As the end of 2025 approaches, China’s steel industry has entered a phase of deep adjustment under multiple pressures including environmental controls, seasonal demand weakness, and policy regulations. Nationwide, mandatory emission reduction measures have been activated in emergency responses to heavy pollution weather across over 32 cities, indicating a clear contraction on the supply side. Concurrently, the daily output of molten iron has remained at a relatively low level below 2.4 million tonnes for ten consecutive weeks, with the blast furnace operating rate hitting a new low. The industry is undergoing comprehensive adjustments in production, inventory, and pricing within a complex landscape characterized by weakening demand, narrowing profits, and constrained supply. This article will analyze the current operational logic and future trajectory of the steel market by integrating the latest industry data and the macroeconomic environment.
Recently, a large-scale emergency response to heavy pollution weather has been rapidly implemented across parts of North China, East China, Central China, and Northwest China. Cities including Shijiazhuang, Handan, Xingtai (9 cities in Hebei), 15 cities in Anhui, as well as Xi’an and Xianyang in Shaanxi, Chengdu in Sichuan, Dezhou in Shandong, Hangzhou and Jiaxing in Zhejiang, Yuncheng in Shanxi, and Yangzhou in Jiangsu have activated Level I (Red), Level II (Orange), or Level III (Yellow) emergency responses based on air quality conditions. This mandates strict production halts and restrictions for high-emission enterprises like steel and coking plants in these regions, with some rolling lines scheduled for maintenance, directly affecting steel supply.
Production data confirms a substantial contraction on the supply side. The latest survey data shows the national blast furnace operating rate has fallen to 78.32%, down both month-on-month and year-on-year, reaching a new low for the year. The daily output of molten iron stands at 2.2658 million tonnes. Although this marks a slight month-on-month increase, it has stayed below the 2.4 million tonnes threshold for ten straight weeks and is 12,900 tonnes lower year-on-year, indicating sustained suppression of production intensity at long-process steel mills. For short-process electric arc furnace (EAF) steel, the operating rate of independent EAF steel mills has also dropped to 67.63%, with less than 40% of mills profitable, reflecting limited production enthusiasm. The weekly supply of the five major steel products saw a slight month-on-month decrease of 0.1% to 7.9682 million tonnes, confirming the clear trend of supply contraction.
Furthermore, some major steel enterprises have scheduled maintenance or proactive production cuts for early 2026. For instance, Baowu Group’s Qingshan Base and Ansteel Group have planned maintenance or proactive reductions for non-grain-oriented silicon steel lines, while Hebei Donghai Special Steel’s strip steel rolling line has begun maintenance. These measures, combined with environmental production restrictions, suggest that the steel supply side will maintain a tight pattern in the short term.
Corresponding to the contracting supply, demand in the steel market exhibits typical seasonal weakness, facing overall pressure. Consumption data shows that while the weekly consumption of the five major steel products remained at 8.3361 million tonnes last week, the structure was distinctly divergent: consumption of construction steel fell by 3.2% month-on-month, while consumption of flat products increased slightly by 1.4%. This reflects continued softness in demand from the real estate sector and its industrial chain, while demand from the manufacturing sector remains relatively resilient.
On the end-market front, the National Housing and Urban-Rural Development Work Conference clearly stated that efforts in 2026 should focus on stabilizing the real estate market, controlling incremental supply, reducing inventory, and optimizing supply based on local conditions, while advancing the pre-sale system for completed properties. This policy direction aims to prevent risks and stabilize the market but is unlikely to quickly reverse the drag on construction steel demand from sluggish real estate investment in the short term. Although the State Council emphasized providing strong guarantees for advancing major infrastructure construction and appropriately front-loading new infrastructure development, the translation of projects into physical workload takes time. Year-end rush work provides sporadic support to the market but is insufficient to form a large-scale boost.
