Domestic supply contraction has ignited market sentiment, with six leading steel mills collectively raising prices. At the beginning of 2026, China’s steel industry ushered in a new round of policy-driven capacity adjustments. On January 2nd at 12:00 PM, five cities in Hebei Province—Handan, Hengshui, Xingtai, Cangzhou, and Baoding—simultaneously activated a Level II emergency response for heavily polluted weather, marking another phase of substantive production restrictions in North China. This emergency response, overlapping with the scheduled 90-day staggered production plans for industries like cement and steel in the first quarter across multiple provinces including North and Northeast China, has triggered strong market expectations for tighter steel supplies in the spring. Consequently, steel mills’ willingness to support prices has significantly strengthened. Baowu Group took the lead by announcing its January 2026 pricing policy, raising the ex-factory prices of mainstream flat products like hot-rolled and cold-rolled coils by 100 yuan per ton. Following suit, six major enterprises—Ansteel, Benxi Steel, Jiangsu Yonggang, Zhongtian Iron & Steel, Shagang Group, and Lingyuan Iron & Steel—sequentially released their January pricing policies, with most product varieties seeing increases of 50-100 yuan per ton. Notably, Yonggang and Zhongtian raised prices for wire rod and coiled rebars by 50 yuan per ton, demonstrating confidence in the future of construction steel. Against the backdrop of large-scale production restrictions in Hebei, this series of price adjustments is seen as a crucial move by domestic steel mills to proactively maintain market order and signal cost support.
Data already confirms the supply-side tightening. Since December 2025, 22 domestic steel mills have announced maintenance plans, with equipment like Shanxi Jianlong’s strip rolling line and Tiangang’s converter entering major overhaul periods. Although recent profit improvements have led to signs of small-scale production resumptions in some regions, the weekly output of construction steel in January is expected to remain at a relatively low level of 1.8-2 million tons. Hebei Province’s steel industry PMI for December registered at 46.0%, remaining in contraction territory for the fourth consecutive month, reflecting persistently constrained production activity within the region.
International Macro Environment in Flux: EU Carbon Tariff Ushers in New Trade Era
While China adjusts domestic capacity, historic changes are occurring in global steel trade rules. Starting January 1, 2026, the EU Carbon Border Adjustment Mechanism (CBAM) officially concluded its transitional period and entered the substantive “payment phase.” Imports into the EU of six key industries—steel, cement, aluminum, fertilizers, electricity, and hydrogen—will require payment for the carbon emissions generated during their production. The EU plans to expand CBAM’s coverage to around 180 steel and aluminum-intensive downstream products, including washing machines, auto parts, and machinery equipment, by 2028, which will have a profound impact on global industrial chain.
A spokesperson for China’s Ministry of Commerce swiftly responded, stating China would “resolutely take all necessary measures in response to any unfair trade restrictions,” highlighting the potential trade friction risks this mechanism may trigger. The full implementation of CBAM means the cost of exporting Chinese steel to the EU will systematically increase in the future. This may prompt adjustments in some trade flows and force domestic steel enterprises to further accelerate their green and low-carbon transition.
Domestic Macro Policies Underpin Demand, Driven by “Two Major Projects” and Renewal Programs
Facing a complex external environment, China’s domestic policies continue to exert force, providing solid support for domestic steel demand. In the New Year’s address, national leadership indicated that the economic aggregate in 2025 is expected to reach 140 trillion yuan and emphasized that 2026, as the inaugural year of the 15th Five-Year Plan period, requires solid efforts to promote high-quality development. At the policy level, the National Development and Reform Commission has organized and issued the 2026 advance list for “Two Major Projects” construction and the central government budget investment plan, totaling approximately 295 billion yuan, demanding an acceleration in the pace of fund allocation and utilization. This foreshadows a potential speed-up in major project and infrastructure construction progress after spring, directly boosting demand for construction materials.
The previously implemented large-scale renewal program for durable consumer goods has yielded significant results. Ministry of Commerce data shows that throughout 2025, the renewal program drove sales of related goods exceeding 2.6 trillion yuan, benefiting over 360 million person-times. This included over 11.5 million vehicle trade-ins and over 129 million home appliance renewals. This policy not only stimulated current consumption but also indirectly boosted demand for steel used in automobiles and home appliances. The official implementation of the “Customs Import and Export Tariff of the People’s Republic of China (2026)” also provides institutional guarantees for optimizing import-export structure and stabilizing the foreign trade foundation.
Market Data Reveals Industry Status: Tight Balance and Divergence Amid Weak Profits
The steel industry currently operates in a state of “weak profits and tight balance.” Latest data shows the national steel mill profit rate is only 38.1%. Although this marks a slight month-on-month increase, it is still down nearly 10 percentage points year-on-year. Taking the Tangshan region as an example, the average cost for steel billets including tax is 3,029 yuan per ton, while the ex-factory price for standard square billets is only 2,930 yuan per ton, implying an average loss of about 99 yuan per ton. Independent electric arc furnace (EAF) mills fare slightly better, with about 39.67% operating at marginal profits, but the proportion incurring losses still reaches 13.22%. The coking industry faces even tougher profitability, with the national average profit per ton of coke at -14 yuan, and losses reaching 67 yuan per ton in Inner Mongolia.
