On the first day of June, China’s domestic futures market saw the main coking coal contract surge by 7.12% on heavy trading volume. Since the major coal mine accident in Qinyuan, Shanxi Province, on May 22, coking coal futures prices have risen by more than 18.5% cumulatively. Spot prices for low-sulfur premium coking coal have followed suit, while the fifth round of coke price increases officially took effect on June 3.
In sharp contrast to the strength of raw material prices, both steel spot and futures prices have been declining continuously since mid-May. The China Steel Price Index (CSPI) fell from its yearly high of 96.12 points during the week of May 15 to 94.39 points by the end of May. Spot prices of HRB400 rebar dropped from RMB 3,310/ton to RMB 3,240/ton, while the main rebar futures contract lost RMB 128/ton within two weeks.On one side, rising coking coal and coke costs continue to push production expenses higher; on the other, steel prices remain weak. More concerning is the fact that inventories held by key steel enterprises climbed to 18.77 million tons by mid-May, reaching the highest level for the same period in nearly four years.
The China Iron and Steel Association (CISA) and industry analysts have once again issued warnings. Following the profit recovery seen in April, some steelmakers relaxed production controls, causing the industry’s recurring “prisoner’s dilemma” to resurface. The entire industry, they argue, must adhere to the operational principle of “Three Determinations and Three Prohibitions” and transform self-disciplined production control and inventory reduction from a frequently discussed concept into a normalized practice. Otherwise, the hard-earned profitability window could close rapidly.
Looking back at the first five months of 2026, China’s steel industry experienced a classic roller-coaster cycle.The first quarter was widely described as the worst start in recent years. The average CSPI stood at only 91.39 points, the lowest level for the same period in four years and down 4.39% year-on-year. Operating profits among key steel enterprises totaled just RMB 1.03 billion, nearly 90% lower than a year earlier. The ferrous metal smelting and rolling sector even became the only industry among China’s 41 major industrial categories to record an overall loss.Slow inventory reduction at both mills and warehouses reflected weak downstream demand and delayed supply-side adjustments.A turning point emerged in April. Following CISA’s call for self-disciplined production control and inventory reduction, most steelmakers responded by cutting crude steel output and accelerating inventory drawdowns. Mill inventories fell to relatively low levels compared with recent years.
The results were immediate. Average CSPI increased 1.04% month-on-month in April, and the weekly index surpassed the corresponding level of the previous year for the first time in 2026. Member companies of CISA recorded profits of RMB 10.975 billion in April, the highest level for the same period in four years. Core business profits jumped 119.7% from the previous month, while profit per ton of steel recovered to approximately RMB 30.History once again demonstrated that production control and inventory reduction work, and industry self-discipline can be highly effective.
Unfortunately, the improvement proved short-lived. Steel prices reversed sharply lower in the second half of May for three main reasons.
According to CISA data, daily crude steel output among key steel enterprises rose 3.6% in early May. Blast furnace operating rates also exceeded last year’s levels by late May.Encouraged by April’s profitability, some producers increased output again. The mentality of “others may cut production, but I won’t” undermined the earlier gains achieved through coordinated production restraint.
High temperatures and heavy rainfall in southern China, combined with wheat harvesting and school examination periods in northern regions, pushed construction steel demand into its traditional seasonal slowdown.
Data from the National Bureau of Statistics showed that fixed-asset investment growth turned negative at -1.6% during January-April. Real estate development investment declined 13.7% year-on-year, new housing starts fell 22.0%, and automobile production decreased 5.5% to 9.61 million units.Major steel-consuming sectors weakened simultaneously.
The European Union’s Carbon Border Adjustment Mechanism (CBAM) has officially entered implementation with relatively high default emission values.Starting July 1, new EU steel safeguard measures will reduce duty-free import quotas to 18.3 million tons—47% below 2024 levels—while tariffs on excess volumes will rise from 25% to 50%.Combined with China’s stricter implementation of steel export licensing regulations, industry analysts expect steel exports to decline noticeably from recent highs in 2026.
