China's steelmakers look abroad as domestic pressures mount
Producers begin building mills in Southeast Asia, the Middle East and Africa
Steel rolls from China are seen after being unloaded at the Valparaiso port, Chile, on July 10. China's outbound shipments surged 22.7% in 2024 from the previous year. © Reuters
It wasn't the drop in production that alarmed China's steel industry this year. It was that demand fell even faster.
By the end of September, Chinese mills had produced 746 million tons of crude steel, down 2.9% from a year earlier. But domestic consumption slumped 5.7% to just under 649 million tons, a much steeper decline. The imbalance sent a clear message: In the world's largest steel-producing nation, the core problem isn't output; it's overcapacity, with too few buyers at home to absorb what's being produced.
That demand shortfall is reverberating through the economy. Steel prices have slid to multi-year lows -- with the China Steel Price Index briefly dipping below 90 in June, the lowest since 2017. Industry executives, analysts, and government officials now say a structural shift is underway, from decades of expansion to a difficult period of contraction and consolidation.
"The mismatch between supply and demand has become acute," Jiang Wei, spokesperson for the China Iron and Steel Association (CISA), told reporters at an October press briefing. Behind the slide is a larger transformation in China's economic model. The real estate boom has passed its peak. Massive infrastructure spending has slowed. The country's steel-intensive years of development are coming to an end -- and the mills that powered them are being left behind.
To fill the widening gap, Chinese steelmakers are aggressively pivoting to export markets. In 2024, outbound shipments surged to 110 million tons, up 22.7% from the year before. The momentum continued into 2025, with 87.96 million tons exported in the first nine months, a 9.2% year-on-year increase. Analysts expect the full-year figure could reach 130 million tons, nearing an all-time high.
But volume has come at the cost of value. The average price of Chinese steel exports dropped 19.3% in 2024 to $755.40 per ton. This year, prices fell another 9.5%. Many steelmakers are caught in a high-stakes race to preserve market share overseas, even if that means selling at razor-thin margins or below cost. "Domestic demand is weak, foreign markets are better," one coastal mill executive told Caixin. "So we're all focused on expanding abroad."
That shift is accelerating a new phase of China's global industrial strategy. Rather than simply exporting more, major producers are beginning to set up shop abroad -- building factories in Southeast Asia, the Middle East and parts of Africa. By mid-2025, Chinese companies had launched steel investments in more than 20 countries, with combined overseas capacity topping 120 million tons. Some executives now refer to these ventures as their "second growth curve."
Still, the long-term picture remains sobering. With trade tensions simmering and environmental targets looming, experts say China's steel exports, which already account for around 30% of global trade, are approaching a ceiling. Over the next five years, direct exports may fall by half, according to Jiangsu Steel Association President Chen Hongbing. That would push China's apparent steel consumption down from more than 1 billion tons today to around 750 million, a contraction that would reshape not just an industry but a cornerstone of China's post-reform economy.
Slack demand, stubborn supply
China's steel mills are facing a painful contradiction: While domestic demand continues to shrink, many producers are still churning out metal at or near full capacity.
Since 2022, two of the steel industry's biggest downstream drivers, real estate and infrastructure, have been in steady decline. Manufacturing has picked up some of the slack, with sectors like automobiles, home appliances, shipbuilding and electrical machinery emerging as bright spots. But even in these growing industries, the emphasis has shifted from quantity to quality. Modern manufacturers require higher-grade, more specialized steel -- a trend that is forcing producers to upgrade product lines, improve energy efficiency and phase out lower-value and more polluting capacity.
Still, many mills have remained highly motivated to produce. "Since the start of this year, profitability has rebounded, so steel companies have been producing as much as they can," Chen said. The reason lies in a favorable change in margins: Raw material costs, especially those for coal and coke, have fallen more sharply than steel prices. This has allowed mills to recoup profits even in a weak market.
In the first half of 2025, the price of rebar and hot-rolled coils fell by 7% to 9%, but the coking coal price index plunged 31.5%. Low-sulfur prime coking coal declined 19.7%, while iron ore slipped 7.3% to around $93.55 per dry ton. The resulting profit boost was dramatic. According to the China Iron and Steel Association, the industry's total profit for the first three quarters of 2025 reached 96 billion yuan ($13.52 billion), up nearly 190% year-on-year. Sales margins climbed to 2.1%, reversing the losses of previous years.
