According to Sina, the steel industry as a whole shows no signs of a recovery in demand, with sector-wide leverage remaining under pressure and a marked divergence in financial pressures across companies.
Demand Side:
In 2026, domestic demand in the steel industry is expected to continue to decline, weighed down by the property sector; however, shifts in the demand structure will strengthen the offsetting effect provided by manufacturing and infrastructure, potentially narrowing the decline to between 1% and 3%.
Export-led growth is unlikely to be sustained, and its supplementary role in supporting total steel demand is expected to weaken.
We anticipate that domestic steel demand in 2026 will remain weighed down by the property sector, though the rate of decline is expected to narrow. Coupled with weakening exports, overall industry demand remains in the process of finding a bottom. In 2025, apparent consumption of crude steel is estimated at approximately 830 million tons, with domestic steel demand continuing to decline and the rate of decline widening further compared to the previous year. Looking at downstream performance, the property sector remains the primary drag, with investment in construction projects and new construction starts falling sharply by 19.2% and 20.4% year-on-year respectively. We forecast that in 2026, investment in property construction projects will decline further by approximately 15%, whilst new construction starts will contract by a further 15%–20%, continuing to suppress domestic steel demand. On a positive note, as the opening year of the 15th Five-Year Plan, the front-loading of fiscal policy is expected to drive healthy growth in infrastructure investment, whilst manufacturing demand is set to remain robust. In 2025, year-on-year growth rates for infrastructure fixed-asset investment, manufacturing fixed-asset investment, and production of automobiles and excavators were -1.4%, 0.6%, 9.8% and 16.6% respectively. As steel demand from the property sector has been declining for several consecutive years, its share of total steel consumption has fallen significantly compared to pre-2020 levels. We anticipate that the offsetting effect of steel demand from manufacturing and infrastructure will strengthen in response to the decline in the property sector, with the year-on-year contraction in China’s domestic steel demand expected to narrow to 1–3% by 2026.
Due to the combined impact of a high base caused by the rush to export in the previous year, overseas anti-dumping measures, tariff barriers and export licence management, we expect the supportive role of exports in total steel demand to weaken in 2026. In recent years, domestic steel demand has remained persistently weak, whilst rapid growth in exports has become a key driver underpinning overall steel demand. In 2025, China’s steel exports reached 120 million tons, representing a year-on-year increase of 7.5%; the proportion of steel exports relative to crude steel output rose from 5.0% in 2020 to 12.4%, with export demand making a significantly greater contribution to total demand. Entering 2026, the high base effect will weigh on the year-on-year growth rate of exports, thereby weakening their marginal contribution to total demand. Secondly, numerous overseas countries have launched anti-dumping investigations into Chinese steel products and have successively imposed high anti-dumping duties, which has directly increased export costs. Major markets such as the US and the EU have maintained or further increased steel import tariffs, whilst some emerging markets have followed suit by erecting tariff barriers, resulting in a significant decline in the price competitiveness of Chinese steel exports. Furthermore, the export licensing system, which came into effect on 1 January 2026, imposes quotas or approval procedures on certain steel products, thereby increasing the time costs and uncertainty associated with exports. We believe that, under the combined influence of the above factors, steel exports in 2026 are unlikely to sustain the stimulatory effect seen previously, and export demand may experience a significant decline.
Supply Side:
Against the backdrop of continued demand contraction and the ‘anti-over-competition’ drive, supply will continue to decline, with crude steel output projected at 930–940 million tons in 2026;
Significant administrative or voluntary production cuts are difficult to implement and unlikely to occur.
We believe that the current regulatory and development policies for the steel industry are well-defined, centering on the principles of ‘anti-overcapacity, stabilizing growth and optimizing structure’. Policies will accelerate the exit of small and medium-sized steel enterprises that lack cost and product competitiveness and fail to meet environmental standards. Industry supply will be further reduced under the dual influence of ‘anti-overcapacity’ policies and contracting demand; however, large-scale production cuts, whether administrative or industry-led, are difficult to implement and unlikely to occur.
