Data from the National Bureau of Statistics show that from January to June, China's crude steel output was 389.87 million tons, a year-on-year increase of 7.4%, and the cumulative daily output was 2.154 million tons; in the first half of the year, steel output was 517 million tons, a year-on-year increase of 10.2%. At the same time, from January to June, the internal steel inventory of key steel enterprises in China remained between 10 million and 14 million tons; relative to the ultra-high steel output, the lower internal inventory of steel mills reflects that the overall order situation of steel enterprises is not bad. Luo Baihui, chief analyst of Jinmo Steel Network, believes that the significant rebound in China's steel output this year is due to the official commissioning of new capacity on the one hand, and on the other hand, due to the accelerated release of downstream demand since the beginning of this year, especially after May.

　　Monitoring data show that as of July 12, 2013, the main social inventory in key cities across the country dropped to 16.1465 million tons, achieving a decline in steel inventory for the 17th consecutive week. Under the pressure of ultra-high average daily crude steel output, China's steel social inventory fell from a peak of more than 22 million tons to nearly 16 million tons, a decrease of 6 million tons, reflecting the continuous enhancement of steel consumption capacity. On the one hand, China's steel export situation this year is significantly better than the same period last year; on the other hand, although the release of steel demand this year was delayed due to the National "Two Sessions" and the new government transition, the actual demand release was relatively stable.

　　In the months after the Spring Festival, major steel enterprises in China were generally in a loss-making state. Because the downstream demand expectations temporarily fell through, the contradiction between supply and demand was severe, and the pressure on raw material costs was high, the loss-making situation of China's steel enterprises showed signs of continuous expansion. The loss-making proportion of key steel enterprises even approached 50%; after entering June, with the rebound in steel prices, the profitability of China's steel enterprises gradually recovered. According to statistics from the China Iron and Steel Association, from January to May this year, large and medium-sized steel enterprises above designated size across the country achieved sales revenue of 1.49 trillion yuan, a year-on-year increase of 0.74%; achieved profits of 2.837 billion yuan, a year-on-year increase of 33.99%. Based on the semi-annual reports of listed steel enterprises in the first half of the year, as of July 14, 17 of the 34 steel enterprises had released their 2013 semi-annual performance forecasts: 4 forecast slight increases, 3 turned losses into profits, 3 forecast decreases, 1 had a first loss, and 6 continued to lose money. Compared with the same period last year, the industry shows a trend of slowing losses.

　　After entering June, the steel market, which had been falling for several months, saw a marked increase in rebound trends, and the release of downstream demand also showed signs of acceleration. After entering July, the steel market has achieved "simultaneous rises in price and volume" for two consecutive weeks, and market enthusiasm for pushing up prices is very hot in the off-season; destocking has also continued.

　　Steel industry: demand is strong, intermediate links are picking up

　　The National Bureau of Statistics released the operating data of the steel industry in June. Combined with customs import and export data, the details are as follows: In June, domestic crude steel output was 64.66 million tons, a year-on-year increase of 4.6%. The average daily output was 2.155 million tons, down 7,000 tons from May, a decrease of 0.3%. From January to June, crude steel output was 389.87 million tons, a year-on-year increase of 7.4%; in June, domestic pig iron output was 58.34 million tons, a year-on-year increase of 2.9%. From January to June, pig iron output was 357.54 million tons, a year-on-year increase of 5.7%; in June, domestic steel output was 90.84 million tons, a year-on-year increase of 10.2%. From January to June, steel output was 516.96 million tons, a year-on-year increase of 7.2%; in June, steel exports were 5.29 million tons, down 120,000 tons from May, but a year-on-year increase of 1.3%. From January to June, cumulative exports were 30.69 million tons, a year-on-year increase of 12.8%; in June, China imported 1.08 million tons of steel, down 170,000 tons from May and down 1.82% year-on-year. From January to June, cumulative imports were 6.83 million tons, a year-on-year decrease of 1.8%; in June, China imported 62.3 million tons of iron ore, down 6.26 million tons from May, but a year-on-year increase of 6.84%. From January to June, China's cumulative iron ore imports were 384.29 million tons, a year-on-year increase of 5.1%.