But the gains may be short-lived. In October, coking coal prices began rising again, rebounding about 10%. "This decline in coal prices won't last forever," warned Zhang Kaidong, a steel analyst at industry data provider Mysteel. If input costs continue to rise, many mills could once again be pushed to the edge of unprofitability.
The government, wary of a repeat of the 2015 industrywide collapse, has urged steelmakers to scale back. That year, when prices crashed and inventories ballooned, the sector suffered an unprecedented loss of 64.5 billion yuan, with sales margins plunging to 2.2%. To prevent a similar glut, authorities have issued strict mandates. In 2025, China aims to reduce crude steel output by 5% from the 2023 level of just over 1 billion tons. Local governments are distributing those targets among regional mills, many of which are planning maintenance shutdowns or idling blast furnaces in the final months of the year.
But enforcing production cuts has proven difficult. In previous cycles, many high-polluting blast furnaces that were supposedly decommissioned were later revived through "capacity swaps," a controversial loophole that allowed old capacity to return under new names. As a result, actual crude steel capacity has expanded further, with industry experts estimating total potential output at 1.4 billion tons, far more than China needs or can consume.
The imbalance is hitting bottom lines. By the end of October, 36 listed steel companies had released their earnings for the first three quarters of 2025. Of those, eight remained deeply in the red. In many cases, their losses were tied to stubbornly high inventories. Chongqing Iron & Steel, for example, held 1.7 billion yuan in unsold stock at the end of last year. Gansu Jiu Steel Group Hongxing Iron & Steel and Liaoning province's Bengang Steel Plates carried even higher inventory burdens -- 4.8 billion and 7.3 billion yuan, respectively.
"Don't turn cash into inventory," CISA has repeatedly warned. If mills continue to run full tilt in a weakening market, the association said, they risk flooding warehouses, dragging down prices further and pushing themselves deeper into financial strain.
Exports surge despite headwinds
When Vietnam in late October moved to launch an anti-circumvention probe into Chinese hot-rolled coil -- just months after imposing antidumping duties as high as 27.83% -- it signaled a new phase of protectionism against the world's largest steel exporter. Vietnam is China's single biggest overseas market for steel. Yet in the first three quarters of 2025, China's steel exports to Vietnam plunged 24.8%, customs data shows.
Vietnam is hardly alone in pushing back. From early 2024 to this past August, at least 11 countries imposed antidumping or safeguard measures on various Chinese steel products. For the markets involved, China's steel exports tumbled nearly 30% year-on-year in the first seven months of 2025, according to the Ministry of Commerce.
But the growing list of trade barriers has done little to slow China's outbound momentum. Instead, the opposite has happened: Chinese steel exports surged 9.2% to 87.96 million tons in the first three quarters alone. Despite the turbulence, China's mills are shipping out more steel than they have in years. Analysts said the reasons are both structural and opportunistic.
One of those reasons is a rush to beat new tariffs. Overseas buyers, anticipating higher duties or tightened import rules, have been frontloading purchases. This "preemptive buying" helped push China's steel exports up 11.4% year-on-year in the first seven months. Analysts expect this effect to fade as new trade measures take hold, but for now it has buoyed shipments despite escalating scrutiny.
A second driver is China's aggressive expansion into emerging markets. "Overseas, the profit per ton is often higher than at home, and we've opened up many new clients in the past two years," said Xu Xiangchun, research director at Mysteel. Africa is the standout example: Chinese steel exports to the continent jumped 34.3% in the first nine months of 2025 as infrastructure projects in West, East and Southern Africa accelerated.
Exporters are also adjusting what they sell. With flat steel products facing the harshest trade barriers, many mills have pivoted to long products such as rebar and wire rod, which are more in demand in construction-heavy economies across Asia, Africa and the Middle East. Even more striking is the boom in semifinished exports. Shipments of steel billet -- a low-processed product largely exempt from trade remedies -- soared to 11 million tons in the first three quarters, more than tripling from the same period the previous year.
Price competitiveness remains China's biggest strategic advantage. In August, Chinese hot-rolled coil was priced $25 to $50 per ton lower than that of India or Turkey, two major rivals. And beyond price, buyers continue to prefer Chinese steel because of its consistency, broad product range and logistics ecosystem. These factors, analysts say, are nearly impossible for competitors to replicate at scale.
