Global and China Steel Market Analysis

Global Steel Production Trends

• 2024 Overview:

  • Global steel output decline due to lower Chinese domestic demand, particularly from the property sector.

  • Ex-China output also decreased due to oversupply, pressuring global steel prices.

• 2025 Outlook:

  • Anticipated slow year for global steel production.

    • Domestic demand expected to continue to decline slightly.

    • Ex-China demand growth likely impacted by tariffs.

    • High Chinese steel exports continue to weigh on ex-China prices.

• 2026 Forecast:

  • Expected pickup in global crude steel output.

  • Driven by a rise in ex-China production.

  • China projected to lose market share.

China's Steel Production

• Q1 Performance: Crude steel production up 1% year-on-year.

  • Hot metal output was slightly higher.

  • Flat steel output (used in manufacturing and exports) drove much of the growth.

  • Suggests front-loading of production ahead of anticipated tariff impacts.

• Sector Drivers

  • Machinery: Accounts for about 15% of China's steel demand. Sales reported by Chinese machinery companies were up approximately 8% in Q1 year-on-year, with about two-thirds of the growth being export sales.

  • Alignment with other commodities: Estimates for commodities like copper and alloy suggest that approximately two-thirds of the Q1 demand growth was export-driven.

• Rest of 2025: Steel production is expected to decrease, ending the year at around -2% year-on-year.

  • This decline is driven by lower Chinese domestic demand.

  • Manufacturing demand is expected to slow but not collapse, with policymakers continuing to prioritize the growth and development of the manufacturing sector. High-frequency data suggests Chinese exports have held up well.

  • Infrastructure: Positive year-on-year growth of around 4% is expected for both this year and next year because of moderately successful debt resolution program-more spending flowing through to actual projects.

  • Shift Away from Transport Projects: Shift towards utilities and new infrastructure that use less steel.

  • Property Sector: Expected to be a significant drag, with new starts and completions down, offsetting support from manufacturing and infrastructure.

• Steel Production Cut: Steel production decline by around 2% due to lower demand, not necessarily a government-mandated steel production cut of the magnitude of 50,000,000 tons.

  • Reasons against a large cut:

  • Steelmaker margins are better than last year.

  • Stocks are low.

  • Local governments want to support GDP and employment targets.

China Steel Exports

• Export-Driven Trend: Steel production decline really turns to an export-driven trend with Chinese steel exports expected to decline, bringing production down.

  • Chinese steel exports have risen substantially in recent years, supporting steel production levels as domestic demand contracted.

  • Contributed to lower steel prices globally.

• Barriers to Exports: Push from steel industries in China's top export destinations (largely other Asian markets) to increase barriers to Chinese steel. Some countries have imposed anti-dumping duties, and others have ongoing investigations.

  • Anti-dumping duties will likely have the biggest impact on Chinese steel export volumes next year.

  • 2025: Net exports are expected to decrease by around 3%, mainly because the year started so strong, especially with the increase in semi-finished steel exports.

  • 2026: A much bigger drop of around a third year-on-year is expected.

• Steel Exporters Adaptation: Chinese steel exporters are trying to find ways around these barriers through semi-finished products and increasing exports to regions with fewer investigations (e.g., Africa, Middle East).

  • 2026 export volume is projected to be 40% higher than the 2022-2023 average.

Rest of the World (Ex-China)

• Output and Prices: The outlook for a pickup at ex-China prices and output next year is really underpins by this view of China's steel exports.

  • Pickup in production being largely concentrated in emerging markets (particularly other Asian markets) where has demand growth.

• Production Growth in Developed Markets: Some production growth is expected in developed markets

  • Europe: Production is expected to increase by 5% next year after a slow 2025.

  • This is more of a recovery story, as the level remains significantly below pre-COVID highs.

• The US: More volumes are expected from The US this year in response to tariffs and the increase in domestic prices.

  • U.S. steel output has already increased by 5% since February when tariffs were first announced, and the price impact initially happened.

  • The US is not expected to become completely self-reliant on steel; some volume imports will still be required, so domestic prices need to account for that tariff.

  • Saw an immediate repricing futures market after that tariff got doubled this week.

  • July futures are pricing the new 50% tariff rate.

  • The risk of exemptions that you do get later later in the year that the market is pricing.