　　Actual demand is strong: Although the year-on-year growth rate of steel output in June was not high at 4.6%, this does not reflect a slowdown in demand growth. The significant difference between June this year and the same period in previous years lies in the change in social inventory. We estimate that the daily average social inventory destocking in June could reach 150,000-200,000 tons, while there was basically no destocking in the same period last year. After considering inventory changes and import and export factors, the daily average steel consumption of domestic steel downstream in June was about 2.2 million tons/day, with a year-on-year growth rate of about 10%-15%. It is precisely because of the high absolute demand that the inventory decline in June was so fast that by the end of the month, the market had already seen shortages. The substantial recovery of market confidence drove the expansion of procurement in all links of the industrial chain. The superposition of intermediate demand and relatively strong downstream consumption led to full orders for steel mills in July. It is expected that the operating rate of steel mills will be high in that month, and steel output is expected to rebound;

　　Exports remain stable: The daily average steel export volume in June increased slightly by 1,800 tons/day compared with May. The low year-on-year growth rate is mainly due to the base effect of last year. From a micro perspective, steel mills recently reported that steel export orders are still strong. Although the Northern Hemisphere ushers in the summer holiday season in July, the decline in steel exports is expected to be limited;

　　Ore imports slightly decreased: The daily average ore imports in June decreased by 135,000 tons month-on-month, a decrease of 6%. At the micro level, it is understood that the shipments from mainstream overseas mines were normal in June, with no significant reduction. The difference from the data may be caused by statistics, customs declaration, and other reasons;

　　Future judgment

　　Off-season inventory cycle starts: From the data, recent downstream demand is in a seasonal month-on-month decline stage, but the decline is very limited, and the absolute level is still very considerable. This demand intensity is sufficient to maintain the rapid decline trend of industrial chain inventory. When the inventory cycle bottoms out, both raw materials and finished products are in short supply. Market sentiment has shifted from previous pessimism to optimism, and all links of the industrial chain have begun to increase orders and expand inventory. A new round of inventory cycle began in early July. This round of rebound is based on strong downstream demand, with intermediate links providing the main procurement increment. Judging from the current inventory accumulation in intermediate links, the low inventory phenomenon has not changed, so procurement in intermediate links will remain active, and raw material and cost prices are expected to remain strong in the short term;

　　Smelting profits recover in stages: In July, steel mills have relatively full orders, and most steel mills have reduced shipments. It is expected that the operating rate of steel mills is expected to rebound to a high level in July, and the smelting profits for the month will recover significantly. The time span depends on the sustainability of the currently strong downstream demand.

　　Judging from the just-released economic operation in the first half of the year, although it basically meets market expectations, the economic growth rate has further weakened, and the GDP growth rate has a tendency to break through the lower limit, which the central government cannot tolerate. Li Keqiang and other senior officials hinted at this that "moderate" economic stimulus policies should be introduced in the second half of the year to accelerate the construction of new urbanization and continue to accelerate the advancement of large projects such as railway construction. According to statistics, since June, 50% of major national projects have started intensively. Luo Baihui analyzed that due to factors such as housing control policies and the new government election in the first half of the year, commercial housing development has been affected. A series of large projects that have been approved are expected to accelerate in the second half of the year. This series of actions indicates that the release of rigid demand for steel is imminent.

　　Against the backdrop of continued economic weakness, steel demand in the first half of the year maintained a steady growth trend in the last two months, indicating that domestic rigid demand has increased compared with last year; in the second half of the year, with the national moderate economic stimulus plan and the intensive start of major engineering projects, this rigid demand will also increase significantly; in addition, as the country's determination to strengthen environmental governance continues to increase, and its first clear attitude towards serious overcapacity and backward production capacity, the supply-demand relationship of steel in the second half of the year is expected to further ease. Therefore, Jinmo Steel Network believes that the fundamentals of downstream demand will accelerate release in the second half of the year, and steel prices, on this basis, have greater rebound momentum, and the overall situation may be better than in the first half of the year.