Weekly improvement in China steel demand, with a more pronounced rebound in long products consumption

Overview

This report is Morgan Stanley's weekly update on the China steel and iron ore markets, focusing on steel demand, output, inventories, capacity utilization, as well as iron ore inventories and shipment changes. The core conclusion is that demand for long products recovered more visibly on a sequential basis, while flat products improved only slightly; at the same time, both steel and iron ore inventories declined, making the short-term supply-demand data mildly positive.

Core views

On the steel side, apparent consumption of long products rose 6.0% week over week, rebar demand increased 5.1%, and apparent consumption of flat products rose 0.3% week over week; weekly output of both long and flat products increased, while inventories at traders and mills both declined. On the iron ore side, both port inventories and steel mill inventories fell, operating rates and average daily output rose slightly, but shipments from Australia and Brazil declined, reflecting marginal tightening on the supply/arrival side.

Analysis framework

The report uses a weekly high-frequency data tracking framework, comparing consumption, output, inventories, and utilization rates for steel long and flat products, and combining this with iron ore port inventories, steel mill inventories, operating rates, average daily output, and shipment volumes from Australia and Brazil to assess short-term industry supply-demand changes. Data sources are mainly Mysteel and Morgan Stanley Research.

Methodology notes

• High-frequency industry trackingWeekly steel and iron ore supply-demand monitoring

  Observe marginal supply-demand changes through weekly consumption, output, inventories, utilization rates, and shipment volumes.

  Consumption of long and flat products reflects downstream demand; output and utilization rates reflect supply; trader and steel mill inventories reflect channel and production-side destocking pressure. Iron ore port inventories, steel mill inventories, and overseas shipment volumes are used to help assess supply and demand conditions on the raw materials side.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• China steel sector

  Direct coverage target

  Strengths

  Demand for long products rebounded clearly week over week, steel inventories declined sequentially, and industry supply-demand dynamics improved at the margin.

  Weaknesses

  Flat products demand rose only slightly, and trader inventories remain high year over year.

  Comparison

  Demand improvement in long products was stronger than in flat products, indicating a more visible short-term recovery in construction-related products.

  Risks

  If demand recovery is not sustained, destocking slows, or output rebounds too quickly, prices could come under renewed pressure.

• Iron ore

  Upstream raw material and steel-production-related asset

  Strengths

  Port and steel mill inventories declined, and shipments from Australia and Brazil fell week over week, implying marginal tightening on the supply side.

  Weaknesses

  Steel mill operating rates and average daily output rose only slightly, limiting demand-side support.

  Comparison

  Compared with steel, iron ore is more affected by changes in overseas shipments and port inventories.

  Risks

  A recovery in overseas shipments, weaker-than-expected steel mill restocking, or softer steel demand could undermine support for iron ore.

• Greater China materials equities

  Related to sector conditions and covered company valuations

  Strengths

  The Asia Pacific sector view is disclosed as Attractive, and some covered companies maintain Overweight ratings.

  Weaknesses

  The report is primarily an industry weekly data update and does not provide new single-stock earnings forecasts or target price revisions.

  Comparison

  Materials companies across steel, aluminum, copper, lithium, gold, and other segments appear in the coverage list, but this report's main body focuses on steel and iron ore.

  Risks

  Company-level performance still depends on each firm's own commodity prices, costs, demand, and valuation, and cannot be inferred solely from weekly industry data.

Key data

• Apparent consumption of long products3,527 kt, +6.0% week over week, -0.7% year over yearThe report states that rebar demand increased 5.1% week over week.
• Apparent consumption of flat products5,727 kt, +0.3% week over week, +0.3% year over yearImprovement in flat products demand was limited.
• Steel inventories at traders12,513 kt, -3.3% week over week, +15.5% year over yearInventories declined sequentially, but remained elevated year over year.
• Steel inventories at mills4,513 kt, -4.1% week over week, +0.1% year over yearInventories at steel mills also continued to decline.
• Weekly output of long products2,996 kt, +1.1% week over week, -4.6% year over yearOutput recovered sequentially but remained lower year over year.
• Weekly output of flat products5,637 kt, +0.8% week over week, +0.3% year over yearOutput increased slightly.
• Utilization rate at 247 steel mills89.8%, flat week over week, -1.8 percentage points year over yearBlast furnace-related utilization rates were broadly stable.
• Electric arc furnace utilization rate62.3%, -0.3 percentage points week over week, +6.0 percentage points year over yearEAF operating rates edged down slightly.
• Iron ore port inventories157,750 kt, -1.4% week over weekPort inventories declined.
• Iron ore inventories at steel mills222 kt per mill, -0.2% week over weekIron ore inventories at steel mills declined slightly.
• Iron ore operating rate64.5%, +0.1 percentage points week over weekOperating rate improved slightly.
• Average daily iron ore output407, +0.1% week over weekOutput increased slightly.
• Australian iron ore shipments-0.41 Mt week over weekThe measurement period was April 13 to April 19.
• Brazilian iron ore shipments-0.30 Mt week over weekCombined shipments from Australia and Brazil decreased by 0.71 Mt week over week.

Impact & implications

The data mix is mildly positive for short-term sentiment across the steel and iron ore value chain: on the demand side, especially for long products, recovery continued, while inventories kept falling, helping ease market concerns over steel supply-demand pressure. However, flat products demand improved only slightly, and trader inventories remain high year over year, suggesting that the strength of the recovery still needs confirmation from subsequent weekly data. For iron ore, falling inventories and reduced overseas shipments could support prices, but steel mill operating rates and output improved only slightly, so the demand impulse is not aggressive.

Risks

• The recovery in steel demand may be only seasonal or short term; if subsequent weekly data weakens, the positive interpretation would be undermined.
• Year-over-year steel inventories at traders remain high; if destocking slows, steel prices and margins could come under pressure.
• If output of long and flat products rises faster than demand recovers, supply pressure could re-emerge.
• The decline in overseas iron ore shipments may support prices in the short term, but if shipments recover later, the downtrend in inventories could reverse.
• The report does not provide new company earnings forecasts or target prices, so the mapping from industry data to single-stock investment conclusions is limited.

What to watch

• Whether apparent consumption of long products and rebar demand can continue to improve sequentially.
• Whether flat products demand can move from slight growth to a more definite recovery.
• Whether steel inventories at traders and mills can continue to decline.
• Changes in utilization rates at the 247 steel mills and in EAF utilization, to assess whether supply is expanding again.
• Subsequent changes in iron ore port inventories, steel mill inventories, and shipment volumes from Australia and Brazil.