At the end of the year, the steel market is undergoing a deep structural adjustment driven by both environmental regulations and macroeconomic policies. As the year draws to a close, China’s steel industry is experiencing a supply contraction shaped by policy guidance and market forces. Recently, to address regional heavy air pollution, at least 32 cities nationwide have successively launched emergency response measures for heavy pollution weather. Among them, 9 cities in Hebei Province, including Shijiazhuang, Handan, and Xingtai, as well as Xianyang in Shaanxi Province, have initiated the highest-level Tier I response. This wave of environmental controls, affecting multiple regions including North China, East China, Central China, and Southwest China, has directly constrained steel production, particularly in blast furnace–basic oxygen furnace (BF-BOF) long-process production, in the short term.
Concurrently, clear and firm policy signals are emanating from the national level. The Industrial Development Department of the National Development and Reform Commission (NDRC) recently stated in an article that for raw material industries like steel, the key lies in balancing supply and demand and optimizing structure. It reiterated the continued implementation of crude steel output controls and a strict ban on unauthorized new capacity. The National Conference on Industry and Information Technology also listed “deepening the crackdown on ‘cutthroat’ competition and resolutely curbing low-price, low-quality competition” as a key task for 2026. These high-level directives, echoing signals from the recently held Central Enterprise Leaders Meeting and the National Housing and Urban-Rural Development Work Conference—emphasizing “focusing on main responsibilities and businesses,” “optimizing supply,” and “reducing inventory”—collectively outline a development path for the steel industry that prioritizes quality over quantity and seeks progress through stability.
Under the dual influences of environmental emergency measures and long-term policies, the production side of the steel industry is showing clear signs of contraction. Data indicates that the national blast furnace operating rate has dropped to a new annual low of 78.32%. Correspondingly, the average daily hot metal production has remained below 2.4 million tons/day for ten consecutive weeks, with the latest figure at 2.2658 million tons/day. The weekly supply of the five major steel products also registered a slight month-on-month (MoM) decrease. Maintenance on Hebei Donghai Special Steel’s strip steel production line, along with the planned maintenance and production cuts for silicon steel lines at Baowu and Ansteel Group in early 2026, further indicate the production side is entering a period of adjustment. Both proactive and passive supply contraction have become key forces supporting current steel prices and promoting inventory drawdowns.
Corresponding to the supply contraction, downstream steel demand is entering its most challenging period of the year. Although the total profits of the ferrous metal smelting and rolling industry from January to November surged by 1752.2% year-on-year, this is primarily due to an extremely low base in the same period last year. The current profitability of the industry is actually severe. Latest data shows that the average profit margin of sampled steel mills is only 37.23%, meaning over sixty percent of mills are operating at a loss. Taking the Tangshan area as an example, the average cost for steel mills’ billets, including tax, is 3041 yuan/ton, while the current market selling price is only 2940 yuan/ton, resulting in a loss of 101 yuan/ton. The situation for independent electric arc furnace steel mills is slightly better, but only about forty percent are profitable.
Cost trends are diverging. The iron ore market remains volatile against a backdrop of high overseas shipments and accumulating port inventories, providing some buffer for steel mills. However, the coking coal market shows clear weakness, with a third round of price drops fully implemented, pushing the average profit per ton of coke back into negative territory. While the overall downward shift in raw material costs has partially alleviated pressure on steel mills, it also reflects the intensifying transmission effect of weak downstream demand on upstream raw material prices.
Looking at end-consumption, the “flat products stronger, long products weaker” pattern persists in the steel market. The total weekly consumption of the five major product categories is 8.3361 million tons, but consumption of construction steel (long products) decreased by 3.2% MoM, indicating weakening demand from the real estate and traditional infrastructure sectors due to the slowdown in winter construction activities. Although consumption of flat products increased slightly by 1.4% MoM, this is mainly due to some year-end production scheduling demand in manufacturing sectors like automotive and home appliances, and its sustainability is questionable. The National Housing and Urban-Rural Development Work Conference explicitly stated the need for 2026 to “control incremental supply and reduce inventory based on local conditions,” suggesting that demand pull from the real estate sector for steel will become more cautious. Overall, the market has entered an off-season mode. Purchasing enthusiasm among traders and downstream users is not high, with transactions primarily driven by rigid demand and sporadic purchases. Signs of large-scale winter stockpiling are not yet evident.
