Entering 2026, the global steel industry stands at a historic crossroads, with decarbonization efforts and geopolitical fluctuations jointly shaping its landscape. While structural reforms in China are reshaping supply chains, technological innovation and capital flows are redefining competitive dynamics. This report will analyze the complex picture of the current steel industry from four dimensions: supply-side reforms, green transformation, market volatility, and geopolitical risks.

I. Deepening Supply-Side Reforms: Reshaping Global Capacity Patterns

In 2025, China’s crude steel production decreased by 4.4% year-on-year to 960.81 million tons, indicating that the industry has entered a phase of systemic adjustment rather than cyclical fluctuation. This change stems from a decade-long strategy of capacity replacement, environmental production restrictions, and mergers and reorganizations. By 2025, the output of the top ten steel enterprises accounted for over 60% of the national total, with Baowu Group and Ansteel Group leading technological upgrades.

In 2025, the “Air Pollution Performance Rating System” introduced by the Ministry of Ecology and Environment became a key driver of reform. According to this system:

• Grade A enterprises (meeting ultra-low emission standards) are exempt from production restrictions during heavy pollution alerts;
• Grade B/C enterprises must mandatorily reduce output by 30%–50%, leading to the exit of many small and medium-sized enterprises from the market.

In terms of results, national steel capacity was reduced by 30 million tons in 2025, while exports of high-end products (such as steel for aerospace) increased by 15%, and import dependency fell below 40%.

Global capacity shows an “eastward shift” trend. Since 2023, the EU’s imposition of a 25% anti-dumping duty on imported steel has kept its capacity utilization rate consistently below 75%, prompting companies like ThyssenKrupp and ArcelorMittal to shift toward high-end products. In contrast, Southeast Asia and the Middle East saw production increases of 6.2% and 9.8%, respectively, driven by infrastructure development. Saudi Arabia is leveraging its abundant natural gas resources to advance direct reduced iron (DRI) projects, aiming to increase the share of electric arc furnace capacity to 60% by 2026, setting a benchmark for regional green transformation.

II. Green Transformation Enters a Critical Stage: Innovation Breakthroughs and Financial Pressures Coexist

Global investment in low-carbon steelmaking technologies exceeded $30 billion in 2025, with China accounting for 45% of the total. Major technological advances include:

• Baowu Group’s Zhanjiang hydrogen-based steelmaking project achieved large-scale hydrogen reduction production, reducing carbon emissions per ton of steel by 60% compared to traditional blast furnaces;
• POSCO’s Gwangyang Steelworks reduced carbon capture costs by 40% through underground storage technology.

However, the EU’s Carbon Border Adjustment Mechanism (CBAM) added approximately $120 per ton to the cost of Chinese steel exports, leading to a 22% decline in exports to Europe.

Challenges remain significant. According to the International Energy Agency (IEA), achieving net-zero emissions in the steel industry requires annual green investments to increase to $500 trillion by 2050, with the current funding gap continuing to widen: European steel companies face an annual funding shortfall of €10–15 billion for green retrofits, while projects in key scrap steel supply regions such as Indonesia and Africa remain constrained by approval delays.

Capital market attitudes are diverging. Tesla and CATL’s investments in scrap steel recycling have driven the use of recycled steel in automotive manufacturing to 25%, while traditional mining companies like Rio Tinto and BHP saw their stock prices drop by 18% due to weakened demand expectations for iron ore. After the London Metal Exchange launched low-carbon steel futures, trading volume surged by 300%, reflecting investors’ growing focus on environmental, social, and governance (ESG) risks.

III. Intensified Market Volatility: Price Fluctuations Amid Supply-Demand Mismatches

Bulk steel products underperformed: The price of Chinese construction-grade rebar fell below 4,000 yuan per ton, with some steel mills incurring losses exceeding 200 yuan per ton.
High-end products saw strong demand: Prices for automotive and electrical steel rose by 15%, driven by demand for electric vehicle battery casings and renewable energy infrastructure.

Global price benchmarks experienced sharp fluctuations. The Platts 62% iron ore index rose to $130 per ton in the fourth quarter of 2025 due to replenishment of inventories in China but fell back to $110 per ton by year-end as supplies from Brazil and Australia recovered. Non-traditional supply sources exacerbated volatility: The Simandou mine in Guinea halted production due to geopolitical disputes, and delays in approving new mining projects in Canada raised concerns about long-term supply resilience.

Derivatives market volatility reflected geopolitical tensions: Adjustments to Indonesia’s export policies caused LME nickel prices to rise by 25% within a week, while the Chicago Mercantile Exchange’s low-carbon steel futures became an important tool for ESG-focused investors to hedge risks.

IV. Geopolitical Risks Reshape Supply Chain Patterns

In 2025, trade frictions and supply chain fragmentation dominated market dynamics:

• U.S.-China decoupling: U.S. restrictions on Xinjiang-related steel led to a 37% decline in Chinese steel exports to the United States, redirecting exports to Southeast Asia;
• EU carbon barriers: CBAM data disclosure requirements increased the cost of Chinese exports by $120 per ton, triggering anti-dumping investigations and countermeasures from India and Vietnam;
• Regionalized layouts: Chinese steel companies bypassed tariffs through localized investments—Ansteel’s factory in Mexico directly supplies Tesla and General Motors, while HBIS Group restarted the Smederevo steel plant in Serbia, reducing the Balkan region’s reliance on Russian steel.

Supply chain disruptions in conflict zones were particularly significant: The Russia-Ukraine conflict kept the premium for European hot-rolled coil above 20%, while the Red Sea situation increased Middle Eastern transportation costs by 40%. Notably, Belt and Road projects enhanced systemic resilience: Joint ventures like Sinosteel and India’s JSW (with an annual capacity of 3 million tons) and MCC’s operations in Serbia demonstrated the deepening global strategic layout of Chinese steel enterprises.

V. Outlook: Greening, Digitalization, Regionalization—A New Steel Order

From 2026 to 2030, three major trends will dominate industry development:

• Green leapfrogging: Zero-carbon factories will be scaled up, with green hydrogen and molten oxide electrolysis technologies gradually commercialized. The IEA predicts that global green hydrogen capacity for the steel industry will increase from 5 million tons to 500 million tons by 2030.
• Digital revolution: AI-driven production systems (such as Baowu’s “one-click steelmaking”) and Industry 4.0 technologies will be widely adopted, reducing energy consumption by 12–18% and reshaping competitive barriers.
• Regional bloc formation: Supply chains will gradually divide into three regional centers—North America, the EU, and RCEP—with local content rules and carbon tariffs deepening segmentation. Chinese enterprises need to strengthen local R&D cooperation (following models like the Tata-ArcelorMittal joint venture in India) to address “rules of origin” type barriers.

The global steel industry’s transition toward decarbonization and regionalization is driving a profound paradigm shift. While China leads structural reforms, geopolitical risks and technological iterations will continue to test the industry’s resilience. The key to future success lies in balancing emission reduction goals with economic growth—a challenge that will determine the development trajectory of the steel industry for decades to come.

Reprinted from steel.com