LAUNCESTON - China's steel sector presents something of a dilemma in trying to work out if it is soft and likely to continue to weaken, or whether it is actually performing quite strongly given the subdued state of the world's second-biggest economy.

The data certainly suggests an industry that is at best just keeping its head above water.

Steel production was 83.67-million tons in June, up 0.4% from the same month in 2025 but down slightly from 84.36-million in May, according to official data released last week.

If a positive spin is being sought, steel output on a daily basis was 2.79-million tons a day in June, the highest since March and up a tad from May's 2.72-million.

However, production for the first half of 2026 was 499.95-million tons, down 3% from the same period last year.

This makes it likely that 2026 steel output will stay below  one-billion tons for a second year, given that mills tend to have lower production in the second half of the year.

The problem for the steel sector is that China's economy is operating at different speeds across the various steel-consuming sectors.

Construction, which accounts for about one-third of demand, is still weak, with first-half property investment dropping 18% from the same period in 2025, construction starts falling 23.4% and property sales by floor area by 11.6%.

There are other signs of concern as well, with vehicle sales dropping 4.1% in the first half of the year after rising 11.4% in the same period in 2025.

China's electric vehicle sector has been a star performer in recent years and exports continue to perform strongly with rising demand as global consumers switch away from diesel and gasoline cars amid the ongoing price volatility and supply uncertainty from the Iran war. But domestic sales momentum has faded.

Manufacturing exports are also holding up, with gains for solar panels in June despite the removal of an export tax rebate.

Prices for steel have also been largely steady for the past year, with benchmark Shanghai rebar contracts ending at 3 104 yuan ($458.49) a ton on Monday, near the middle of the range between 3 051 yuan and 3 275 yuan that has prevailed so far this year.

Rebar inventories are also higher at 4.94-million tons in the week to July 17, up from 3.72-million for the same week in 2025, but down from the 5.93-million in 2024 and the 5.49-million in 2023.

IRON-ORE STRENGTH

The part of the steel value chain that is outperforming is iron ore, with June imports rising to a six-month high of 112.69-million tons, up 6.4% from the same month in 2025.

China, which buys around 75% of global seaborne iron-ore, saw imports gain 6.3% in the first six months of the year to 628.87-million tons.

Lower domestic production by iron content and rebuilding of inventories have lifted demand for imported ore.

Port stockpiles monitored by consultants SteelHome dropped to 156.6-million tons in the week to July 17, down from the record high of 166.9-million in mid-March.

Inventories are also 19.6% higher than the 130.9-million tons in the same week in 2025.

Another factor supporting iron ore imports is prices, which have been weakening amid ample supply from top producers Australia and Brazil, as well as new producers such as Guinea in West Africa.

Singapore Exchange contracts ended at $99 a ton on Monday, up from a one-year low of $97.63 on July 1, but also down from $111.91 on May 11, which was a 22-month high.

With China's iron-ore inventories at relatively high levels, it's hard to make a case for continued strength in imports or prices, especially given expectations of rising supply from the 120-million-tons-a-year Simandou project in Guinea, which is ramping up output after starting up late last year.

China's steel sector may have a somewhat brighter outlook, especially if Beijing decides the softer-than-expected economic growth of 4.3% year-on-year in the June quarter warrants more aggressive stimulus measures.