Chinese steel mill margins narrowed to an average of 45 CNY/mt in June, down from 85 CNY/mt in April and 65 CNY/mt in May, as the recovery in the property sector continues to disappoint. Margins for rebar are now as low as 20-30 CNY/mt, reducing blast furnace incentive for long steel producers.
New housing starts fell 8% year-over-year in May, marking the fourth consecutive monthly decline. The property sector, which traditionally accounts for 30-35% of Chinese steel demand, remains in a structural adjustment with developer balance sheet repair ongoing despite policy support measures.
The Chinese government has introduced additional stimulus measures, including reductions in mortgage down payment requirements from 20% to 15% and expanded urban village renovation programs. However, project starts have not responded meaningfully. Real estate investment fell 5.2% year-to-date through May.
Infrastructure investment rose 11.5% year-over-year, partially offsetting the property weakness. Fiscal spending on transportation, water conservancy, and energy infrastructure has been the government's primary macro stabilization tool. Infrastructure accounts for approximately 25% of Chinese steel consumption.
Manufacturing demand remained a relative bright spot. China's manufacturing PMI held at 50.6 in May, with the new export orders sub-index at 50.2, indicating modest expansion. Machinery, shipbuilding, and automobile production all contributed to flat steel demand growth of 2-3% year-over-year.
The property sector weakness is a structural headwind for iron ore demand in H2 2026. If mill margins fall below zero, expect production cuts that reduce iron ore import demand. Keep iron ore coverage at 15-30 days rather than longer. Chinese stimulus timing is the key upside risk.