According to an online panel discussing the Chinese steel sector, China's economy is transitioning from demand-driven growth to supply-side reforms, creating significant implications for steel and commodity markets in 2025. The government now prioritizes addressing structural overcapacity over traditional stimulus measures.
Supply-side reform focus
Jinshan Xie, Macro & Ferrous Analyst from Horizon Insights, noted that China faces a massive RMB 10 trillion supply excess - much larger than the RMB 3 trillion experienced during the 2015 reforms. Target industries include steel, non-ferrous metals, petrochemicals, coal, electric vehicles, and solar manufacturing. The government faces a contradiction between stabilizing growth and eliminating outdated capacity. Key policy meetings in July and September will provide further direction on reform implementation.
Demand outlook
Xie stated that the real estate sector continues to weaken, with new construction work expected to fall more than 10 percent year over year as restrictive policies remain in place. Infrastructure investment provides stable counter-cyclical support, though funds are increasingly being diverted to non-construction purposes. Manufacturing depends heavily on exports, creating vulnerability to US trade tensions. Consumer goods receive government trade-in subsidies, but this support weakens in the second half as allocated funds diminish.
Commodity performance in first half of 2025
Energy markets have faced significant pressure, with crude oil down 15 percent, gasoline consumption falling 3.5 percent, and diesel dropping nine percent. Coal saw sharp price declines of 22-23 percent but rebounded first after antidumping policies were implemented. Natural gas remained stable due to its low-carbon appeal. Steel production showed mixed signals, with hot metal output remaining elevated despite weak construction demand. Copper and aluminum performed well due to a better supply-demand balance and electric vehicle demand.
Global factors
Liao Na, senior consultant from GL Consulting, stated that, despite 30 percent US tariffs, China successfully diverted exports to other regions through Belt and Road partnerships. Export vulnerability may increase starting in August as indirect effects emerge through reduced partner country demand. Major countries outside the US are cutting interest rates, supporting potential global recovery from the late third quarter to the fourth quarter of 2025, though US interest rate cut timing remains uncertain.
Investment outlook
Positive factors include low inventories, rising liquidity, and improving sentiment. Supply-side reform success could stabilize prices. However, risks include continued real estate weakness, export uncertainty, and policy implementation challenges.