The production side shows signs of mild recovery. The national blast furnace operating rate rose to 78.94%, and daily hot metal output increased to 2.2743 million tons, showing growth both month-on-month and year-on-year. The operating rate for independent EAFs also rose to 68.63%. However, this recovery conflicts with winter production restriction policies, limiting room for subsequent output growth.
Key supply-demand indicators show the market is in an inventory digestion phase. Last week, the total supply of the five major steel products (rebar, wire rod, hot-rolled coil, cold-rolled coil, medium plate) was 8.1518 million tons, an increase of 183,600 tons week-on-week. Meanwhile, total inventory decreased by 258,400 tons to 12.3215 million tons, and apparent consumption rose to 8.4102 million tons, up 0.9% week-on-week. This indicates that despite some supply recovery, demand-side resilience has enabled continued destocking of social inventories, particularly evident in construction steel, providing some price support.
Raw Material Markets Diverge, Cautious Outlook for Various Products
Different raw material varieties show distinct trends, collectively shaping a complex cost environment:
Iron Ore: The market exhibits a pattern of “high supply, high inventory, weak demand.” Global shipments last week increased by 2.126 million tons week-on-week, and Chinese port inventories have accumulated to a high level near 167 million tons. Although hot metal output from steel mills has rebounded, replenishment willingness remains extremely cautious due to thin profits, mostly based on immediate needs. Post-holiday iron ore prices are expected to oscillate within a narrow range, caught between strong macro expectations and weak fundamental realities.
Coke: The market shows clear weakness, with the fourth round of price cuts fully implemented. Expectations for coking coal supply recovery are strong, loosening cost support, while steel mills, under pressure from finished product sales, continue to pass cost pressure downstream. Coking plants struggle on the edge of losses, facing increasing shipment pressure. The coke market’s weak trend is expected to persist in the short term, with prices still under downward pressure.
Scrap Steel: The market operates with volatility and regional divergence. Year-end capital repatriation needs increased trader willingness to sell, but mill procurement remains cautious, with only minimal pre-holiday stocking. Considering the comparative price support for scrap steel from high iron ore prices and potential post-holiday mill restocking demand, scrap steel prices are expected to have limited downside, potentially showing narrow fluctuations with opportunities for small increases.
Finished Products: Divergence exists among product categories. The rebar market shows regional supply-demand mismatches, with northern demand contracting as weather turns colder while the south still finds support. Social inventories continue to decline, but mill inventories are starting to accumulate. Given expectations of potentially increasing supply pressure and moderate demand release, building material prices are forecast to fluctuate with a weakening bias. Hot-rolled coil faces inventory pressure; although mill stocks increased and social stocks decreased, total inventory remains higher than the same period last year. Against a backdrop where profit recovery may stimulate supply rebound, prices are expected to fluctuate weakly. The strip steel market clearly shows stronger supply than demand, with warehouse inventories in Tangshan continuously accumulating and downstream procurement enthusiasm insufficient. Prices are expected to continue a stable-to-weak trend.
Comprehensive Outlook: Mixed Factors Intertwine, Steel Market Seeks New Balance Amidst Contention
The steel market at the outset of 2026 is situated within a complex interplay of multiple forces. Internally and externally, Hebei’s 90-day staggered production plan and the formal charging of the EU’s CBAM carbon tariff are reshaping market logic from both supply and cost dimensions. Domestic demand support policies represented by the “Two Major Projects” construction, contrasted with external risks from global geopolitical tensions and uncertainty in major economies’ monetary policies, constitute two sides of demand expectations.
In the short term, policy-driven supply contraction and collective price-support actions by steel mills provide emotional support and a cost floor for the market. However, end-user demand, particularly in the construction sector, has yet to demonstrate strong, sustained recovery momentum, affected by seasonal factors and the pace of fund availability. The concurrent decline in social steel inventories and accumulation of mill inventories reflect an imperfect transmission of confidence from the market circulation to the pressure on the production side.
The Chinese steel market in the first quarter is expected to exhibit a range-bound fluctuation pattern with “a ceiling above and a floor below.” Upward pressure stems from the actual intensity of terminal consumption, high raw material inventory levels, and external economic uncertainty. Downward support comes from resolute environmental production restriction policies, unprecedentedly strong macro underpinning policies, and the production reduction flexibility implied by historically low steel mill profitability levels. In the international market, the long-term effects of the EU CBAM will gradually manifest. The rise of global green trade barriers may accelerate the profound transformation of China’s steel industry towards high-quality, low-carbon development.
Note: Reprinted from Steel.com
