Although China’s economy was affected by the pandemic in the first half of the year, thanks to effective pandemic control and counter-cyclical adjustments, China’s manufacturing and construction sectors have emerged from their trough and quickly rebounded. The recovery of the manufacturing and construction sectors has jointly boosted consumption of black building materials. Meanwhile, under the framework of counter-cyclical adjustments, investment-driven domestic demand in real estate and infrastructure has also supported and sustained the consumption of black building materials. As of the end of July, in the spot market for black building materials: iron ore prices rose 23% year-on-year, coking coal prices fell 3%, rebar prices fell 3%, and metallurgical coke prices fell 11%. In the futures market: the September 2020 iron ore contract traded at 600–840 yuan per ton, up 40%; the coking coal contract traded at 1,930–2,020 yuan per ton, up 5%; and the rebar contract traded at 3,400–3,800 yuan per ton, up 12%.

　　 I. Supply and Demand Analysis of Black Building Materials in the Second Half of the Year
　　 (1) Steel will continue to face the challenge of destocking.
　　We conservatively estimate that crude steel consumption will increase by 8% in the second half of the year (up 18.6% year-on-year in the second quarter and up 5% year-on-year in the first half). Crude steel production is expected to rise by 6% in the second half. As a result, the steel industry will face a relatively challenging destocking process in the second half. On the supply side, we anticipate little significant change in the second half. The direction of steel inventories will be directly determined by changes on the demand side. Given the currently high accumulated inventory levels, the steel industry will likely face a prolonged period of inventory reduction.
　　In the short term, given cost support and strong supply-adjustment capabilities, there is limited room for steel prices to decline. Steel consumption alternates between peak and off-peak seasons, leading to fluctuations in inventory levels. These inventory changes necessitate short-cycle adjustments in supply, thereby driving swings in steel prices. The already accumulated high inventory levels will inevitably put downward pressure on finished steel products, particularly on rebar prices, which exhibit relatively low price elasticity. At the same time, however, the short-cycle supply-adjustment capacity and cost support will gradually lift the floor of steel prices.
　 　(2) The supply and demand situation for coke is improving.
　　In the first half of the year, coking capacity saw a net reduction of over 5 million tons. In the third quarter, an additional 7 million tons of new capacity is expected, which will boost production in the fourth quarter. In the fourth quarter, another 10 million tons of new capacity is forecast, and this will drive increased output in the first quarter of next year. Assuming our neutral estimate for steel consumption, pig iron production in the second half of the year will still need to remain at a relatively high level. The intensity of steelmaking raw material consumption will continue to stay elevated. Given the current supply-and-demand dynamics in the steel industry, it’s unlikely that we’ll see a sustained, long-term reduction in production. While net exports of coke may find it difficult to increase significantly, imports are also unlikely to rise substantially. Going forward, it will be crucial to keep an eye on major developments in the coking industry: Shandong’s coal-based coking policy, Henan’s production restrictions on 4.3-meter coke ovens, Shanxi’s cap on 20 million tons of coking capacity, and Hebei’s cap on 12 million tons of coking capacity. Each of these major events has the potential to further exacerbate the already tight supply-demand situation for coke.
　　 (3) Changes in steel consumption closely determine iron ore inventory levels and prices.
　　The increase in China’s domestic iron ore supply mainly stems from re-exports from overseas. In the first half of the year, China’s iron ore imports rose by 47 million tons, with the bulk of this increase driven by re-exports of iron ore resulting from reduced blast furnace production in Japan, South Korea, and Europe. June marked the seasonal peak month for shipments, with global shipments remaining at a steady level of 34 million tons per week for four consecutive weeks, leading to a noticeable rise in arrivals during July and triggering a continuous buildup of inventories at domestic ports. In the third quarter, shipments from Australia are expected to decline seasonally, while shipments from Brazil and other non-mainstream sources are likely to remain at high levels.