Yet the export boom is not driven only by legitimate trade. A phenomenon known in the industry as "invoice-free exports" -- or "buy-order exports" -- has quietly inflated volumes. Steel traders avoid issuing value-added tax invoices, export under another company's name and sidestep tax filings, allowing them to sell overseas at sharply discounted prices. Though regulators have intensified crackdowns, the practice remains widespread. Xu estimates the annual volume of such exports may reach 20 million tons. Beyond lost tax revenue, the practice feeds foreign accusations that Chinese steel is dumped below cost.
Looking ahead, even bullish analysts expect the export surge to moderate. "History shows that once a country accounts for around 30% of global steel trade, it inevitably faces trade barriers," Xu said. As more countries tighten safeguards, China's export growth is likely to slow and then gradually decline.
The World Steel Association's latest short-range outlook reinforces this trajectory. It projects global steel demand to hold steady at 1.75 billion tons in 2025 before inching up 1.3% in 2026. China, however, is expected to continue contracting -- down 2% in 2025 -- while demand in developing countries outside China is forecast to grow sharply, led by India and major Southeast Asian and Middle Eastern economies.
These shifting patterns are redrawing China's export map. Asia will remain the core market, though Southeast Asian demand for flat products is increasingly constrained by antidumping actions; long products and semis are filling the gap. Meanwhile, Belt and Road markets -- the Middle East, Africa and Latin America -- are poised to deliver the strongest incremental growth as governments there double down on housing, transport and energy infrastructure. Europe and the U.S., hemmed in by high tariffs, will stay marginal destinations for Chinese steel.
China's broader industrial footprint abroad is also reshaping steel flows. As Chinese manufacturers accelerate "overseas industrialization," building factories and supply chains overseas, steel demand follows. The Simandou iron ore project in Guinea is a vivid example. Construction of the Trans-Guinea Railway relies heavily on Chinese materials, from rails and sleepers to fasteners. From January to September this year, China exported 2,292 crawler excavators to Guinea, up from 294 in the same period of 2023, a compound growth rate of 179%.
Pricing power under strain
China's weakening domestic steel demand and the fading momentum in exports are beginning to ripple upstream. Multiple industry executives said these shifts are likely to erode demand for iron ore -- the primary raw material in steelmaking -- with prices expected to face sustained downward pressure.
Producing 1 ton of steel requires roughly 1.2 tons of iron ore, and the material accounts for nearly half of a mill's input cost. China imports about 80% of its iron ore, 1.24 billion tons in 2024, mostly from Australia and Brazil. At $132.2 billion in value, iron ore ranks as China's third-largest import, trailing only semiconductors and crude oil.
A centerpiece of China's pricing strategy is its collective negotiating body, the Minomine Resource Group, which was formed in July 2022 to centralize long-term contract purchases on behalf of state-owned and private steelmakers. Since July 2025, Minomine has been locked in negotiations with Australian mining giant BHP Group over pricing terms for contracts running through the third quarter of 2026.
Industry insiders said the negotiations hinge on more than just volume. While long-term contracts are priced using published indexes, the real battles lie in securing favorable discounts, freight rebates and loyalty incentives. Four global miners -- Rio Tinto, Vale, BHP and Fortescue Metals Group -- control roughly 70% of the world's seaborne iron ore. That concentration has long tilted pricing power in their favor.
The industry moved to index-based pricing in 2010, abandoning decades-long fixed-price contracts. Most Chinese mills now link pricing to daily, weekly or monthly averages of indexes like S&P Global's Platts, which remains the dominant benchmark. While some contracts also reference Mysteel's index, the latter has limited international influence, and all major benchmarks are denominated in U.S. dollars.
Chinese stakeholders have long criticized Platts for relying on a small, opaque spot market that is easily influenced. Most Chinese mills buy through long-term contracts, yet a single above-market shipment near month-end -- often brokered by large trading houses -- can lift the monthly average and inflate contract prices for all buyers. "We often see end-of-month cargoes trade $2-3 per ton above the market," said one executive at a major Chinese iron ore trader. "That's enough to skew the monthly average and impact nationwide long-term pricing."
To counter this, China on Sept. 28 launched the Beijing Iron Ore Price Index. Based on actual spot transactions at Qingdao and Caofeidian ports, the index is calculated in yuan and converted to U.S. dollars. Industry leaders see it as a long-overdue step toward diversifying pricing benchmarks and reflecting true domestic demand.
