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According to a report released by the Steel Logistics Committee of the China Federation of Logistics and Purchasing on May 1st, the domestic steel industry PMI index stood at 46.8% in May, marking an increase of 1.7 percentage points from April. This marks the second consecutive month of growth, although it remains below the 50% threshold for the third month in a row. The slight improvement suggests some recovery in the sector, but overall conditions remain weak.
Steel production continues to stay robust. In May, the production index rose to 49.0%, up 4.1 percentage points from the previous month. At the same time, procurement activities related to production also saw a rebound, with raw material inventory levels rising. These indicators point to increased activity in steel procurement and ongoing production momentum. According to the latest data from the China Iron and Steel Association, the average daily crude steel output in mid-May reached 2.1854 million tons, a slight decrease of 0.35% compared to early May, yet still the second-highest level in history. For now, steel mills have limited capacity to cut production, meaning that high crude steel output is expected to persist in the short term.
Despite this, demand in the steel market has shown only a modest improvement. The new orders index in May rose by 2 percentage points to 45.2% after two consecutive months of decline. However, as May came to an end, demand started to weaken again, signaling the end of the seasonal peak. With summer approaching, domestic consumption is expected to slow down due to the high-temperature rainy season in June. As a result, the recovery of final demand may be constrained. Given the current high production levels, rising steel inventories are likely to continue pressuring the market, potentially hindering any future stock declines or even leading to a rebound.
Throughout May, iron ore prices remained under pressure, continuing their downward trend after a brief consolidation period. Domestic steel mills actively selling long-term contracts contributed to the falling prices. On May 31, the Platts 62% Australian iron ore index was quoted at $109.75 per ton, a sharp drop of $48.25 per ton from its annual high of $158 per ton. Although domestic iron ore prices have hit a yearly low, trading volumes remain sluggish, reflecting weak demand and subdued market sentiment.
According to the report, despite the drop in raw material prices, steel mills have not reduced their production efforts, and both societal and mill-level inventories remain elevated. If production capacity and output are not well managed, the limited demand improvements may not be enough to offset the oversupply. This has created a significant downward pressure on steel prices, which are expected to remain volatile in the short term. However, some positive developments are beginning to emerge in the steel market, offering cautious optimism for the future.