China's Steel Sector Faces Crucial Overhaul: Cuts Loom as Market Struggles
For the domestic market, the price of steel has shown some stability, though with slight declines. As of March 1, 2025, China’s domestic steel prices for rebar and hot-rolled coil experienced a small dip of around 1% on a month-over-month basis, with rebar falling from 3,540 CNY per metric ton in February to 3,500 CNY per metric ton in March, and HRC decreasing from 3,460 CNY per metric ton to 3,420 CNY per metric ton. In terms of export prices, both domestic and FOB prices for steel remain steady. The FOB price for rebar has held at $480 per metric ton, and HRC is also stable at $470 per metric ton as of March 1. These stable prices at the export level reflect a certain level of market balance, but it remains to be seen how international demand will respond to China’s internal capacity cuts.
China’s steel industry, the largest in the world, is poised for a significant transformation as the country contemplates its most substantial industry overhaul in over a decade. With the National People's Congress meetings on the horizon, industry experts and market participants are eagerly awaiting potential announcements that could mandate steel capacity cuts of up to 50 million metric tons for 2025. These cuts, if implemented, would mark one of the most dramatic steps taken by Beijing to address the long-standing issue of overcapacity in its steel sector.
The challenges facing China’s steel market are deeply rooted in the country’s broader economic climate. A major factor driving the demand downturn is the ongoing property crisis, which has severely impacted the construction industry. As the construction sector contracts, steel producers face reduced domestic demand and struggle to offload excess production to international markets. This combination of factors has placed immense pressure on the steel industry, leading to a recalibration of production strategies.
China’s steel exports hit a record-high 117 million metric tons in 2024, marking a 25.1% increase over the previous year. However, this surge in exports has not come without repercussions. Several countries, including Vietnam, South Korea, Brazil, and Chile, have intensified their anti-dumping measures, imposing levies on Chinese steel to protect their domestic industries. These protectionist policies have compounded China’s export challenges and highlight the difficulties the country faces in maintaining its steel output while navigating global trade tensions.
The situation is further complicated by the performance of China’s steel sector, as seen in February 2025. The Purchasing Managers' Index (PMI) for the sector showed slight improvement, rising to 45.1%, 1.8 percentage points higher than in January. However, the index for new orders was less encouraging, dropping to 40.2%, which is 1.5 percentage points lower than the previous month. While production levels increased by 3.1 percentage points to 45.6%, the data indicates that overall demand for steel is still under pressure.
The raw material purchase price index for February, at 35.7%, was significantly higher than the previous month, reversing a year-on-year decline that had persisted for the last three months. This shift suggests that steel manufacturers are anticipating higher input costs, potentially due to tightening supply chains and a rise in raw material prices. Conversely, the raw material purchase volume index declined by 6.1 percentage points to 41.6%, indicating that steel producers were cautious about purchasing large quantities of raw materials due to ongoing demand uncertainties.
Looking forward to March, analysts expect the demand for finished steel to pick up, as the traditional peak season for construction and infrastructure projects begins. This seasonal boost is anticipated to help stabilize steel prices and provide some relief to producers who have struggled with excess inventory. The upcoming NPC meeting, however, remains a focal point for market participants, as any official announcements regarding production cuts or new policies could have significant implications for both the domestic and global steel markets.
The potential for up to 50 million metric tons of production cuts represents a significant move in China’s ongoing efforts to restructure its steel sector. With pressure from domestic challenges, international trade tensions, and the need to address environmental concerns, Beijing’s approach to managing steel overcapacity will have far-reaching consequences. The steel sector's evolution will not only affect China’s economic landscape but also reshape global supply chains, as other steel-producing nations adjust to changes in the world’s largest market.
As China grapples with balancing internal economic pressures, external trade challenges, and long-term sustainability goals, the direction it chooses for its steel industry will play a pivotal role in defining the future of global steel markets. The coming months will be critical in shaping the path forward for the country’s steel producers, both in terms of domestic performance and international competitiveness.