The Beijing Iron Ore Price Index has already attracted early adopters. On Nov. 6, 10 major Chinese steel companies, trading houses and one foreign miner -- Australia's newly merged Hancock Iron Ore -- signed a memorandum to begin using it in iron ore trade settlements. Hancock, formed in July by the union of Roy Hill and Atlas Iron, is now Australia's fourth-largest and the world's fifth-largest iron ore producer. Analysts say China's plateauing steel demand, growing emphasis on local ore projects like Simandou and the imbalance in supply chain profits -- where upstream miners enjoy 20% to 100% margins while steel mills scrape by on 1% to 2% -- will continue to drive reforms in how ore is priced and purchased.
China's offshore push
With domestic demand under persistent pressure, more Chinese steelmakers are charting a two-stage path to internationalization: Export first, then build capacity abroad. "We use exports to establish sales channels and stable local partnerships," said a manager at a small private mill in Jiangsu province. "Once that's in place, local production is a natural next step." His company recently opened an office in Guinea, where steel prices are twice those in China, at 7,000 yuan to 8,000 yuan per ton. The plan is to gain market share through exports, then invest in local production capacity.
Africa is one target. North Africa, in particular, offers healthy profit margins and limited competition. "We're seeing net profit of 18% in Egypt and 20% in Algeria," said Thaiseer D. Jaffar, chairman of UAE-based United Iron & Steel Company, at a recent steel pipe industry summit. "Unlike Southeast Asia, which is already saturated, North Africa still has space to grow."
For many Chinese companies, however, the journey abroad began in Southeast Asia. In 2013, stainless steel giant Tsingshan Holding Group pioneered this route by building an industrial park in Indonesia, eventually establishing full-process stainless and carbon steel production. The move triggered a wave of Chinese investment in the region. But that window is narrowing. Jiangsu Steel Association's Chen predicts Southeast Asia will reach steel self-sufficiency within five years, eroding China's export prospects.
Smaller Chinese mills tend to set up minimal facilities overseas using electric arc furnaces to produce rebar from scrap or importing semi-finished billets and rolling them locally. This model offers better margins than straight exports. But for larger players, the trend is toward building full-process facilities. These avoid trade barriers, supply neighboring markets and can channel raw materials back to China.
One example is Panhua Group's $3.5 billion integrated steel project in the Philippines. The company commissioned a 200,000-ton color-coated line this year, the first phase of a major industrial base that will eventually produce up to 10 million tons annually. The facility includes port infrastructure, power generation and full-process metallurgy, from coking and sintering to blast furnaces and rolling mills. "This is the core of our globalization strategy," Chairman Li Xinghua said.
The plant is designed not just to supply the Philippines, but to support Panhua's hot and cold rolling lines back home.
The Middle East is also rising. In May 2023, Baoshan Iron & Steel (Baosteel) signed a deal with Saudi Arabia's Public Investment Fund and Saudi Aramco to form a joint venture steelmaker. Located in Ras Al Khair Industrial City, the plant will produce 2.5 million tons of direct reduced iron, 1.67 million tons of steel and 1.5 million tons of high-end heavy plate for oil, shipbuilding, offshore and infrastructure sectors in the Middle East and North Africa. It's Baosteel's first overseas full-process facility.
Baosteel executives said the Saudi project, with an initial budget of $4 billion, faces high upfront fixed costs, about triple those of a similar facility in China. However, energy prices are low, which reduces operational costs and supports long-term returns. The company is now reviewing plans to reduce capital expenditure to around $2 billion. Beyond Saudi Arabia, Baosteel is scouting investments across Southeast Asia, Central Asia and North Africa. "Regionalized, full-process plants are the inevitable direction," a senior executive said.
Still, going global comes with risks. In 2020, Hebei-based Jingye Group acquired Britain's second-largest steelmaker, British Steel, for 53 million ($69.5 million) pounds and subsequently invested more than 1.2 billion pounds. But the plant has continued to hemorrhage money, reportedly losing 700,000 pounds a day. In April, the U.K. government forcibly took control of the company amid plans to shut down loss-making blast furnaces. Jingye's control remains unresolved.
--
Read also the original story.
Caixinglobal.com is the English-language online news portal of Chinese financial and business news media group Caixin. Nikkei has an agreement with the company to exchange articles in Englis
Comments
Post a Comment