China steel mill profits improve in Q2 as off-season demand weakens margins

in Commodity News 29/07/2026

Profitability in China’s steel industry improved in the second quarter from the first quarter, but weaker demand and rising steel inventories have eroded steel mill margins since mid- to late June, raising concerns about the sector’s outlook for the second half of the year.

China’s ferrous smelting and processing sector recorded total profit of 31.77 billion yuan ($4.69 billion) in January-June, down 25% year over year, according to National Bureau of Statistics data released on July 27.

Using NBS data for the first quarter of 2026, the sector generated aggregate profits of 35.11 billion yuan in the second quarter, marking a sharp reversal from a 3.34 billion yuan loss in the first quarter. Even so, second-quarter profit was still 2.7% lower than a year earlier.

Despite the quarterly rebound, several mill sources, traders and a steel industry analyst said profitability has weakened since mid- to late June as seasonal demand softened, while output cuts remained too limited. That leaves the industry facing a familiar seasonal pattern in which production discipline and downstream buying need to move together to prevent inventories from rising faster than margins can recover.

“As of late July, domestic hot-rolled coil sales among mills have generally fallen into losses of around Yuan 50-100/metric ton,” a mill source said.

Another mill source and a trader said domestic rebar sales are also losing around 50 yuan/mt at present.

In response to softer seasonal demand and widening losses, Chinese steelmakers have stepped up production cuts since mid-July.

Daily pig iron and crude steel output at China Iron and Steel Association member mills averaged 1.841 million mt and 2.015 million mt, respectively, over July 11-20, down 1.3% and 0.4% from early July, and 5.3% and 5.9% lower than a year earlier, CISA data released July 25 showed.

For July 1-20, daily pig iron and crude steel production averaged 1.853 million mt and 2.019 million mt, respectively, down 2.3% and 2.4% from June averages. Output was also 4.4% and 4.7% lower year over year.

However, the production cuts have not yet prevented inventories from building further.

Finished steel inventories held by mills and major spot markets monitored by CISA rose to 27.75 million mt as of July 20, up 8.3% from the end of June and 18.5% higher than a year earlier.

Inventories of hot-rolled coil and rebar reached 2.25 million mt and 4.09 million mt, respectively, as of July 20, about 26.4% and 35% higher year over year.

“Although steelmakers have stepped up production cuts, demand is falling even faster, leaving steel inventories elevated,” a mill source said. “As a result, steel prices and mill profitability are unlikely to improve in the foreseeable future.”

Another mill source said recent declines in coke prices had helped prevent steelmaking losses from widening further.

“Current losses remain within a tolerable range for most mills,” the source said. “Given the weak domestic steel demand, the decline in steel output during July has still been too limited to reduce inventories or support a meaningful rise in steel prices.”

Steel market participants are closely watching a Communist Party Politburo meeting expected at the end of July, which traditionally focuses on economic policy. The meeting is being watched because any policy signal on domestic consumption, property or infrastructure would be relevant for steel demand, but market participants said they are waiting for concrete measures rather than expectations alone.

The two mill sources said that if the meeting does not announce new stimulus measures aimed at boosting domestic consumption or supporting traditional steel-consuming sectors such as property and infrastructure, steel demand is unlikely to recover meaningfully in the second half of the year, and steel prices are likely to remain low.

Platts, part of S&P Global Energy, assessed domestic HRC at 3,320 yuan/mt ($490/mt) and rebar at 3,060 yuan/mt on July 16, down 30 yuan/mt and flat, respectively, from end-June levels. Source: Platts