China’s steel market surges amid official call to curb excessive competition

The China Iron and Steel Association (CISA) held a steel industry planning meeting, requiring industry members to adhere to the strict control of increases in steel capacity and the smooth elimination of outdated capacity, and to study the establishment of a new mechanism for capacity management. This is aimed at preventing the continued aggravation of the risk of overcapacity in the iron and steel industry and at eliminating excessive competition. The fight with excessive competition is the most important in the coils segment, according to the announcement.

The Ministry of Industry and Information Technology (MIIT), the National Development & Reform Commission (NDRC) and the State Administration for Market Regulation plan to further standardize the order of competition in the new energy vehicle industry, requiring in-depth promotion of product price monitoring, product consistency supervision and inspection, and the shortening of the supplier payment period.

Meanwhile, the NDRC said it would make great efforts to prevent the phenomenon of inefficient duplication of construction or low-end unrestrained competition.

The curbing of excessive competition will be one of the main targets in the 15th Five Year Development Plan of the Steel Industry - for the 2026-2030 period.

Other reasons for uptrend

Though the latest announcement is not the first one regarding the need to cut outdated capacities and low-price competition in China, the recent meeting is proof that there will be more structural changes implemented in the next six months, and there are also other market reasons supporting the uptrend. One such reason has been the rebound in the raw materials markets, not only in iron ore, which previously fell sharply, but in the local coke and coking coal markets. “Coal inventories have fallen for several consecutive weeks, while supply constraints have eased only modestly, keeping input prices elevated,” a local source said.

In addition, a positive sign has been coming from the latest production and inventories in the steel industry. After steel production cuts in Tangshan during July 4-15, the average aggregate daily crude steel output of large and medium-sized steel enterprises in China - all CISA members - totaled 2.097 million mt, down 1.5 percent compared to late June (June 21-30), when it also softened (by 0.9 percent compared to mid-June). “End-of-August production cuts are expected around Tangshan and in other parts of North China for the big political meeting in Beijing on September 3. From August 23 onwards production may stop, especially sintering,” a Singapore-based trader said. Also, market sources said that steel inventories are currently at multi-year lows for this time of year even despite low summer demand, especially due to strong exports.

Market reaction

Steel futures in China posted the biggest increases this year today, July 21. In particular, rebar and HRC futures at Dalian Commodity Exchange have gained 2.15 percent and 2.20 percent, respectively. Local and export prices have also gained, adding around $5-20/mt depending on the product. “Growing expectations of macroeconomic stimulus and industry-specific measures (e.g., “anti-cut-throat competition” policies) have boosted confidence, encouraging mills and traders to push prices higher to reverse the earlier bearish sentiment,” a Chinese mill commented to SteelOrbis.

A few Chinese traders have said that they are focusing on the local market and just watching the situation in the export market. “I don’t think anyeone [in the international market] will be very eager to buy Chinese products now. Let’s see how the local market will develop,” another Asian trader said.

At least two large mills have stopped giving official export quotation for flats, seeking to assess the market situation.

Average Chinese local steel prices, July 21