Between 2025 and 2026, a number of policy documents were successively issued to promote the healthy development of the steel industry. Among these, the ‘Work Plan for Stabilising Growth in the Steel Industry (2025–2026)’ and the ‘Implementation Measures for Capacity Replacement in the Steel Industry’ continued the policy of reducing crude steel output, whilst revising the capacity replacement measures to raise the replacement ratio to no less than 1.5:1, and stipulating that the trading and replacement of capacity quotas would be completely abolished after 2027. Enterprise classification management, centered on the ‘Standardized Conditions for the Steel Industry (2025 Edition)’, establishes a three-tier differentiated regulatory system comprising ‘leading standardized enterprises’, ‘standardized enterprises’ and ‘enterprises failing to meet standardized conditions’, with production quotas prioritized for leading enterprises demonstrating excellent environmental performance and high energy efficiency. Overall, the core of this round of policies is “reduction and quality improvement”: strictly prohibiting new capacity, phasing out outdated and inefficient capacity, intensifying efforts to reduce and replace capacity, and guiding the industry to shift from scale expansion to structural optimization. We believe this will accelerate the exit of some small and medium-sized steel enterprises, which is more conducive to the long-term healthy development of leading enterprises and the industry as a whole. However, at the same time, the likelihood of significant administrative production cuts is low. This is because the previous round of supply-side reforms already achieved large-scale capacity reduction, and the industry has since long adopted the concept of capacity reduction and replacement. New capacity replacement and environmental upgrades have improved the production efficiency of existing capacity, whilst the pattern of overcapacity has become further pronounced as demand contracts. Administrative production cuts typically rely on measures such as environmental production restrictions; however, as 90% of the nation’s steel production capacity has already undergone ultra-low emission retrofitting, the marginal impact of such measures on output is likely to be limited.
Furthermore, we believe that voluntary production cuts within the industry also face significant challenges. Since 2021, the decline in apparent crude steel consumption has consistently outpaced the decline in crude steel output, with the production side exhibiting greater rigidity than the consumption side; China’s annual crude steel output is projected to reach 960 million tonnes in 2025. We believe the difficulty of voluntary production cuts stems from several factors: steel enterprises are often key pillars of local economies, and production cuts have far-reaching implications for employment, tax revenue and the upstream and downstream industrial chains; the costs of starting and stopping blast furnaces in the long-process production line are high and involve significant safety risks; maintaining output helps enterprises retain their market share and spread fixed costs per unit; and during the trough of the cycle, enterprises often strive to become industry survivors, accelerating the elimination of less competitive rivals by maintaining production.
Overall, we expect steel supply to continue its downward trend in 2026, with China’s crude steel output reaching 930–940 million tons.
Prices and Profits:
In 2026, the steel industry is likely to see a ‘fragile balance’ between supply and demand, with steel prices expected to stabilize relatively compared to the previous year;
The supply and demand situation for iron ore is set to ease, whilst coking coal prices may rise slightly, leading to a certain increase in costs for steel producers;
Industry profits are expected to contract somewhat compared to 2025, with any improvement still dependent on more proactive supply-side regulation.
We anticipate that the steel supply-demand landscape in 2026 will continue to exhibit a degree of structural divergence, with demand for construction steel remaining weak whilst demand from the manufacturing sector remains relatively robust, leading to a relatively stable average steel price compared to the previous year. The weakness in construction steel demand is primarily driven by sluggish property investment, a decline in new construction starts and diminishing marginal returns on infrastructure projects, making it difficult for demand for long products to improve significantly. Demand for steel in the manufacturing sector remains resilient; industries such as automotive, home appliances and shipbuilding are benefiting from equipment upgrades and exports, whilst demand for flat steel and special steel is likely to continue growing. On the supply side, crude steel output is expected to contract to 930–940 million tons under ‘anti-overcapacity’ measures and capacity control policies. With simultaneous adjustments on both the supply and demand sides, the steel industry is likely to achieve a ‘weak equilibrium’ in 2026, and steel prices may stabilize at a relatively steady level.
