China To Cut Steel Production Amid Market Glut And Economic Pressures

The Chinese government has announced plans to reduce steel production in response to a growing surplus in the sector and efforts to restore profitability at struggling steel mills. During the National People’s Congress in Beijing on Wednesday, the National Development and Reform Commission (NDRC) outlined its strategy to restructure the steel industry, although specific figures on the volume of production cuts were not disclosed. Industry speculation suggests that reductions could amount to as much as 50 million tons annually.

China, the world’s largest producer and consumer of steel, has consistently exceeded 1 billion tons of annual production despite government efforts to curb output through carbon emission-linked policies. However, declining earnings at steel mills and international accusations of surplus dumping have pushed Beijing to take more direct action to address the glut.

This move marks the first time the NDRC has proposed production cuts in its draft plans, according to analysts at Citigroup Inc., including Jack Shang. The bank anticipates a new wave of supply-side reforms aimed at further stabilizing the sector.

These initiatives follow nearly a decade of supply-side reforms initiated by President Xi Jinping after a significant downturn in domestic demand led to the flooding of overseas markets. Steel exports from China reached 110 million tons in 2024, a nine-year high, prompting countries to implement protectionist measures. U.S. President Donald Trump’s administration has notably imposed tariffs on Chinese steel, further escalating tensions.

Shougang Group Co., one of China’s largest state-owned steelmakers, has called for government intervention to curb steel exports. Chairman Zhao Minge suggested that national steel output should be reduced by 150 million tons by 2030, an ambitious goal aimed at aligning with the nation’s broader economic and environmental objectives.

Lower production levels could also support Beijing’s carbon reduction goals. A recent study highlighted the need for significant cuts to steelmaking capacity to meet climate targets and return mills to profitability.

Following the announcement, prices for iron ore, a key component of steel production, experienced a downturn. Iron ore futures dropped 1.6% to $99.25 per ton in Singapore, while yuan-denominated futures in Dalian fell 1%. Meanwhile, steel contracts in Shanghai also saw declines. In contrast, copper prices rose by 0.5%, and aluminum added 0.2% on the London Metal Exchange.

Economic analysts, including Zhuo Guiqiu from Jinrui Futures Co., noted that some aspects of China’s broader economic plans, such as the issuance of special sovereign debt, fell short of market expectations. This has contributed to weaker growth projections for infrastructure demand, further exerting downward pressure on steel and iron ore prices.