Inventories provide the clearest reflection of market conditions. By mid-May, inventories at key steel enterprises reached 18.77 million tons, up 1.89 million tons from the previous period and 2.42 million tons higher than a year earlier. This represented the highest level for the same period in nearly four years. Social inventories also remained 1.21 million tons above last year’s level, an increase of 14.5%.The imbalance between strong supply and weak demand has once again intensified.
Following the Shanxi mine accident and stricter nationwide coal mine safety inspections during June’s “Work Safety Month,” supplies of premium coking coal have tightened considerably.The main coking coal futures contract rose from RMB 1,162.5/ton on May 22 to above RMB 1,285.5/ton. In some regions, coal prices increased by more than RMB 200/ton within a single week.The fifth round of coke price increases, amounting to RMB 50/ton for wet-quenched coke and RMB 55/ton for dry-quenched coke, officially took effect on June 3. Total cumulative increases have now reached RMB 250/ton for wet-quenched coke.
Meanwhile, although iron ore supply remains relatively ample and port inventories are high, prices continue to hold in the USD 105–110/ton range. Rising freight rates and geopolitical uncertainties in the Middle East have provided support. Freight rates on the Australia-China route increased from USD 9.98/ton at the end of February to USD 16.23/ton at the end of May, representing a 62.6% increase.Based on current steel selling prices and raw material costs, average industry profit margins have approached break-even levels, putting April’s profit recovery at risk of being completely erased.
In response to current market conditions, CISA and numerous industry experts emphasize that the industry’s top priority is to once again tighten production controls and unify market expectations.
This means adhering to the principle of “Three Determinations and Three Prohibitions”:
The industry must continue self-disciplined production cuts and inventory reduction without wavering.
The crude steel output control measures implemented in 2021 successfully balanced supply and demand while preserving profitability. However, the industry has repeatedly fallen into a cycle of:
Profit recovery → Production expansion → Inventory accumulation → Price declines → Cost pressure → Forced production cuts → Recovery
The root cause remains the tendency of some companies to seek short-term gains by increasing output while others exercise restraint.Under China’s push for a unified national market, regulatory oversight is becoming stricter, and companies that ignore production-control requirements are likely to face increasing consequences.
Notably, major steelmakers such as China Baowu Steel Group, Shagang Group, CITIC Pacific Special Steel, Hunan Iron & Steel Group, and Nanjing Iron & Steel have maintained industry-leading performance by consistently implementing these principles.Practice has shown that self-discipline is not a disadvantage—it is the only way to preserve the industry’s collective profitability.
Policy support is also intensifying. China’s Ministry of Industry and Information Technology has revised steel capacity replacement regulations, raising the replacement ratio to 1.5:1 nationwide. New crude steel energy consumption standards will take effect on July 1. Meanwhile, the Ministry of Ecology and Environment requires key regions to implement staggered summer production beginning June 15, with blast furnace utilization rates capped below 80%, and below 75% in priority regions.These measures are expected to accelerate the elimination of inefficient capacity and promote a better balance between supply and demand.
Most market institutions believe that the core issue for China’s steel market in June will be the balance between weakening seasonal demand and the industry’s ability to control supply amid rising costs.Construction steel demand is likely to remain under pressure due to the rainy season and high temperatures. Hot-rolled coil products may demonstrate greater resilience thanks to support from the manufacturing sector. Overall, the market is expected to remain range-bound with a weak bias and increasing divergence among product categories.If steel mills use the seasonal slowdown to conduct maintenance and implement meaningful production cuts, preventing excessive inventory accumulation, prices may find support near production-cost levels. Otherwise, growing inventory pressure could trigger further downward adjustments.
As one CISA official noted:
“This is the first year of China’s 15th Five-Year Plan and a critical year for the steel industry’s deep restructuring. President Xi Jinping has emphasized maintaining strategic focus, strengthening confidence, and concentrating on managing our own affairs well. For the steel industry, managing our own affairs means maintaining self-disciplined production control and inventory reduction. We must not allow the warmth of April to become merely a flash in the pan.”
Source: China Steel Network
