Author

Liz Gao, Richard Lu
Steel Economics Mining, and Metal Production Manufacturing & Fabrication

The long period of negative margins in the Chinese steel industry has started leading to rising steel exports and some mills stopping production completely. This will undoubtedly result in Chinese steel production falling in 2024 – the fifth time in the 2000s that we see a y/y fall in the country’s steel output and a decline in iron ore consumption.


CRU has received many questions regarding this decline, and whether this is the beginning of “another 2015–2016 crash” when steel margins collapsed and iron ore prices even fell below $40 /dmt for a short period of time. This Insight is the part of our Insight series called “Iron ore market downturn: A 2015 déjà vu?”, in which we compare these two time periods and draw a conclusion that 2024’s downturn will not be as severe as 2015, but the steel industry faces a prolonged rebalancing due to the ongoing demand weakness and overcapacity challenge. 

Domestic demand remains above 2015

In 2021, steel long products' (i.e. rebar, wire rod, etc.) demand came off a peak and has since fallen steadily, according to data from CRU’s Crude Steel Market Outlook. In 2024 H1, longs demand remained slightly above the low levels seen in 2015 and 2016 – as we can see on the left hand chart below. This is primarily due to persistent weakness from the property sector which has been suffering from sluggish demand, high inventories and a pessimistic macroeconomic outlook. Besides the property market, infrastructure investment has also been weaker than in previous years due to a slowdown in government bond issuance, thereby deepening the contraction of long products demand.


At the same time, steel flat products (i.e. hot-rolled coil, medium plate etc.) demand has preserved the upward momentum that started in 2016 (right hand chart below). This has been supported by growing indirect exports of steel-containing goods; strong local demand for durable goods including autos and home appliances; as well as specific mechanical products that have benefitted from government support schemes such as the ‘consumer good and equipment trade-in’ programme introduced this year.

China has also developed some new areas that support steel demand growth, including shipbuilding and the PV sector. In addition, the application of steel structurals in prefabricated buildings has made steel flat products (particularly plate products) more widely used in the construction sector, replacing traditional materials such as rebar and wire rod.

Flats demand has preserved upwards momentum

Exports have nearly caught up with the high in 2015


Shrinking demand in the domestic market has motivated steelmakers to look for an outlet for surplus supply in other markets. This has led to a sharp increase in steel exports over recent years. In 2024 H1, net exports for semi-finished and finished steel reached a monthly average of 6.7 Mt, close to the high of 7 Mt seen in 2015. Another remarkable trend is that China has been exporting more flat products that are often believed to have higher value than products such as billet, slab and rebar.

chinese steel exports are at muti year high

Steel production in line with demand but margins indicate severe overcapacity


With growing exports only partially offsetting the contraction in domestic demand, Chinese crude steel production fell y/y in 2024 H1. The monthly average level was ~2 Mt shy of the historical peak in 2020 but significantly higher than that in 2015.


Although the production level is high, modelled gross margins indicate that a significant amount of surplus / idled capacity remains in the market. According to economic theory, the margin level is usually high when the effective capacity utilisation rate is high, as demand is met by constrained capacity which is usually inelastic in the short term. 


This year, the modelled gross margin has been hovering around 20–30%, significantly lower than the highs of up to 60% witnessed in late 2017 and most of 2018 when production cuts were strictly implemented. The current level of gross margin is even lower than that in 2015.


The low margin indicates severe overcapacity in the Chinese steel industry, preventing steelmakers from passing on cost pressure onto steel end-users. The other implication is that raw material markets are generally tighter than that of steel.

Chinese carbon crude steel production

Hot metal predominates metallics input in steelmaking


The tightness in the iron ore market is partly driven by elevated hot metal production in China. In fact, hot metal production has been more resilient than China’s crude steel production in recent years. Lower demand for steel long products has led high-cost EAF producers (n.b. using scrap as a primary input) to cut production or even idle capacity. In contrast, integrated steelmakers (n.b. account for over 90% of total steel production and using hot metal as a primary input), which account for almost all of China’s production of flat products have been able to maintain high output levels due to solid demand and hot metal costs being more cost competitive relative to scrap. The ratio of hot metal production over crude steel production has been stable at 93–94%, which is close to the same level as in 2015, indicating that both consumption and collection of scrap in China has only developed in line with the growth of crude steel production. In other words, scrap is yet to replace hot metal in Chinese steelmaking.  

hot metal remains key

Factors that differentiate the 2024 downturn from 2015


The above comparison highlights a few common features that are shared by the Chinese steel industry in 2024 and 2015, including weak aggregate demand amid economic slowdown, strong exports, severe overcapacity and low margins. Despite this, we have spotted a few factors that differentiate 2024 from 2015.

  • Domestic steel demand

Despite falling, aggregate steel demand remains stronger than in 2015. In particular, demand for flat products – that are often used in the manufacturing sector and regarded with higher value additions – has maintained growth in the past ten years. This is partly due to China successfully exploring new areas of steel consumption such as shipbuilding and the PV sector. 

  • Steel exports

In 2015, Chinese steelmakers were exporting steel at low prices and margins to compete with local production in the destination countries. Interest rates have been much lower in China compared to the rest of the world, which means Chinese mills have benefitted from low financing costs, thus helping the country’s steel to stay competitive relative to its international competition. While this alleviates the short-term pain for Chinese mills, we foresee more headwinds on Chinese exports going forward due to increasing protectionism and a ‘normalisation’ of global interest rates.

  • Production and capacity

Falling domestic demand, despite being partly offset by stronger exports, makes steelmaking capacity closures inevitable over the medium and long term. This is a painful process for steelmakers. Compared to the capacity elimination over 2016–2020 when many illegal induction furnaces (IF) were closed, today’s market is full of newly-built assets that operate at high efficiency, making the clearing process even more challenging. Having said that, the 2016–2020 ‘supply-side reform’ offered the Chinese government and steel companies valuable experience in effectively consolidating the industry to get through market downturns.

  • Metallics

Over the past eight years, China has accumulated more steel in the country through high consumption levels of all kinds of steel. Meanwhile, many steel-containing buildings and products get even closer to the ‘end of their life’, implying greater potential for scrap generation. Without competition from illegal IF capacity, greater scrap supply can support EAF-based production growth which can facilitate decarbonisation in the steel industry that fits government aims.

To sum up, China’s steel industry is going through a challenging time currently and we expect many of these challenges to remain in the coming years. It is important to remember that the 2015–2016 crash was followed by further property stimulus that yet again lifted China’s steel production in the following years, resulting in the country’s crude steel production peaking in 2020. 


This time, we find it highly unlikely that China can successfully lift steel demand again. We are confident that Chinese crude steel production will never exceed 2020 levels. This will lead to reduced steel production, as a higher scrap availability in the country will cause Electric Arc Furnaces (EAFs) to make up a larger share of the country's crude steel production. In addition, this shift will also result in a  slight increase in scrap rates in integrated steelmaking. This will result in hot metal production falling faster than crude steel production, and therefore we will see China’s iron ore consumption fall faster than the country’s crude steel production.

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