I. Intensive Macro-Policy Adjustments Reshape Industry Dynamics

Last week saw the release of several significant macro-policies with profound implications for the steel sector. The Ministry of Commerce’s announcement of strengthened export controls on dual-use items to Japan underscores the strategic priority of national security, which may indirectly affect trade flows for high-end specialty steels. Concurrently, the Ministry of Finance and the State Taxation Administration clarified that the VAT export tax rebate for photovoltaic products will be phased out starting April 1, 2026, with rebate rates for battery products to be gradually reduced. This policy aims to optimize industrial structure and compel technological advancement in the new energy sector. However, for steel products used in photovoltaic mounting systems and transmission towers, the resulting short-term increase in export costs may dampen certain demand segments.

Furthermore, the State Council issued the Comprehensive Solid Waste Management Action Plan, explicitly promoting integrated mining and processing of heavy non-ferrous metal ores and imposing strict limits on concentrator projects lacking supporting tailings disposal facilities. This will accelerate consolidation in the upstream mining industry, foster the development of green mines, and, in the long term, contribute to stabilizing iron ore supply while mitigating environmental risks. Additionally, a joint directive from nine ministries to promote green consumption—encouraging purchases of new energy vehicles and energy-efficient appliances—is expected to bolster demand for automotive sheet and appliance-grade steel, injecting fresh momentum into domestic steel consumption.

II. Improving Economic Indicators Bolster Industry Fundamentals

Recent economic data for December 2025 shows positive signals: CPI rose 0.8% year-on-year, marking the highest reading since March 2023, while PPI increased month-on-month for the third consecutive month, indicating a steady recovery in industrial product prices. Within the sector, average daily retail sales of passenger vehicles reached 122,000 units, a significant 17% year-on-year increase. This recovery in auto production and sales directly drives demand for high-end steel products like cold-rolled and galvanized sheets. On the production side, activity levels improved, with the capacity utilization rate for blast furnaces and coal washing plants both rising by 0.9% week-on-week.

Raw material prices exhibited clear divergence: prices for iron ore, rebar, and electrolytic copper rose, while coking coal prices declined. This reflects resilient downstream demand from infrastructure and manufacturing on one hand, and suggests a marginal easing of cost pressures on the other. Notably, the Baltic Dry Index (BDI) fell 10.3% last week. Volatility in international dry bulk shipping rates may influence future iron ore import costs, warranting vigilance against imported inflation risks.

III. Evolving Global Trade Landscape Presents Dual Challenges

At the international level, the EU’s Carbon Border Adjustment Mechanism (CBAM) officially took effect on January 1, 2026. Preliminary estimates place the associated carbon cost for Chinese steel exports to the EU at approximately 161.14 euros per ton. This mechanism will compel domestic steelmakers to accelerate their low-carbon transition over the long term, likely speeding up the adoption of technologies like electric arc furnace (EAF) short-process and hydrogen-based metallurgy. Simultaneously, U.S. policy pressures concerning oil trade with nations like India and Russia could disrupt global energy markets, indirectly affecting steel production costs.

On the trade friction front, Chinese steel products faced over 150 anti-dumping and countervailing investigations globally in 2025, highlighting intense international competition. In this context, a symposium on the power battery industry convened by the Ministry of Industry and Information Technology, which emphasized preventing overcapacity risks, may indirectly influence the demand structure for steel used in battery casings and energy storage equipment.

IV. Financial Markets Reflect Cautious Optimism

Commodity futures rallied broadly last week, with tin prices surging 13.09% and silver rising 12.36%, reflecting robust demand expectations for industrial metals. Among steel-related base metals, LME copper, aluminum, and nickel rose 3.98%, 4.43%, and 5.23% respectively, signaling improved sentiment in the manufacturing sector. Equity markets also gained, with the STAR 50 Index climbing 9.8% weekly, as the theme of technological innovation gained traction—resonating with the steel industry’s own push towards intelligent transformation and Industrial Internet adoption. Despite a net liquidity withdrawal of 1.66 trillion yuan by the central bank, the overarching monetary policy stance continues to emphasize the “flexible use of reserve requirement ratio (RRR) and interest rate cuts,” maintaining a generally favorable financing environment for steel enterprises.

V. Key Data Releases and Short-Term Outlook

This week, market attention will focus on the release of December data for aggregate financing, M2 money supply, trade balance, and the preliminary full-year GDP figures. The growth of infrastructure investment and manufacturing loans will be particularly scrutinized. In the near term, the rebound in blast furnace operating rates combined with lower coking coal costs may help repair steel mill profit margins. However, caution is warranted regarding potential capital market volatility linked to the first-quarter local government bond issuance quota exceeding 2 trillion yuan, as well as the immediate impact of EU carbon tariffs on export orders.

Conclusion

The steel industry stands at a critical juncture in early 2026, shaped by both policy directives and market forces. While domestic demand remains resilient, underpinned by green consumption initiatives and infrastructure investment, external challenges—including carbon tariffs and persistent trade frictions—require strategic navigation. Industry players should prioritize accelerating R&D in low-carbon technologies, optimizing product portfolios, and utilizing financial instruments to hedge against raw material price volatility. Under the overarching theme of “high-quality development,” the sector’s evolution from scale expansion to value enhancement is accelerating. Enterprises possessing technological edges and robust environmental credentials are poised to secure a stronger competitive position in the evolving market landscape.

Note: Information sourced from Steel.com.