Domestic Steel Industry Grapples with ThinMargins Despite Global Edge
China's steel sector continues to maintain its position asthe most competitive globally, but this dominance is increasingly under threatfrom both internal and external pressures. According to Luo Tiejun, ViceChairman of the China Iron and Steel Association, Chinese steelmakers have beenoperating with razor-thin profit margins throughout early 2024. Domestic steelprices remained rangebound during the first quarter before experiencing notabledeclines in April, coinciding with the United States' announcement of sweepingtariff increases. The cost landscape presents a mixed picture, with iron oreprices maintaining relatively high levels around $100 per metric ton, whilecoking coal and coke prices experienced significant decreases in the firstquarter. This divergence in raw material costs, coupled with stagnant productpricing, has created a profit squeeze that industry leaders now recognizerequires coordinated production discipline to address effectively.
Peak Production Shifts Toward Higher-ValueProducts
China's crude steel production has already reached itszenith, though significant shifts are occurring within product categories. CISAdata reveals dramatic production changes between 2020 and 2024, with rebar andwire rod output plummeting by approximately 100 million metric tons.Conversely, hot-rolled coil production surged by about 95 million metric tonsduring the same period, while electrical steel output increased by 5.7 millionmetric tons. These figures illustrate a strategic pivot toward higher-valueflat products and specialty steels that command better margins and face lesssevere overcapacity issues. Despite these structural shifts, Luo projects thatChina's overall crude steel output will maintain a high plateau in the comingdecades, ranging between 800 million and 900 million metric tons by 2035 beforestabilizing around 800 million metric tons after 2050. This long-term outlooksuggests that while peak steel has been reached, production volumes will remainsubstantial for decades to come.
Demand Contraction Coincides with StructuralTransformation
The Chinese steel industry has entered what Luo describesas a phase of "existing capacity optimization" as overall demandcontracts while simultaneously undergoing structural changes. The real estatesector's decline from its peak and slowing infrastructure investment havesignificantly impacted traditional steel consumption patterns. Officialstatistics paint a concerning picture: in the first quarter of 2024, China'sapparent crude steel consumption totaled 230 million metric tons, representinga 1.3% year-on-year decline, while crude steel output increased by 0.6% to 259million metric tons during the same period. This widening gap betweenproduction and consumption underscores the urgency of coordinated outputrestraint. However, Luo expressed optimism regarding long-term demandprospects, noting that the manufacturing sector is emerging as a new growthdriver that could help maintain elevated steel consumption levels. Heconfidently predicted that China would retain its position as the world's largeststeel consumer for the foreseeable future, despite current challenges.
Export Landscape Complicated by Rising TradeBarriers
China's steel export performance in early 2024 presents aparadoxical situation of higher volumes but diminishing returns, furthercomplicated by an increasingly hostile international trade environment.First-quarter export data shows finished steel exports reached 27.43 millionmetric tons, a 6.3% year-on-year increase, while export value declined by 3.8%to ¥139 billion ($19.2 billion). The composition of exports has also shifted inresponse to changing global trade dynamics, with long products declining as apercentage of total exports while flat products gained share. Geographically,shipments to Europe and America decreased while exports to Asia, Africa, andLatin America expanded. While the direct impact of recent U.S. tariff increaseson Chinese steel exports may be limited due to already low volumes, Luo warnedof potential indirect effects. Chinese exports to countries like Vietnam, SouthKorea, Brazil, and Mexico could decline as these nations face their own U.S.tariff pressures. Additionally, China's exports of steel-intensive manufacturedgoods such as machinery, metal products, containers, and appliances faceheightened challenges in the deteriorating trade environment.
Carbon Reduction and Capacity Control TakeCenter Stage
The future direction of China's steel industry will beshaped by twin imperatives: strict capacity control and decarbonization. Luoemphasized that green, low-carbon development aligns perfectly with theindustry's high-quality development goals, noting the significant milestone ofthe steel sector's incorporation into China's national carbon emission tradingscheme in late March 2024. Industry analysis suggests that carbon emissionreductions in steelmaking should come from multiple sources: crude steel outputcuts (41%), raw material structure optimization (4%), process structureoptimization (36%), and low-carbon technology application (17%). To implementthese changes effectively, Luo proposed several concrete measures, includingcompiling detailed data on steel mills' smelting facilities, replacingtraditional output or capacity quotas with carbon emission controls,accelerating industry consolidation through mergers and reorganizations, andimplementing targeted measures to phase out inefficient steel capacity. Theseapproaches represent a sophisticated evolution of industrial policy that usesenvironmental goals to drive structural reform.
Major Steel Hubs Urged to Lead ProductionManagement
Stabilizing China's domestic steel markets will requireproactive production management, particularly in major steel-producing regions.Luo specifically called on large steel mills to take leadership roles in theirrespective regions, suggesting that market discipline must begin with theindustry's largest and most influential players. This approach recognizes thefragmented nature of China's steel industry and the challenges of coordinatingactions across numerous producers of varying sizes. By focusing on regionalleadership from dominant mills, CISA hopes to create a cascading effect thatbrings smaller producers into alignment with broader output control objectives.The emphasis on regional coordination also acknowledges the varying marketconditions across China's diverse steel-producing areas, allowing for tailoredapproaches that address local supply-demand imbalances while contributing tonational stability goals.
Export Strategy Pivots Toward High-ValueProducts
China's approach to steel exports is undergoing strategicrecalibration, with government guidance playing a crucial role. In late March,five key government departments, the State Taxation Administration, Ministry ofFinance, Ministry of Commerce, General Administration of Customs, and StateAdministration for Market Regulation, jointly issued regulations aimed atbringing greater order to steel exports. Luo emphasized that future exportstrategies should prioritize high value-added steel products rather than basiccommodities. This approach serves multiple objectives: it helps reduce domesticoversupply of commodity-grade materials, improves the profit profile ofexports, and potentially reduces trade friction by shifting toward productsless likely to trigger protectionist responses. Luo noted that reasonable steelexports can serve as a mechanism for Chinese producers to track global advancedmanufacturing technologies while fulfilling international demand. This exportphilosophy represents a maturation of China's steel industry from volume-drivengrowth toward value-focused development that better aligns with both domesticeconomic transformation goals and changing global market realities.
Key Takeaways:
• China's steel industry faces thin profit margins amidrangebound prices and high raw material costs, with CISA Vice Chairman LuoTiejun confirming a broad consensus on production cuts while projectinglong-term output to stabilize around 800 million metric tons after 2050.
• First-quarter 2024 data reveals a growing supply-demandimbalance, with crude steel consumption falling 1.3% year-on-year to 230million metric tons while production increased 0.6% to 259 million metric tons,highlighting the urgent need for coordinated output restraint.
• Chinese steel exports face increasing challenges with Q1volumes up 6.3% but values down 3.8%, as industry leaders advocate shiftingtoward high-value products while implementing carbon-focused policies thattarget a 41% contribution from output cuts in overall emission reductionefforts
