Since July, steel prices have staged their largest rebound of the year——the Mysteel steel composite index has risen nearly 5%. Several sources said in interviews that policy expectations are the main driver of this round of steel price gains, including higher environmental thresholds and the phasing out of outdated capacity that have cut steelmakers' output, as well as faster railway construction and fine-tuning of property control policies that have improved demand.

　　In May this year, Tangshan in Hebei, less than 200 kilometers from Beijing, decided to shut down and ban the first batch of 199 heavily polluting enterprises and outdated equipment. Hebei accounts for a quarter of China's steel output, and Tangshan accounts for about half of Hebei's steel output. As soon as the news broke, the steel market halted the continuous decline that had begun in early spring.

　　Xu Xiangchun, information director at Mysteel, believes that after the revised Air Pollution Prevention and Control Action Plan is issued, emission standards and monitoring for the steel industry will become stricter, and more plants will be shut down nationwide by then.

　　The National Development and Reform Commission (NDRC) and the Ministry of Industry and Information Technology (MIIT) are also taking action. On August 2, in an article titled "Steady Progress in Industrial Structure Adjustment," the NDRC proposed focusing on industries such as steel, cement, electrolytic aluminum, flat glass and shipbuilding, and rolling out policies and measures to resolve overcapacity. Qiu Yuecheng, an analyst at Xiben New Line, believes that an upgrade plan for the steel industry may be introduced.

　　On July 25, the MIIT published a list of enterprises in 19 industrial sectors that will have outdated capacity phased out, requiring about 7 million tons of outdated steelmaking capacity to be eliminated in 2013. It is understood that a second batch of outdated capacity elimination list is being drafted.

　　In addition, demand is also expected to improve. Analysts believe that some local property control policies may be slightly relaxed, such as support for first-home刚性 demand and looser refinancing for property developers, which will help restore real estate investment in the second half; in addition, several ministries are stepping up efforts to formulate policies to boost consumption, covering home appliance subsidies, policies to promote environmental protection and new energy, and policies to promote information consumption.

　　Liu Huifeng, a macro analyst at Mysteel, expects that in the second half, driven by shantytown renovation, railway investment, urban infrastructure construction and related consumption-boosting policies, steel demand is expected to gradually recover. However, there are also some bearish factors in the second-half market, such as the Fed's exit from QE, the restart of IPOs and the "disruption" to the market from a comprehensive debt audit. Therefore, the overall steel market in the second half is expected to improve from the second quarter, but is unlikely to exceed the February high.