The steel market still has room to decline in September

　　Reviewing the steel market in August, by the end of the month, steel prices showed a trend of initial rebound followed by volatile decline. The comprehensive steel price index dropped by 54 points, rebar and wire rod prices fell by 95 and 91 points respectively, hot-rolled and cold-rolled prices decreased by 29 and 24 points respectively, medium and heavy plate prices slightly rose by 2 points, 62% iron ore CFR price increased by 5 USD, coking coal price dropped by 4 points, and the comprehensive coke price rose by 158 points. From the monthly average price perspective, the comprehensive steel price index rebounded by 83 points (main steel varieties mostly rebounded), iron ore price rebounded by 2 USD, coking coal and coke prices rebounded by 166 and 233 points respectively, basically consistent with the view of mixed rises and falls. Looking ahead to the steel market in September, there is still room for further decline; only if steel mills actively control production or macroeconomic benefits support the market will there be a rebound.

　　The main reason for the further decline in the steel market in September is the fundamental condition dominating the market — weak supply and demand, continuous inventory increase, which puts downward pressure on steel prices.

　　Observing inventory, an important indicator of supply-demand balance, data from Steel Union shows that in August, the combined social and factory inventory of five major steel varieties in a small sample increased by 1.16 million tons, with social inventory increasing by 1.04 million tons and factory inventory only increasing by 120,000 tons; from the perspective of varieties, rebar social and factory inventory increased by 770,000 tons. This change in inventory structure exerts bearish pressure on the market: first, pricing in circulation channels is more sensitive to social inventory than factory inventory; traders and downstream usually follow the market, so when social inventory accumulates significantly, price pressure is released, while steel mills focus more on their own operating performance and, with little increase in their own inventory, prefer slight price cuts to maintain good sales; second, the small increase in steel mills' own inventory means they can maintain relatively high production levels, which implies continued fundamental pressure on the market. Steel Union data shows that weekly production of the five major varieties in the small sample increased by 170,000 tons in August, reaching a monthly peak of 8.85 million tons at the end of August, inevitably increasing supply in September, at least in early September; third, rebar, one of the main varieties influencing futures pricing, has increasing inventory, and with spot prices not falling as quickly, futures have to continue to adjust downward, which in turn forces spot prices to follow down. Observing the latest August steel industry PMI raw material and finished goods inventory, both rose by 3.6 and 7 percentage points month-on-month to 52.7 and 53 respectively, well above historical averages for the same period (44.3 and 46.2).

　　From the supply side, according to Steel Union's cost-profit model, on August 29, the average profit for electric arc furnace medium specifications was a loss of 78 yuan/ton, while the profit per ton of steel for blast furnace-produced rebar, medium plate, and hot-rolled products fell to 33 yuan, 82 yuan, and 66 yuan respectively. With inventory not high and profits still present, steel mills will continue active production. Short-term production control driven by specific events in local areas is unlikely to drive steel price rebounds. The pressure of resumption of production is expected to appear in the second week of September, possibly causing further spot price declines and potentially forcing steel mills to gradually implement self-disciplined production control in late September. From this perspective, fundamental pressure on steel will gradually increase from early to mid-September, naturally putting price under pressure.

　　From the demand side, a very important leading indicator is the import and export freight index, which shows that domestic and foreign demand will further decline in September. The China import container freight index, reflecting domestic demand, has been falling continuously since reaching a stage high of 711.45 at the end of May, down to 667.37 in the week of August 29. The decline is not large, indicating some resilience in demand. The problem is that the China coastal bulk freight index peaked at 1096.54 in the week of August 22 but showed a significant decline to 1053.36 by the end of August. If this index continues to fall, it indicates further decline in domestic and foreign demand. The China container export freight index has also been falling continuously since the stage high of 1369.34 in the week of June 27 to a stage low of 1156.32 in the week of August 29, indicating sustained decline in export demand. Foreign demand has been an important foundation supporting China's economic growth this year. With the prolonged US tariff imposition and the additional tariffs on steel and aluminum derivatives starting August 18 without exemptions for in-transit goods, new pressures on global trade circulation will inevitably increase, further impacting China's foreign demand. It will be difficult for commodity market prices in September to ignore this reality.

　　From the cost side, an important indicator tracked by Shanghai Steel Union is the daily average molten iron production, which remains at a relatively high level of 2.4 million tons per day. From this perspective, it supports relatively high demand for raw materials and fuels, thereby providing some stage support for raw material prices. However, from another perspective, the continuous decline in steel prices and the significant narrowing or even expansion of loss margins for steel mills will first force coke prices, which had reached this year's highest profit levels, to fall. Although spot coking coal prices are resistant to decline, they are not immune; long-term contract prices have slightly increased, but spot market prices may show a resistant downward trend. The overvalued iron ore prices are even more likely to fall. Therefore, the stage decline in raw material prices may weaken the cost support for steel, showing a stage interaction effect.

　　From the macro perspective, although there are positive disturbances in September, their magnitude is limited. Whether it is the "Steel Industry Stable Growth Work Plan," the Market Supervision Administration's notice on the 2025 China Fair Competition Policy Promotion Week, or local short-term production controls due to major events, all have positive effects, but the market is becoming more rational. On the contrary, the State Council plenary meeting on August 18 pointed out data showing emerging, trending, and structural problems, making everyone more aware of the risks and challenges in economic operation and the severe and complex external environment. Therefore, from a macro trading perspective, pressure will increase in the first half of September. With the Federal Reserve meeting on September 16-17, a 25 basis point rate cut is highly likely to be announced on the 18th, which may help steel prices rebound.

　　According to Shanghai Steel Union's model forecast, the average comprehensive steel price index in September is 3492, down 63 points month-on-month; the average rebar price index is 3274, down 93 points; the average hot-rolled price index is 3391, down 65 points; the average iron ore price index is 99.5, down 1.5 points.

　　In summary, in the September steel market, multiple overlapping factors both domestic and foreign may cause fundamental pressure on steel to continue increasing in stages, and steel prices have room to continue to be under downward pressure. However, if the US rate cut is implemented, it may favor macro sentiment and drive positive steel price movements. If combined with enhanced self-disciplined production control by steel mills, especially the advancement of administrative production controls, steel prices may have opportunities for volatile rebounds.

　　In terms of operations, loss-making steel mills should actively implement self-disciplined production control, reserving production quotas to create value; traders should moderately manage risks, operate cautiously, and consider buying on dips to layout long positions; end users should purchase on dips and reasonably manage inventory across different markets.