China will promote value-added steel production

China is taking a measured approach to reviving its steel industry, improving prospects for high-end companies while avoiding steps needed to significantly reduce steel supplies, Bloomberg writes.

China’s new five-year plan focuses heavily on promises to stimulate consumption and innovation in the economy. However, the government’s campaign to combat overcapacity and destructive competition, including in the steel sector, has attracted less attention than expected.

Instead, Beijing appears to be intent on delaying restrictions on steel companies – a matter of years rather than months.

In October this year, the Chinese Ministry of Industry and Information Technology proposed stricter rules for capacity exchange. In particular, those that provide for the modernization of plants will have better conditions, and some regions will not be allowed to add any at all.

The agency notes that imposing restrictions on expansion, rather than encouraging the closure of inefficient enterprises, will not help most factories suffering from the prolonged collapse of the real estate market in China. However, the promotion of value-added steel instead of commodity products such as construction rebar suggests that companies that are able to specialize will benefit.

China may still announce specific production or capacity targets at the annual National People’s Congress in March.

Until that happens, steel mills are forced to adjust production volumes based on demand, which is low at least in the domestic market, and profitability, which is good thanks to lower raw material costs. Annual steel production in China may fall below 1 billion tons for the first time in six years by the end of 2025.

Demand is likely to have the greatest impact on the situation in the Chinese steel industry. The government’s five-year plan mentions a number of major construction projects that could influence this.

At the same time, steel exports, which have been a positive factor for the country’s steel mills, may change amid protectionist measures, which are becoming increasingly popular around the world. Goldman Sachs Group forecasts an 8% decline for China in 2026, although it will still be the second-largest net volume in recorded history.

The growing share of steel sold abroad does not qualify as a high-quality finished product preferred by the government, indicating room for improvement in the industry.

In October, China presented a proposal for a stricter steel capacity exchange plan aimed at reducing capacity and restoring the balance between supply and demand. In particular, according to the draft resolution, for every ton of new capacity built, at least 1.5 tons of old capacity must be eliminated.