851 on April 1, and the corresponding rebar price index was 3603.57 and 3590. In fact, the steel fundamentals in late June were much better than in early April. The recent low of the rebar futures weighted index was 3532, which is obviously 139 points or 4.1% higher than the low of 3393 on April 1 of this year, and the recent low of the iron ore contract weighted index was 795.3, which is also 64.2 or 8% higher than the low of 795.3 on April 1 of this year. That is to say, although the futures contract prices have also fallen recently, they have not yet reached a new low,