As China’s steel industry faces falling demand and tightening margins, a balanced approach to production and a focus on emerging consumer sectors are likely to stabilize the market and ensure sustainable growth, said a leading industry association.

“China’s steel industry has entered a phase of ‘inventory optimization’, with a persistent ‘three highs and three lows’ scenario: high production, high costs, high exports as well as low demand, low prices and low profitability,” Jiang Wei said. , vice president and secretary general of the China Iron and Steel Association (CISA), when releasing the organization’s third quarter data last week.

During the first three quarters, domestic demand showed further signs of weakening, leading to a slight decline in iron and steel production.

According to data from the National Bureau of Statistics, China’s crude steel output totaled 768 million tons in the first nine months, down 3.6 percent year-on-year, with pig iron output at 644 million tons. tonnes, down 4.6%.

Even as production declined, apparent steel consumption fell even more sharply, keeping steel prices low. Combined with the challenge of volatile raw material costs, industry profits have been significantly affected, with CISA reporting a 56.39% year-on-year decline in profits of major steel companies, to 28.97 billion yuan ($4.06 billion) in the first three quarters.

“Demand for steel products lacks price elasticity – excessive price cuts will not stimulate its consumption. As the industry moves into an inventory optimization phase, it is crucial to maintain a dynamic balance between supply and demand to maintain reasonable profitability,” said Shi Hongwei. Deputy Secretary General of CISA.

Shi added that any push to increase production during slight market improvements would exacerbate supply-demand imbalances, depress prices and risk pushing the industry back into a “more production, more loss” cycle. “.

CISA also called on industry players to align themselves with central government directives to avoid brutal competition, practice mutual self-discipline and maintain market stability, thereby reducing operational risks and ultimately achieving efficient and high-quality development.

Looking ahead, CISA expects a general decline in steel demand with notable changes within segments. China’s steel demand is expected to decline by 3% in 2024 and 1% in 2025, according to the World Steel Association’s recent outlook.

“Demand will continue to diversify across product types, with structural steel expected to see a slight marginal recovery, while manufacturing remains the main driver of growth, particularly in emerging sectors such as new energy, high-end equipment manufacturing and photovoltaic products,” Jiang said. .

Jiang added that the structure of steel demand is gradually shifting toward the manufacturing sector, which, together with construction, currently accounts for 48% and 52% of total steel consumption, respectively.

By the end of this year, the balance is expected to reach parity, and manufacturing demand may even take a larger share in the future, he said.