On the international stage, the policies and performance of major economies present a complex picture, adding uncertainty to global commodity markets. The U.S. economy has demonstrated unexpected resilience, with Q3 GDP growth hitting a two-year high and initial jobless claims declining consecutively, indicating sustained strong domestic consumption momentum. However, on trade policy, the U.S. government’s decision to impose additional tariffs on Chinese semiconductors in 2027, although with a grace period, casts a shadow over mid-to-long term Sino-U.S. trade relations. In Europe, the Bundesbank predicts the economy will gradually recover in 2026, but growth will be slow. In Asia, the Bank of Japan implemented its largest interest rate hike in thirty years to combat inflation; the Bank of Korea remains open to rate cuts next year but is vigilant about financial risks.
These international developments indirectly impact China’s steel import/export environment and market sentiment through channels such as exchange rates, ocean freight rates, and long-term demand expectations. For instance, strong U.S. economic data may support its manufacturing demand, benefiting indirect exports of high-end steel products, while the complex trade policy environment requires China’s steel industry to focus more on enhancing product competitiveness and exploring diversified markets.
In contrast, the domestic policy focus has clearly shifted towards optimizing internal structures and mitigating risks. From the deliberation of the draft State-owned Assets Law, to the issuance of Corporate Climate Disclosure Standards, to the submission of heavyweight draft laws like the Ecological and Environmental Code to the National People’s Congress for deliberation, a series of measures indicate that legalization, greening, and standardization are becoming hard constraints for future industrial development. In particular, the Corporate Climate Disclosure Standards jointly promoted by nine departments including the Ministry of Finance, with industry-specific application guides for sectors like steel to be issued subsequently, imply that the environmental costs of steel enterprises will be further internalized and made transparent. This will have a profound impact on the industry’s cost structure and investment decisions. Currently, the core contradiction in the steel market has shifted more from external shocks to how to rebalance supply and demand internally, how to find new competitiveness in the green transition, and how to survive and develop under the norm of slim or even negative profits.
Looking ahead in the near term, the steel industry is expected to maintain a pattern of narrow fluctuations within a “weak balance.” On the supply side, the phased impact of environmental production restrictions persists, coupled with increased maintenance schedules by steel mills at year-end, keeping short-term supply pressure relatively contained. The social inventory of the five major steel products has been decreasing consecutively, with some markets even experiencing shortages of certain specifications, providing some price support. However, poor profitability severely constrains mills’ production enthusiasm, and proactive production cuts are likely to continue.
On the demand side, seasonal off-season characteristics are becoming more pronounced. As the New Year’s Day holiday approaches, the number of effective trading days decreases, and procurement activities at downstream construction sites and manufacturing facilities tend to be subdued. The current market focus, “winter stockpiling,” is expected to be smaller in scale compared to previous years, given the widespread caution among traders and the insufficient appeal of mill policies like “post-settlement pricing.” It is unlikely to provide strong momentum for the market.
Regarding costs and sentiment, iron ore prices face limited upside due to high inventory, while coking coal may continue to bottom out under pressure from steel mills, resulting in generally weak cost support. Market participants are predominantly adopting a wait-and-see attitude, with “low inventory, fast turnover” being the dominant operational strategy. Speculative demand remains low.
In summary, barring any sudden major positive or negative shocks, the steel market before the Spring Festival is likely to continue its current pattern of range-bound fluctuations, characterized by a “demand ceiling” and a “policy (production cut) floor.” There is slight divergence among product categories: long products are more affected by the off-season and may face price pressure, while flat products are relatively stable but lack upward momentum. A clear directional trend may only become apparent after clearer macro-policy signals are released during the National Two Sessions in early 2026 and after actual terminal demand picks up following the Lantern Festival. For steel enterprises, this winter presents both challenges and a window of opportunity to adjust their pace, optimize structure, and accumulate strength for high-quality development in the future.
Note: Reprinted from Steel.com
