Steel mills expectations towards a recovery in steel demand in China were high coming into June, with hopes that the easing of covid lockdowns in many areas of the country would enable pent-up demand to come rushing back, leading to a destocking of steel inventory and supporting higher steel prices. However while sequentially activity has picked up from lockdown induced lows in April and May, the recovery has not been strong enough to meet those elevated expectations. 

Steel mills are instead facing lower steel prices and negative steel margins, which are forcing them to cut steel output in order to adjust to the weaker demand environment. With the rainy season already underway across southern and central China, the seasonality in steel demand will not be of much help to any short- term demand recovery. However, looking beyond the rainy season to the autumn construction season, perhaps this will be the time when demand can finally start to recover. Much of that of course will depend on the ability of the government to properly execute on stimulus spending.