　　Overall, we forecast that iron ore imports for the year will increase by 7.8%, or by 80 million tons (compared to 47 million tons in the first half of the year). In the second half of the year, steel consumption is expected to grow by 8%, bringing the full-year consumption growth to 6.7% and boosting iron ore consumption by 74 million tons (an increase of 37 million tons in the first half of the year). Based on these projections, iron ore inventories are likely to show a moderate upward trend in the second half of the year, with year-end inventories reaching approximately 125 million tons.
　　Our inference is based on a moderately weak forecast for consumption in the second half of the year. If high consumption growth seen in the second quarter continues into the second half, it will be difficult to achieve a substantial increase in iron ore inventories for the full year. The extent of steel consumption changes in the second half will determine the level of iron ore inventories.
　 　(4) A severe supply-demand imbalance that is hard to find in the glass market.
　　In the second quarter, glass production capacity utilization remained persistently low, and national output declined year-on-year for two consecutive months. Since June, glass capacity utilization has shown some recovery, yet it still remains at a low level seen in recent years. In June, national flat-glass production continued to fall by 3%. It is expected that July will see a mild rebound in production, with capacity utilization likely to improve further and output showing month-on-month growth. However, the year-on-year increase in output levels will remain limited.
　　Since April, with the concentrated resumption of construction and real estate activities and amid a generally loose liquidity environment, property sales have begun to rebound rapidly, thereby driving cyclical demand for building materials. Glass consumption has followed suit, maintaining robust levels. Against the backdrop of both property sales and completions strengthening simultaneously, glass consumption in the second half of the year remains promising. Although short-term off-season effects have led to a slight decline in consumption, we expect that once this period ends, glass consumption will likely follow the broader trend of industrial products and continue to show month-on-month growth. Moreover, from the supply side, it remains difficult to see significant increases in supply during the third quarter. Driven jointly by the real estate and automotive sectors, glass consumption is poised to pick up again after the rainy season.
　　 II. Outlook for Black Building Materials Prices in August
　　The meeting of the Political Bureau of the CPC Central Committee held on July 30 clearly stated: Fiscal policy should be more proactive and effective, with a focus on practical results; it should ensure sufficient funding for major projects and place great emphasis on quality and efficiency. Monetary policy should be more flexible and appropriate, with precise targeting; it should maintain reasonable growth in money supply and the overall scale of social financing, and promote a significant reduction in comprehensive financing costs. We believe that the power of counter-cyclical adjustments should be given due attention. Looking back at the period from 2009 to 2010—the era of high supply, high consumption, and soaring prices—and the period from 2015 to 2016—the era of high consumption and steadily rising inventories under an accommodative monetary policy—we can see that steel products will both benefit from the boost in domestic demand and the improvement in external demand brought about by an easing monetary environment.
　　In a scenario characterized by robust supply and demand for finished steel products, the focus should shift to the raw material side of the steel industry. Although iron ore supply and demand are showing marginal signs of weakening, the 10%–20% forward discount offered in the futures market remains worthy of attention. Price spreads among different iron-ore varieties have now reached historically extreme levels. As overseas consumption gradually improves, the premium for lump ore is also set to become a key factor in spot transactions in the second half of the year.
　　The tight balance in the coke market will persist, and once policy intervention leads to a contraction on the supply side, it will inevitably exacerbate the supply-demand imbalance and drive up prices.
　　To sum up, the prices of black building materials rose in the second quarter, but the market’s reaction was relatively moderate. First, the magnitude of price increases was limited; second, these price hikes were accompanied by frequent pullbacks. This suggests that black commodity prices in August will likely demonstrate strong upward resilience. From a strategic perspective, it is important to pay close attention to the iron ore 2101 contract, which currently exhibits a significant premium for distant-month contracts, as well as coking coal, whose supply-demand dynamics continue to improve. At the same time, we should also be mindful of risk factors such as weather conditions, deteriorating geopolitical relations, and the potential further decline in overseas demand amid the ongoing pandemic.