China’s steelmakers have begun to see a recovery in profits over the past month, with signs pointing to further improvement in the second half of the year — provided the government follows through on its commitments to address overcapacity. According to data released by the National Bureau of Statistics on Sunday, profits from ferrous metal smelting operations surged nearly 14-fold year-on-year, albeit from a very low base in the same period last year. This rebound was supported by reduced production levels in June and a drop in raw material costs compared to stable finished steel prices. The steel sector has faced severe headwinds in recent years due to the collapse of the real estate market — traditionally the largest driver of steel demand in China. As a result, the industry became a key target of Beijing’s campaign against what it calls "excessive competition," an effort that has intensified in recent weeks. While actual production caps have not yet been imposed, many mills appear to have preemptively reduced output in June, pushing total steel production for the first half of the year to its lowest level since 2020. This has raised questions about whether the government will need to enforce deeper cuts to curb oversupply. On the demand side, consumption rose by 4.3% in the first half of the year, driven by the automotive and machinery sectors, according to Bloomberg Intelligence. While the construction sector remains weak, exports have continued their strong performance despite global trade headwinds. Looking ahead, the outlook is becoming more optimistic, particularly with a potential rise in demand linked to a major dam construction project in Tibet. UBS noted in a recent report that over 60% of steelmakers are currently profitable, compared to just 30% in July 2024. However, the recovery could still be threatened by rising raw material costs, especially the sharp increase in coking coal prices, which may put pressure on margins in the coming months.
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Economic newsJuly 28, 20252 min read