  • Spot Prices: Spot prices are expected to align to incentivize those imports.

China Industry Views and High-Frequency Demand

• Resilient Flat Steel: Flat steel, which goes to manufacturing, year-to-date has been resilient.
  * Supply chain shifts: Concern with a part of the production or supply chain has really moved out of China since April due to The US-China tariff; however, the impact on manufacturing or flat steel has been minimal.

• Volatility in Construction Market: We are running back to a negative number in the construction market.
  * Year-to-date: In construction, steel, we're looking at year to date probably around minus 6% year on year.

• Potential Recovery in Construction Market: Recovery expected in the second half of the year due to reacceleration of government bond purchase.
  * Best-case scenario: Can run back to flat demand by the second half of the year.
  * Overall for the year: Minus 1% to minus 2% demand in overall Chinese steel or very moderate kind of a stable, but modest softness for the full year.

• Supply Side Discipline: Year to date to remain reasonably disciplined.
  * Lower Inventory: Lower inventory in general versus historical years.
  * Cautious Mentality: Cautious mentality in a soft demand environment.
  * Steel Margin: As a result of stabilization in demand, we're seeing probably somewhere between breakeven to positive 50 to 100 RMB unit cash margin.

  • This is an improvement from last year.

  • Steel production cut: There is really no official confirmation whether this is happening or it is not.

    • Production Cut Impact: If the production cuts start in the remaining seven months, will bring an 8% decline versus last year in in I think in the second half, which is, I think, probably another step of improvement.

• Exports and Price Differentials: We're still seeing export running at a very high number.
  * Extra Profit Driver: The extra 50 RMB per ton, literally 7 US dollar per ton of extra profit.
  * More than 50% likely the chance the production cut is driven because of the profitability concern of an oversupply industry in the environment where exports slow down, then chances for this happen, I would still say probably still more than 50%.

• Sustainable Reduction of Chinese Steel Export: A true reduction of the Chinese steel export - capacity exit.
  * Practical Way: Emission, energy consumption, etcetera, could be used as tools to address overcapacity in the long run.
  * The near-term preferred discipline : Production cut.

• 50,000,000 Ton Production Cut: Executing this 50,000,000 ton production cut can sustain and then Chinese export, at least over this period of time, should see a pretty visible improvement.

• Industry Perspective: Steel industry perspective, seeing a little bit better margin this year than last year leads to very low earnings.

Raw Material Feedback

• Raw Material Outlook: Unanimously bearish for raw materials, based on the China view.

  • For iron ore that unless China is gonna continue increasing production, which we don't think will happen.

• Risk of Production Cuts: Higher risk of production cuts if production continues to go on year on year basis.

• Singapore First Week: Saw unanimously bearish sentiment due to China unless production continues to rise

• Onshore Clients: They don't expect it in the very short term just because they don't expect it to happen while the demand is still there and the export is still strong and their margins are still good because it's not needed.

• Chinese Steel Exports: What happens with Chinese steel exports main swing factor for people

• Chinese Exporters: There are ways that Chinese exporters are trying to work their ways around these barriers which makes people more hesitant of the fact that those might fall.

Lessons from History of Supply Side Management

• Reference 2015/2016: The successful supply-side reform saw meaningful number.

• 2015/2016 - Success

  • Officially 50,000,000 tons with illegal capacity exceeding 300,000,000 tons of steel capacity was taken out.

• Government Policy: Government-engineered reduction works due to challenges in smooth consolidation/exit of unsuccessful steel mills.

• Typical Consolidation: For a lot of Chinese specific reason, the typical consolidation, I think especially the exit of probably unsuccessful steel mills in many cases is not as smooth probably as in, you know, some of the other different type of economy.

• Reason Triggered Reform: 2 things: Crisis and Financial Distress

• Financial Distress: Was the more impetus that has categorized the the the government to engage into a very kind of successful production at capacity reduction plan back then.

• Improvement from Financial Distress: Can improve from the distress if recognizing the industry's overcapacity, I think the policy, therefore, for this time probably will be preferred into a different path.

• Near Term Production Control: let's do this through in the near term production control. And then maybe through the this process, we could categorize different type of capacity and have a very differentiated allocation and making certain part of the industry feeling very difficult and challenging over time and exit by themselves.