China steel and iron ore weekly data were weak, while the Asia Pacific materials sector view remains Attractive

Overview

This report is a weekly update on China steel and iron ore published by Morgan Stanley's Greater China Materials team. The core content centers on tracking weekly Mysteel data on steel demand, output, inventories, capacity utilization, as well as iron ore inventories, operating rates, average daily output, and changes in Australian and Brazilian shipments. The report also includes Morgan Stanley's rating definitions, global rating distribution, and the list of covered Greater China materials companies.

Core views

The steel demand side is weak in the short term: apparent consumption of long products fell 3.8% month over month, and apparent consumption of flat products fell 1.6% month over month. The supply side, by contrast, rebounded, with weekly output of both long and flat products increasing. On inventories, trader inventories edged up while mill inventories were flat, showing that inventory pressure has not been fully absorbed amid slowing demand. On the iron ore side, steel mill inventories increased, while operating rates and average daily output declined, and combined shipments from Australia and Brazil fell by 0.59 Mt month over month.

Analysis framework

The report uses a weekly high-frequency data monitoring framework, dividing steel into long and flat products and separately tracking apparent consumption, output, inventories, and utilization rates; the iron ore section tracks port inventories, steel mill inventories, operating rates, average daily output, and shipment volumes from Australia and Brazil. Data sources are Mysteel and Morgan Stanley Research.

Methodology notes

• Industry high-frequency trackingMysteel weekly steel and iron ore data

  Use apparent consumption, output, inventories, utilization rates, and shipment data to assess short-term supply-demand changes.

  Apparent consumption of long and flat products is used to observe steel demand, while inventories and output are used to judge supply-demand matching. Iron ore inventories, operating rates, average daily output, and Australian/Brazilian shipments are used to observe pressure on the raw materials side.

• Rating frameworkMorgan Stanley relative rating system

  Overweight, Equal-weight, Not-Rated, and Underweight are ratings of expected returns relative to industry coverage.

  The disclosure section explains that stock ratings generally correspond to risk-adjusted total return expectations relative to industry coverage over the next 12-18 months; industry views include Attractive, In-Line, and Cautious.

Asset mapping & comparison

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

• Steel long products

  Directly tracked asset

  Strengths

  Weekly output increased 2.5% month over month.

  Weaknesses

  Apparent consumption fell 3.8% month over month and 9.1% year over year.

  Comparison

  Compared with flat products, long product demand saw a larger month-over-month decline.

  Risks

  Weakening real estate, infrastructure, or construction demand may continue to drag on long product consumption.

• Steel flat products

  Directly tracked asset

  Strengths

  Weekly output increased 0.9% month over month.

  Weaknesses

  Apparent consumption fell 1.6% month over month and 2.9% year over year.

  Comparison

  Compared with long products, the decline in flat product demand was smaller.

  Risks

  Changes in manufacturing demand or exports may affect destocking and pricing for flat products.

• Iron ore

  Upstream raw material for steel

  Strengths

  Combined shipments from Australia and Brazil decreased month over month, which may marginally ease supply pressure.

  Weaknesses

  Inventories at steel mills increased, while operating rates and average daily output declined.

  Comparison

  Weak steel-side demand and lower iron ore shipments create diverging supply-demand signals.

  Risks

  If steel mill operating rates continue to decline, iron ore demand may come under pressure; if shipments recover, inventory pressure may rise again.

• Greater China materials covered stocks

  Industry coverage universe

  Strengths

  The coverage table includes multiple Overweight-rated stocks, such as Baoshan Iron & Steel, China Hongqiao Group, Jiangxi Copper, and Zijin Mining Group.

  Weaknesses

  Some covered stocks are rated Underweight or Equal-weight, showing clear divergence.

  Comparison

  The report uses Morgan Stanley's relative rating system rather than direct Buy/Hold/Sell ratings.

  Risks

  Individual stock ratings and prices are jointly affected by industry cycles, company fundamentals, policy, commodity prices, and market risk.

Key data

• Apparent consumption of long products2,734 kt; down 3.8% month over month; down 9.1% year over yearThe main text explicitly states that apparent consumption of long products fell 3.8% month over month.
• Apparent consumption of flat products5,506 kt; down 1.6% month over month; down 2.9% year over yearThe main text explicitly states that apparent consumption of flat products fell 1.6% month over month.
• Weekly output of long products2,816 kt; up 2.5% month over month; down 5.3% year over yearWeekly output rebounded, but year-over-year growth remained negative.
• Weekly output of flat products5,558 kt; up 0.9% month over month; down 2.4% year over yearWeekly output rebounded, but year-over-year growth remained negative.
• Trader steel inventories11,787 kt; up 0.8% month over month; up 27.1% year over yearTrader inventories increased slightly.
• Mill steel inventories4,472 kt; 0.0% month over month; up 7.6% year over yearMill inventories were flat.
• Utilization rate of 247 steel mills89.8%; down 0.8 percentage points month over month; down 1.0 percentage points year over yearSteel mill capacity utilization declined.
• Electric arc furnace utilization rate55.7%; down 1.3 percentage points month over month; up 3.9 percentage points year over yearEAF stands for electric arc furnace.
• Iron ore port inventories153,700 kt; down 1.8% month over monthThe table discloses that iron ore port inventories declined month over month.
• Iron ore inventory per mill218; up 1.1% month over monthThe main text says that iron ore inventories at steel mills increased.
• Iron ore operating rate61.1%; roughly flat month over monthThe main text says the operating rate declined, but the table shows 0.0 percentage points month over month.
• Iron ore average daily output386; down 0.1% month over monthAverage daily output edged down slightly.
• Australian iron ore shipmentsdown 0.36 Mt month over monthThe statistical period is July 13 to July 19.
• Brazilian iron ore shipmentsdown 0.23 Mt month over monthThe statistical period is July 13 to July 19.
• Combined Australian and Brazilian iron ore shipmentsdown 0.59 Mt month over monthCombined shipments from Australia and Brazil declined.
• Asia Pacific industry viewAttractiveThe table lists the Asia Pacific Industry View as Attractive.

Impact & implications

The short-term data suggest a cautious view on the steel value chain: weaker month-over-month demand, rising trader inventories, and declines in some utilization rates may pressure steel prices and the earnings elasticity of steel producers; on the iron ore side, inventories and shipments show mixed changes, with inventories at steel mills increasing but Australian and Brazilian shipments decreasing, so the direction of supply-demand rebalancing remains to be watched. Despite weak weekly operating data, the report's disclosed Asia Pacific materials industry view remains Attractive, indicating that the medium-term industry view is not determined solely by a single week's data.

Risks

• Continued declines in apparent steel consumption could lead to inventory accumulation and price pressure.
• Utilization rates at steel mills, electric arc furnace utilization, or average daily output could decline further.
• A recovery in iron ore shipments combined with weakening demand could increase raw material inventory pressure.
• The report includes conflict-of-interest and regulatory disclosures; Morgan Stanley has investment banking, market-making, or other service relationships with some covered companies.
• Morgan Stanley ratings and industry views may change, and the disclosure states that the latest research should be referenced.

What to watch

• Whether apparent consumption of long and flat products stabilizes next week.
• Whether trader inventories and mill inventories continue to rise.
• The direction of changes in utilization rates at the 247 steel mills and electric arc furnace utilization.
• Iron ore port inventories, inventory per steel mill, operating rates, and average daily output.
• Whether Australian and Brazilian iron ore shipments recover after this week's decline.
• Whether the Attractive Asia Pacific materials sector view is maintained in subsequent reports.