It was an intervention that was the subject of rumors, and now it’s coming true. China, the world’s largest steelmaker and consumer, recently announced it would be “restructuring” its steel industry through cuts in crude steel output, a move many analysts and experts call China “protecting its own turf.”
China Steel Industry “Dumping” a Long-Term Global Problem
This is the first time in recent memory that China’s National Development and Reform Commission has proposed to cut steel production in its draft plans. For years now, the world has looked on as China’s steel industry dumps material into other markets, leading to massive protests and tariffs from the U.S., India and Europe, to name a few.
As late as this February, two countries that were bearing the brunt of cheap “Made In China” steel, Vietnam and South Korea, had imposed anti-dumping duties on some Chinese steel products. Meanwhile, steel exports from China hit about 110 million tons (MT) in 2024, a nine-year high.
Despite some measures in the past on the part of Beijing to reduce steel production following concerns around carbon emissions, yearly production stayed above the one billion ton mark.
According to an official report released a few days ago and covered in Reuters, the Chinese Government will now focus on ushering in measures to resolve structural problems in key sectors and end the rat race through the use of industrial regulation. However, the exact amount of steel production the government aims to cut is not yet known.
What Analysts Predict
Initial reactions by steel industry analysts and experts are that the move will impact the iron ore industry, but the degree of this impact is yet to be understood. On the other hand, many feel that China’s latest move could eventually turn out to be beneficial, not only for its own steel producers but also for international markets.
One report by Citi analysts dubbed the move “Supply-Side Reform 2.0,” and predicted that it would lead to a drop in both steel production and exports. This could boost the profit levels of steel industry players in China and internationally. However, the impact on iron ore, a crucial raw market for steelmaking, remains uncertain, depending more on steel demand than production levels.
Iron Ore Demand and Lingering Chinese Industries
The team at Citi recently estimated a drop in global iron ore demand of about 1%, assuming the proposed cut in China’s steel production is in the region of 50 million ton (MT). In the short term, these experts believe an improvement in these margins could offset any minor dips in the base price of iron ore. This is mainly due to iron ore prices being more closely tied to steel producer margins.
Bloomberg quoted Zhuo Guiqiu, a Shenzhen-based analyst at Jinrui Futures Co., as pointing out that the growth expectations for infrastructure demand in China are currently down. This may add some amount of pressure to steel and iron ore prices. It is worth noting that China’s property and infrastructure sectors never fully recovered post-COVID.
These lingering dips were some of the reasons China tacitly encouraged the export of its home-made steel to maintain the profitability of its steel mills.
The Potential Impact on Iron Ore
Following reports of the coming crude steel production cut, iron ore futures and spot markets dropped. Indeed, futures in Singapore dropped below US $100 a ton last week for the first time since mid-January, settling at US $99.85 a ton on Friday. Meanwhile, the spot price was just above US $100 a ton, down from about $110 a few days before.
Following China’s move, the forecast for one of the largest iron producers, Australia, remains mixed. Two of the most important raw materials in steelmaking come from the continent: iron and coking coal. As China tries to shift from the traditional way of making steel toward a more environment-friendly one, some say the country’s demand for high-grade ore could decline.
However, Ben Cleary, a portfolio manager at Tribeca Global Natural Resources Fund, believes that most iron ore producers in Australia will face minimal impact for now. Cleary told The Australian Financial Review that those iron ore producers supplying higher quality steel producers operate at the lower end of the cost curve.
Lately, iron ore has shown resilience through brutal times, including the property crisis and supply constraints caused by adverse weather conditions.
By Sohrab Darabshaw
