China's steel industry faces new challenges and strategies amidst global and domestic pressures

In a recent discussion at the Global Steel Summit, Su Chang Yang, Vice President of the China Iron and Steel Association (CISA), revealed significant shifts in China’s steel sector to Keyvan Jafari Tehrani. Key among these revelations is China's strategy to curtail steel exports, aimed at stabilizing domestic prices and managing industry volatility.

Yang highlighted that the Chinese government’s latest construction standards, effective from September 25th, are designed to stabilize market prices. This regulatory move is expected to balance iron ore prices by year-end, potentially even leading to a decrease after the Chinese New Year holidays. Despite these measures, Yang noted a challenging year for steel producers. The industry has struggled with high overhead costs associated with pollution control, which has eroded profits significantly. The China Pollution Control Institute reports that efforts to mitigate environmental impact have covered up to 600 million tons of steel production capacity, but at a steep cost.

Yang acknowledged that while local governments might offer support to regional steel industries, there has been no centralized policy from the government or CISA to boost steel exports to particular markets. Last year, China exported over 90 million tons of steel, but the focus is now shifting towards reducing this figure to avoid negative impacts on domestic prices. This shift comes amid a tough economic conditions, with the Chinese steel sector's profits plummeting to 800 million yuan (around 110 million dollars) in July of the previous year, a stark contrast to the profitability of major players like Baosteel.

Yang also pointed out that the industry faces heightened challenges due to reduced production mandates. Following an initial reduction in production towards the end of last year, a new directive requires a further decrease in output in the final quarter of 2024, impacting iron ore demand.

Moreover, Yang discussed the broader economic factors influencing steel prices, particularly the impact of U.S. Federal Reserve interest rate decisions and their indirect effects on the global steel market. He emphasized that political developments in the U.S., including the upcoming presidential election, are unlikely to sway China’s strategies, as neither candidate is expected to significantly alter the U.S.-China trade dynamic.