In terms of costs, the global iron ore market will be in a capacity expansion cycle in 2026. With the Simandou project in Guinea commencing shipments and the four major mining companies maintaining and increasing production, global supply will continue to grow; On the demand side, the iron ore market is experiencing structural divergence: whilst Chinese demand is showing marginal weakness, emerging economies such as India and Southeast Asia are stepping in to fill the gap. We anticipate that the global iron ore supply-demand balance will gradually ease. However, influenced by factors such as energy shocks, steel mills restocking, and the pace of new mine capacity coming online, we expect iron ore prices to follow a pattern of high at the start and low towards the end of the year. Regarding coking coal, although demand has been relatively weak, supply has also been effectively curtailed. In recent years, efforts to curb overloading in the coking coal sector have been more stringent than in the thermal coal sector. Coupled with price linkage with thermal coal, we believe coking coal prices are supported and may see a modest upward trend.
We anticipate that, against a backdrop of relatively stable steel prices and rising costs, profits in the steel industry may contract in 2026. Steel prices have been declining for four consecutive years since their 2021 peak; by 2025, rebar prices had fallen to around RMB3,200 per tonne, reaching historically low levels. According to data from the National Bureau of Statistics, total profits in the ferrous metal smelting and rolling industry have fallen sharply since 2022 compared to previous years; the recovery in industry profits in 2025 was primarily driven by a significant decline in costs. However, we believe that the profit recovery driven by falling costs is reactive in nature and lacks a solid foundation; improvements in industry profits will still depend on more proactive supply-side regulation.
Financial Condition and Credit Quality:
In 2026, the industry’s financial leverage will come under pressure, with significant internal divergence; financial pressures remain considerable for some enterprises;
The issuer structure, dominated by state-owned enterprises, is conducive to maintaining the continuity and stability of debt financing for steel sample enterprises;
However, given the prolonged downturn in this cycle, attention must still be paid to the interest-service capacity and refinancing environment of companies with weak profitability and heavy debt burdens.
We anticipate that financial leverage in the steel industry will remain under pressure in 2026, with marked divergence in leverage levels across companies; some firms face substantial financial pressure and rely heavily on refinancing. Currently, the steel enterprises in our bond issuance sample are generally major central or local steel producers, and they enjoy relatively stable credit and funding support from financial institutions.
In recent years, driven by contracting profits and cash flows, the overall debt level of the steel industry has shown an upward trend. In 2025, as industry profits recovered, debt levels were brought under some control, and financial leverage declined compared to 2024. However, due to rising costs, we expect the industry’s profit recovery to remain fragile, and industry leverage levels to face upward pressure in 2026. At the corporate level, financial pressures varied significantly among different enterprises during the industry downturn. Some enterprises, characterized by weak profitability and heavy debt burdens, experienced sharp fluctuations in both EBITDA and financial leverage during the cyclical downturn, leading to a steep rise in financial pressures. Typical examples include Anyang Iron & Steel, Benxi Steel Group, Lingyuan Iron & Steel Group, Liuzhou Iron & Steel Group and Co., Ltd., and Ansteel Co., Ltd. On the other hand, steel enterprises currently issuing bonds are predominantly central and state-owned enterprises, and bank financing accounts for a high proportion of their debt structure. This helps to maintain the continuity and stability of debt financing for steel enterprises. We believe that, provided cash flow metrics such as EBITDA can cover interest payments, the refinancing of highly leveraged steel enterprises may remain relatively stable. However, the current downturn in the steel industry cycle is expected to persist for an extended period, and the recovery of industry profits still faces significant challenges. Should industry profitability remain persistently weak and enterprises continue to struggle to cover interest payments with their cash flows, caution is warranted regarding the refinancing stability risks of such enterprises.
SunSirs has been continuously tracking price data for over 200 commodities for nearly 20 years, please contact support@sunsirs.com for subscription.
