The recent surge in high temperatures across many regions has significantly impacted the steel market, slowing down construction projects and reducing demand at the terminal level. This has led to a decline in trading activities and put pressure on steel prices, which had been rising for four consecutive weeks. With the heatwave intensifying, the steel market is now facing a potential shift from recovery to volatility.
High-temperature weather has swept across 19 provinces in China, with over 42 cities recording consecutive days of extreme heat that have broken historical records for July. In Shanghai, as of July 28, there were already 22 days of high temperatures, including a record-breaking 40.6°C on July 26—marking the hottest temperature ever recorded in the city’s 140-year meteorological history. Similarly, Hangzhou, one of the most affected cities, has seen temperatures consistently above 40°C since July 24, with other parts of Zhejiang also experiencing temperatures between 38°C and 40°C.
This extreme weather has caused disruptions in the supply chain of the steel industry. Small steel mills in some areas of Zhejiang have had to adjust their working hours, starting after 9 PM and stopping before 8 AM the next day. Construction sites in Hangzhou have also adapted by shifting work hours to early morning and late afternoon to avoid the midday heat. These changes have slowed down project progress, further weakening demand and reducing transaction volumes in the steel market.
According to insiders, while steel supply remains tight, demand has dropped significantly. Market analysts predict that inventory levels in the Hangzhou area may rise this week due to reduced activity. The steel price rally that had lasted for several weeks has started to slow down, with some regions even witnessing price corrections. For example, billet prices in the Tangshan area dropped by 20 RMB per ton over the weekend, which dampened market confidence.
Despite the recent price increases, the seasonal off-season demand is not strong enough to sustain continued growth. Steel inventories have also declined sharply, with total social stock of five major steel products falling by 1.5153 million tons compared to the end of June. However, with demand weakening and market sentiment turning cautious, the upward trend is likely to face short-term adjustments.
New data from the China Iron and Steel Association shows that crude steel output in mid-July averaged 1.718 million tons per day, with a slight increase to 1.4% by the end of the month. National daily crude steel output was estimated at 2.13 million tons, up 2.3% from the previous quarter. Analysts note that with improved profitability, steel companies are less inclined to cut production, leading to a rapid drop in daily output after a brief rebound earlier in the month.
In the current off-season environment, steel prices are unlikely to continue rising. Short-term adjustments are expected, but a significant drop is unlikely. Looking ahead, with the challenges still present in the steel industry, it's difficult to see a large increase in crude steel production. Therefore, the market is more likely to experience upward trends in the medium to long term.
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