Exclusive The dragon is coming: the long steel market is bursting at the seams

Exports of square billets from China increased fourfold in the first five months of 2025

The full text of the GMK Center study “The impact of tariff wars and geopolitics on the Ukrainian steel market” is available at the link.

This year, steel exports from China may set another record: in the first five months of 2025, exports of finished steel products and semi-finished products grew by 16% y/y – to 48.5 million tons. In response to China’s expansion, a new wave of trade barriers is emerging around the world. Chinese companies have found a way out by focusing on exports of semi-finished products (square billets), which have grown fourfold year-on-year and are putting pressure on the long-product market.

The Chinese construction market continues to peak for the fourth year in a row, reducing domestic demand for long products. Housing sales fell by 5.5% y/y in the first five months of this year, new projects started fell by 19% y/y, and construction volume fell by 9% y/y. Local authorities have initiated a series of stimulus measures, with several packages starting in September 2024. However, as we can see, this has not contributed to an increase in demand for real estate and the volume of construction work.

In search of foreign markets, Chinese steel producers are using aggressive pricing policies, which is negatively affecting steel prices around the world. According to the latest review of the global long steel market by Irepas (the global association of long steel product manufacturers and exporters) for July 2025: “In the global market, exporters cannot compete with cheap supplies from China and Southeast Asia, where weak domestic incentives have pushed producers to export aggressively, putting even more pressure on other exporters around the world.”

An example of the destructive impact of exports from China can be seen in how imports from Asia have disrupted the European market. China’s share of the EU market is insignificant. But by increasing exports, China is primarily putting pressure on the markets of neighboring Asian countries, and at the same time on other exporters, who are forced to lower prices in order to maintain their competitive position. Indirectly, through cheaper exports from Southeast Asia or Turkey, China influences prices on the European market.

“The European market is flooded with cheap imported steel, mainly from Asia,” according to the Irepas review. Prices for rebar in Southern European countries fell by 13% in two months in May-June, from €575 to €500 per ton. This is despite the fact that demand for long products in the EU has begun to recover. For example, sales of long products in Germany increased by 1% in the first five months of 2025. In other words, cheap Asian imports are preventing local producers from benefiting from growing demand, creating an oversupply.

What is the result? Steel production in the EU fell by 3% in January-May, the lowest output in several decades. In contrast, converter capacity utilization in China, which is the main method of steel production in the country, reached a sky-high 92% in June.

China can afford cheap exports, unlike most countries. In 2023-2025, only about 40% of Chinese steel plants will be operating at a profit on average, according to local industry consulting companies. In other words, this is a portrait of China’s steel industry, where most companies are systematically operating at a loss. We are not even mentioning the sufficiency of profits for investments, debt servicing, etc., of those plants that are operating at a profit. Without state support, such a situation cannot be sustainable and should eventually lead to a decline in production volumes, but this is not the case.

The presence of profit is not a criterion for planning future production and sales volumes of Chinese steel companies. This is no secret. This was very evident in the presentation of a survey by one of the local consulting companies in August 2024, when the share of loss-making companies reached over 90%. When asked “will you reduce production volumes,” 75% of respondents answered “No.”

The issue of reducing production volumes is subject to state regulation and control. In previous years, China has imposed restrictions on steel production, especially during the cold season, in particular due to air pollution issues. But last year, the government decided to rely more on market principles when planning production volumes rather than on directive reductions. However, as we can see, this principle is ineffective, resulting in record export volumes.

China also attempted to integrate the recovery of the steel industry and the reduction of steel exports into its decarbonization strategy. In 2023, the concept of “dual carbon control” was introduced, where the objects of control are carbon intensity indicators and total emissions. According to this concept, steel exports are a source of “non-mandatory emissions” and should be limited. But as we can see two years later, this control mechanism does not work in practice.

The government’s plans to reduce steel production by 50 million tons (or about 5%) this year have been postponed for now. In January-May, steel production fell by only 0.8% year-on-year, and in June-July, capacity utilization remained above last year’s levels.

The decline in steel production is a challenge for the Chinese authorities and requires restructuring of the industry with a reduction in excess capacity. The fight against steel overproduction in China is a trend for the next 3-5 years, which will continue to put pressure on the global market.

An additional challenge for global markets is the intensification of trade regionalization, namely pressure on open markets from the redistribution of products from markets protected by trade barriers. This year, protective measures have been introduced or strengthened in all key steel product markets: the US, the EU, and India. Southeast Asian countries and Turkey are also taking active measures to protect their markets. This means that the concentration of growing exports from China will increase in markets that are open to imports. We can see the consequences of the influx of cheap imports for the European market, which has been protected by a tariff quota system since 2018, so the risks for countries with open markets are even higher.