Chinese steelmakers to cut production amid falling demand

Chinese steel companies will cut production amid falling domestic demand, Bloomberg reports.

The country still produces too much steel – in 2024, production declined (-1.7 y/y), although steel production remained above 1 billion tons for the fifth consecutive year. However, domestic consumption is falling, and the unprofitability of the plants is reaching a critical level. To meet demand, which is fluctuating due to the protracted real estate crisis in China and the changing nature of the country’s economy, the industry will have to make more serious cuts.

The Chinese government is shifting its focus to greener, high-tech growth and consumption, which is reducing the importance of steel to the economy.

According to Bloomberg Intelligence’s baseline forecast, China’s steel consumption could drop from more than 1 billion tons in 2020 to less than 800 million tons by 2030. In the worst-case scenario, it will fall by 525 million tons by the end of the decade.

The unfavorable forecasts are spurring industry consolidation efforts, which are likely to accelerate this year. Steelmakers are seeking to maintain cash flows and margins. According to the National Bureau of Statistics, the sector suffered losses for most of the year, and its total debt rose to a record 5.1 trillion yuan ($696 billion) by November 2024.

According to the agency’s calculations based on data from 59 Chinese steel mills, in the last reporting period (third quarter), steel producers recorded the weakest free cash flow for the same period since 2015.

In 2023, according to Gary Ng, senior economist at Natixis SA in Hong Kong, the contribution of the steel industry to the Chinese economy was 5.7% of national GDP. This may have implications for the growth targets set by local governments, especially for the leading steel provinces.

For example, in Tangshan (the main metallurgical center of Hebei Province), the steel industry accounts for half of the city’s economy. However, in the first 10 months of 2024, the steel industry became the worst performing sector of the local industry, suffering losses of 3.1 billion yuan.

As anti-dumping measures are stepped up globally, exports, which helped support Chinese steelmakers in 2024, are also facing a decline. In the domestic market, rising demand from industry and automakers is helping to offset the weakness in the housing market, but it is not enough.

China may also face a repeat of the trade tensions of Donald Trump’s first presidency, but its economy is currently weaker and more dependent on exports.

Industrial production with added value in China’s metallurgy in 2024, according to the National Bureau of Statistics, increased by 4% year-on-year. In December last year alone, it increased by 8.7% compared to the same period in 2023.

As GMK Center reported earlier, experts say that 2024 is likely to be the last year when steel production in China exceeded 1 billion tons. Analysts predict that in 2025, production volumes will fall below this level.