Chinese Steel Giant Anticipates Production CutsAmid Global Headwinds
China's largest listed steelmaker, Baoshan Iron &Steel, has indicated that a nationwide reduction in steel output is"highly likely" this year as the industry grapples with overcapacityand faltering demand. During the company's first-quarter results briefing,Baosteel Deputy General Manager Cai Yanbo addressed market speculation about apotential 50 million metric ton cut in Chinese crude steel production,confirming that "chances for a cut are high as it has been mentioned inthe government report." However, Yanbo emphasized that immediateimplementation wasn't expected, adding: "We have appealed to relevantauthorities to avoid a one-size-fits-all approach while controllingoutput." [7]
Export Outlook Dims as Trade Barriers Rise
Baosteel Chair Zou Jinxin painted a sobering picture forChina's steel exports, projecting a decline of approximately 15 million metrictons in 2025 due to increasing tariffs imposed by various countries. Thisrepresents a significant shift after Chinese steel exports reached a nine-yearpeak of 110.72 million metric tons in 2024. Jinxin further noted that indirectsteel exports, which include manufactured goods such as containers andvehicles, would decrease by an additional 20 million metric tons, compoundingchallenges for the industry that has increasingly relied on overseas markets toabsorb excess production.
Domestic Consumption Continues Downward Trend
Adding to the industry's challenges, Baosteel forecasts a2% drop in domestic steel consumption for 2025, continuing a trend of weakeningdemand particularly in China's troubled real estate and construction sectors.This decline in local consumption has been a primary driver behind Chinesesteelmakers' aggressive export push over the past year, which has now triggeredprotective measures from multiple countries concerned about the impact oflow-priced Chinese steel on their domestic industries. The combination offalling domestic demand and increasing export barriers creates a particularlychallenging environment for Chinese producers already struggling withovercapacity.
Production Cuts Could Rebalance Market Dynamics
Industry analysts suggest that a 50 million metric tonreduction in steel production could help rebalance the market by supportingsteel prices and potentially influencing the cost of steelmaking raw materials.This would be particularly significant given the current market conditions ofovercapacity and weakening demand. The potential cuts align with China'sannounced plans to restructure its steel sector, following a 5.6% decrease inproduction between 2020 and 2024, when output fell from 1.065 billion metrictons to 1.005 billion metric tons.
Baosteel Navigates Challenging Environment withProfit Growth
Despite the challenging market conditions, Baosteelreported a 26.4% annual increase in net profit for the first quarter of 2025,benefiting primarily from reduced costs. The company achieved record exports of6.07 million metric tons in 2024 but has not disclosed its export target for2025 amid the changing market landscape. Baosteel's cautious approach to thepotential cuts reflects broader industry concerns about implementation methods,with the company specifically appealing for nuanced policies that considerindividual producers' circumstances and efficiency levels rather than blanketreductions.
Government Policy Shapes Industry Future
The potential output cuts are part of broader governmentefforts to address structural issues in China's steel industry. In March, theChinese government indicated it would continue efforts to reduce crude steeloutput in 2025, following previous reductions between 2020 and 2024. Thesepolicy decisions reflect Beijing's attempts to balance environmental concerns,industrial efficiency, and economic stability in a sector that employs millionsof workers across the country. As China navigates these production adjustments,Zou Jinxin anticipates additional stimulus measures from the government to helpmitigate external economic challenges facing the steel industry.
Global Market Implications Remain Uncertain
The timing and exact scale of the production cuts remainunclear, creating uncertainty for both domestic producers and internationalsteel markets. A significant reduction in Chinese steel output couldpotentially ease global oversupply concerns and support steel prices worldwide.However, the impact will depend on the actual implementation timeline andapproach taken by Chinese authorities. For international steel producers whohave complained about Chinese steel flooding global markets, the potential productioncuts and export decline may provide some relief, though many countries havealready moved forward with tariffs and anti-dumping measures that are unlikelyto be reversed in the short term.
Key Takeaways:
• Baosteel Deputy General Manager Cai Yanbo confirms anationwide steel production cut is "highly likely" this year,potentially reaching 50 million metric tons, though implementation timingremains uncertain and the company has requested authorities avoid a"one-size-fits-all approach."
• Chinese steel exports are projected to decline by 15million metric tons in 2025 due to rising international tariffs, with anadditional 20 million metric ton reduction in indirect exports throughmanufactured goods, following record exports of 110.72 million metric tons in2024.
• Despite challenging market conditions including aforecasted 2% drop in domestic steel consumption for 2025, Baosteel reported a26.4% increase in first-quarter profits, benefiting from reduced costs whileanticipating additional government stimulus measures to address industrychallenges.
