2026 marks the first year of China’s 15th Five-Year Plan, and the country’s steel industry is undergoing a profound adjustment. In the first half of the year, China’s crude steel output reached approximately 500 million tonnes, down 3.0% year on year, while output from key steelmakers fell 3.7%. At the same time, apparent steel consumption declined 3.6%, keeping profitability under pressure. Against the backdrop of weak demand, rising raw material and fuel costs, and tighter environmental and carbon-emission requirements, the traditional growth model based on production volume and scale is changing. The industry is now focused not only on how much steel to produce, but also on how to increase product value, reduce manufacturing costs, and meet increasingly stringent green development requirements.
China’s steel market showed a clear pattern of weak supply and demand in the first half of 2026. National crude steel production stood at approximately 500 million tonnes, down 3.0% year on year, while output from key monitored steel enterprises reached around 408 million tonnes, a decline of 3.7%. During the same period, apparent steel consumption fell 3.6% to approximately 437 million tonnes, showing that lower production alone has not yet brought a significant improvement in market supply and demand.
The structure of steel consumption is also changing. Construction-related consumption fell to 48%, while manufacturing’s share increased to 52%. Production of long products such as rebar declined significantly, whereas medium and heavy plate and cold-rolled products continued to grow. Steel demand is increasingly shifting toward automotive, new energy, equipment manufacturing and shipbuilding applications.
Profitability remains a major challenge. In the first half of the year, key steel enterprises generated approximately RMB 3.05 trillion in revenue, down 0.7% year on year, while total profits declined 5.5% to about RMB 58.4 billion. The sales profit margin was only 1.92%. Profit from the core steel business fell by around 40% to RMB 16.7 billion, leaving the core business with a margin of just 0.77%. These figures indicate that reducing output alone cannot fundamentally resolve profitability problems. Steelmakers need to further improve their product mix and production efficiency.
In August, the steel market was caught between production restarts, rising costs and inventory pressure. In early August, average daily crude steel output among key steel enterprises reached 1.973 million tonnes, up 5.8% month on month, as some blast furnaces returned to operation after maintenance. By mid-August, daily output had slipped to 1.965 million tonnes, while estimated national daily production stood at around 2.49 million tonnes.
At the same time, coking coal remained relatively tight, while coke prices entered another round of increases. Prices for rebar and hot-rolled coil edged higher, but the profitability rate of steel mills remained at only about 32.5%, with more than 60% of producers still operating at a loss.
This suggests that recent steel price increases have been driven more by higher costs than by a clear recovery in downstream demand. Managing production schedules and reducing unit costs are therefore becoming increasingly important operational priorities.
During the 15th Five-Year Plan period, capacity governance and energy and carbon reduction measures will continue to reshape the industry. The latest capacity replacement policy introduced in 2026 raises reduction requirements, with a nationwide reduction-to-replacement ratio of 1.5:1. A ratio of 1.25:1 may apply to projects involving electric furnaces, hydrogen metallurgy and restructuring.
In terms of energy conservation and carbon reduction, relevant policies require certain inefficient blast furnaces, converters and coke ovens to be upgraded or phased out by the end of 2028. Capacity involving blast furnaces below 1,200 m³, converters below 100 tonnes and coke ovens with a chamber height below 6 meters will face further adjustment. Around 130 million tonnes of inefficient capacity could be affected. This means future competition will extend beyond the sales market to equipment efficiency, energy utilization and environmental performance.
The impact of green transformation is increasingly extending into international trade. In 2026, China’s steel industry entered the first compliance year of the national carbon market. At the same time, the European Union’s Carbon Border Adjustment Mechanism has entered a new implementation stage, requiring steel exporters to deal with stricter carbon-emission data disclosure and related costs.
In the past, the competitiveness of Chinese steel exports was largely based on cost and price. Going forward, overseas buyers are likely to place greater emphasis on carbon-emission data, low-carbon certification and Environmental Product Declarations.
The industry has already made progress in this area. A total of 272 enterprises have completed full-process ultra-low-emission transformation, covering approximately 924 million tonnes of production capacity. Energy-efficiency improvements have generated savings equivalent to around 24 million tonnes of standard coal, while the industry’s EPD platform has published 561 reports.
Green capabilities are gradually shifting from an additional competitive advantage to a basic requirement for accessing certain overseas markets.
While overall steel production is declining, the product mix continues to improve. In the first half of 2026, flat products accounted for 56.7% of total output. Medium and heavy plate production increased 6.7%, while cold-rolled sheet rose 6.0%. In contrast, rebar production declined 10.7%.
Steelmakers are reducing their dependence on traditional construction steel and increasing their focus on automotive, new energy, shipbuilding and high-end equipment applications.
Some companies have already made progress in high-strength automotive steel. For example, JINGYE completed trial production of 1,800 MPa automotive hot-forming high-strength steel, while China Baowu, Ansteel and HBIS continue to develop products for high-end manufacturing applications.
Competition in high-end steel will increasingly depend on strength, processing performance, consistency, quality stability and delivery capabilities rather than simply the price per tonne.
The industry’s transformation is also moving toward digitalized production. The number of enterprises participating in digital maturity assessments has increased from 47 in 2022 to 93. During the 15th Five-Year Plan period, the industry plans to develop 40 typical application scenarios, 30 digital workshops and 20 benchmark smart factories.
For steelmakers, digitalization is not simply about upgrading automated equipment. Integrating production, energy, quality and equipment data can help optimize production planning, reduce energy consumption and improve quality consistency. In an industry facing persistently low margins, these efficiency gains can become a direct source of cost competitiveness.
In the first half of 2026, China exported approximately 54.87 million tonnes of steel products, down 5.6% year on year, while the average export price increased 0.3% to around US$701 per tonne. Net exports of steel products and billets reached approximately 63.39 million tonnes, up 1.2%.
The decline in export volume alongside relatively stable prices suggests that overseas markets are gradually moving away from a model based primarily on low-price volume growth. Meanwhile, the EU has further tightened its steel trade policies by reducing certain duty-free quotas, increasing costs for out-of-quota imports, and strengthening verification of where steel was melted and cast. International trade barriers continue to rise.
As a result, the competitive model for Chinese steel exporters is also changing. Higher-value products, low-carbon certification, reliable carbon-emission data and regional supply-chain cooperation will become increasingly important for expanding international business.
China’s steel industry is entering a new stage of development based on its performance in 2026.
The decline in crude steel production is only part of the story. More importantly, production reductions are being used to eliminate inefficient capacity, increase the share of high-end products, improve energy efficiency and build a stronger foundation for green manufacturing.
In the past, steelmakers mainly competed through capacity, production volume and pricing. During the 15th Five-Year Plan period, the focus is shifting toward product performance, manufacturing efficiency, environmental capabilities and international services.
For steel companies, reducing output addresses the issue of scale, while improving product quality determines competitiveness. Green manufacturing, high-end products and digitalization are increasingly becoming the key areas for future growth.
Excerpted from Steel.com
