China View: Steel Production Paused As Prices Continue To Plummet
yasin hemmati
China's iron and steel industry has achieved impressive progress in the past three decades, becoming the largest steel producer in the world. In 2015, the country produced 804 million tons of crude steel and consumed 704 million tons, accounting for approximately 49.5% of the world’s steel production and 43.2% of global steel consumption. In 2020, China produced 1.1 billion tons of crude steel, accounting for 56.8% of global steel production. The iron and steel industry has significantly contributed to China's domestic economic development. While global exports are at record highs, domestically the iron and steel industry has been struggling due to a lack of demand.
Since 2020, China’s housing and real estate market has faced a sharp downturn leading to a decline in new property construction. The demand for steel in the country continues to fall after more than two decades of rapid industrialization and urbanization. Profits from major Chinese steel companies such as China Baowu Steel Group, Xinjiang Ba Yi Iron & Steel, and Anyang Iron & Steel Group have also been gradually declining since 2018, further signifying a decline in local market demand. The country is also dealing with an oversupply of steel, which has pushed manufactures to increase steel exports to address the problem. How has this affected the national economy and the global steel market?
In 1949, China had only 19 steel mills producing 158,000 tons of steel. During the first Five-Year Plan in 1953, the government spent 3.45 billion yuan ($546.40 million) on steel industry infrastructure, leading to a sharp surge in production with the total output growing to 5.35 million tons. Following the implementation of the Reform and Opening-up policy in 1978, industrial development and production continued to be encouraged by the state. During this time, the production and consumption of iron and steel grew tremendously.
This trend continued through the early 2000s as market demand for materials continued to grow and as the state focused on new construction and development projects. The global financial crisis in 2007 had a tremendous impact on the national steel market, causing a drop in demand and a decline in gross domestic product (GDP). In response, the government proposed a 4 trillion RMB ($586 billion) economic stimulus plan that promoted infrastructure development, which provided a huge market for iron and steel manufacturers.
The global financial crisis also exposed some critical problems present in China’s iron & steel industry such as overcapacity in steel production, high pollution output, as well as widespread use of inefficient and outdated technology. These issues continue to plague the steel industry to this day. As steel production continued to grow, consumption of iron also grew rapidly. China produced 49.2% of the world’s total steel supply in 2017 and in 2023 the industry accounted for 53.9% of the global crude steel production. While the country has become a major steel exporter, “steel production primarily aims to meet domestic demand, and the economic condition heavily influences the crude steel production level”.
The industry is also facing numerous pressures, such as overcapacity, energy consumption challenges, and environmental issues. Steel consumption in China has weakened primarily due to the country’s real estate crisis, which is a result of a surplus of vacant housing units, overbuilding, and decreasing land availability. Steel mills have been forced to cut output to protect profit margins and there are concerns that factories will soon be forced to close. Steel production is a critical component of the Chinese economy and millions of people rely on this sector for employment.
In August of 2024, a summit was convened by the China Iron & Steel Association to address growing pressures on the industry. This conference raised further concerns about the continued surge of exporting surplus Chinese steel, its effect on global steel prices, and the tariffs put in place against China due to this flooding of the global steel market. Steel exports are at their highest since 2016, which exemplifies the steel industry’s overcapacity problem. The government has stopped approving the opening of new steel mills in response to the deep slump in demand which has led to declining profits and increasing exports to offload surplus material. Local demand for steel has fallen more than 10% since 2020 and the industry is expected to shrink as the economy becomes less reliant on steel-related construction.
The steel industry has also been under significant pressure due to its environmental impact. This industry is highly resource- and energy-intensive. The steel industry uses a lot of water- accounting for approximately 9% of China’s total industrial water consumption and accounts for 14% of China’s total industrial wastewater emissions. The industry’s reliance on coal for energy and use of blast furnaces in production processes have also contributed to increasing CO2 emissions. China’s steel industry has also become the second largest national emitter of CO2. The industry accounted for over 15% of the country’s total CO2 emissions in 2015 and the energy consumption of China’s steel industry accounted for over 20% of the national industry energy consumption in 2017.
Over the past several decades, China’s steel industry has made remarkable achievements in production, manufacturing, and development. However, as domestic demand has declined and profits have decreased, the inherent problems with the steel industry have been further exposed. China’s property crisis and waning economic growth have hampered the further growth and development of the steel industry. In addition to the property downturn, infrastructure spending has also continued to decline and steel manufacturers are struggling to manage the steadily falling steel prices. The prevalence of these issues has drawn concerns about potential bankruptcies and factory closure, which would further exacerbate industry problems. “Almost three-quarters of the country’s steelmakers suffered losses in the first half and bankruptcy is likely for many of them”.