Current market focus is gradually shifting to the annual winter stockpiling. However, facing uncertainty about future market conditions, traders are generally cautious. Most winter stockpiling policies announced by steel mills are based on post-settlement models, indicating mills’ strong willingness to sell, but market acceptance is limited. Although the total inventory of the five major steel products fell by 2.8% month-on-month to 12.5799 million tonnes, with a noticeable reduction in social inventory and even shortages of some specifications in certain markets, this is more a result of supply contraction rather than proof of robust demand. The market is generally in a wait-and-see mode, with large-scale, proactive winter stockpiling yet to commence.
The severe squeeze on profit margins is a core challenge currently facing steel enterprises. According to cost monitoring data, the average tax-included cost of steel billets for mainstream sample steel mills in the Tangshan area this week is 3,041 yuan per tonne, while the current ex-factory price for standard square billets is only 2,940 yuan per tonne. This means steel mills incur an average loss of approximately 101 yuan per tonne of billet produced. Although costs are adjusting with iron ore prices fluctuating within a range and coke remaining weak after three rounds of price cuts, synchronized weakness in finished steel prices leaves little room for profit improvement.
The national steel mill profitability rate is only 37.23%. Although this represents a slight increase of 1.30 percentage points month-on-month, it is a significant decrease of 12.55 percentage points year-on-year, meaning over 60% of steel mills are operating at a loss. The situation for independent EAF steel mills is similarly challenging, with only about 38.84% of mills maintaining slim profits, and over 13% reporting losses. Upstream coking enterprises are also affected, with the national average profit per tonne of coke already in negative territory. This profitability crisis across the entire industrial chain significantly dampens production and investment enthusiasm and acts as an internal driving force compelling the industry to proactively reduce output and optimize structure.
It is worth noting that from January to November, the ferrous metal smelting and rolling industry achieved a total profit of 111.5 billion yuan, a substantial year-on-year increase of 1,752.2%. This high growth rate is primarily due to a low base effect from the same period last year. Judging from absolute values and the current widespread losses in the industry, overall profitability remains fragile, and sustainability faces challenges.
Faced with a complex domestic and international environment, a series of recent meetings and documents from central authorities to ministries have outlined the direction for the steel industry’s development in 2026. The National Industry and Information Technology Work Conference explicitly called for deepening the rectification of cutthroat internal competition and resolutely curbing low-price, low-quality competition. The National Development and Reform Commission’s Industry Department emphasized in a released article that for raw material industries like steel, the key lies in balancing supply and demand and optimizing structure, reiterating the continued implementation of crude steel output regulation, strict prohibition of illegal new capacity, and promotion of survival of the fittest. This indicates that output control policies will continue in 2026, constraining the supply side to maintain basic market balance.
At the macro level, the spirit of the Central Economic Work Conference will be gradually implemented. The State Council’s work on drafting the outline for the 15th Five-Year Plan emphasizes planning a number of major projects and initiatives that can drive the overall situation, which may provide medium- to long-term support for steel demand in the future. Furthermore, the issuance of corporate climate information disclosure guidelines and the upcoming release of industry-specific application guides for sectors like power and steel indicate that environmental, social, and governance (ESG) factors will increasingly constrain steel enterprises, accelerating the green and low-carbon transition.
On the international front, external variables such as strong U.S. consumption and economic growth, Japan’s initiation of an interest rate hike cycle, and Germany’s anticipated slow economic recovery will impact China’s steel industry through channels like commodity prices, exchange rates, and indirect demand. In particular, the phased resolution of U.S. tariff policies on Chinese chips, while temporarily averting direct impact, underscores persistent risks from global industrial chain restructuring and trade protectionism.
In summary, the current steel market is operating at the intersection of weak real demand and strengthened policy constraints. Supply is contracting passively due to policies and losses, demand is slowly finding its bottom amidst seasonal weakness and structural adjustment, and cost support is dynamically adjusting amid the redistribution of profits within the industrial chain. It is expected that around the New Year holiday, the market will continue its pattern of weak supply and demand with prices fluctuating within a narrow range. In 2026, the industry will gradually move towards a new phase of dynamic supply-demand balance and structural optimization and upgrading through ongoing policy regulation, environmental constraints, and market adjustments.
Note: Reprinted from Steel.com
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