The biggest pressure on the steel market may be over

For some time, the US Trump administration's high-tariff extortion of China and other countries has severely worsened the global trade and economic growth environment, becoming a major source of pressure for the sluggish Chinese steel market. It is expected that the Sino-US "tariff war" will be difficult to end completely in the short term, and the resulting pressure on the steel market will remain. However, we must also see that the US Trump administration's "tariff war" has reached its limits, and the cumulative effects of China's counter-cyclical and cross-cyclical adjustments are becoming apparent, especially with the stabilization of the real estate market and the improvement of related steel demand trends. The period of greatest pressure on the Chinese steel market may be over.

Recently, at the suggestion of the US side, the heads of the China-US trade teams held talks in Geneva, taking an important step towards resolving trade issues through dialogue and consultation. This has been widely welcomed by all sectors of the two countries and the international community. Recently (evening of June 5th), President Xi Jinping spoke with US President Trump. During the call, Trump stated that the Geneva trade talks were successful and a good agreement was reached. The US side is willing to work with China to implement the agreement. The two heads of state agreed that their teams should continue to implement the Geneva consensus and hold a new round of talks as soon as possible. The reason why Trump is so eager for talks is mainly because China's rare earth metal export controls have hit the US where it hurts. A complete decoupling of Sino-US trade would greatly increase the risk of US economic stagnation, and the US also needs China's cooperation in selling bonds to avoid a US government debt default, etc. This shows that Trump has reached his limit in terms of extreme pressure and tariff wars, and future risk preferences will shift towards a warming window. On June 9th, the first meeting of the China-US trade consultation mechanism was held in London, UK. If we are optimistic, the intensity of the tariff war between the two countries will be significantly reduced, which will inevitably create a major boon for global trade and world economic growth, and will also create a major boon for China's economic growth, China's steel exports, and China's total steel demand.

While the intensity of the China-US trade war is easing, the cumulative effects of China's counter-cyclical and cross-cyclical adjustment measures are also becoming apparent. The latest statistics show that from January to April, the national industrial added value above designated size increased by 6.4% year-on-year, the fastest monthly growth rate since last year. Among the three major categories, the added value of manufacturing increased by 6.9% year-on-year, significantly faster than the growth rate of total industrial added value. In particular, the added value of equipment manufacturing, which consumes a large amount of steel, increased by about 10% year-on-year, 2 percentage points faster than the growth rate for the whole of last year. The year-on-year growth rate of many important steel-consuming products reached 20%. For example, in the first four months of this year, the national output of household washing machines increased by 10.9% year-on-year, automobile production increased by 11.1%, excavator production increased by 14.3%, metal-cutting machine tool production increased by 16.8%, metal container production increased by 21%, and industrial robot production increased by 34.1%. Among the "three carriages" of China's total steel demand, although it has been greatly hampered by the decline in real estate development investment, national fixed asset investment has still achieved a year-on-year growth of 4%, exceeding last year's investment growth rate by 0.8 percentage points. The total steel consumption in the fixed asset investment sector still maintains resilience.

It is particularly noteworthy that even the less-than-ideal real estate market has shown signs of stabilization and improvement under the guidance of optimized real estate regulation measures. The China Real Estate Index System's index of 100 cities shows that in May, the average price of newly built residential houses in 100 cities nationwide was 16,815 yuan/square meter, a month-on-month increase of 0.30% and a year-on-year increase of 2.56%, continuing its steady recovery trend. Some authoritative institutions believe that since September 2024, the Chinese decision-making departments have introduced a package of incremental policies that have yielded positive results. At the same time, the fiscal policy in 2025 is more proactive than in previous years, with the deficit rate set at around 4%, an increase of 1 percentage point over the previous year; the scale of government debt issuance has also increased significantly compared to previous years. It is expected that a package of fiscal plans totaling 500 billion to 1 trillion yuan may be launched this year to support urban renewal and other infrastructure construction. In terms of monetary policy, the People's Bank of China may further lower policy interest rates by 15-20 basis points in the second half of this year and lower the reserve requirement ratio by 50 basis points. In addition, this year's consumer goods trade-in support funds reached 300 billion yuan, double that of last year, which will help expand domestic demand, especially domestic demand for steel.

Furthermore, despite Trump's high-tariff pressure, which has worsened the environment for Chinese steel exports, China's steel exports continue to grow significantly because of continued international demand. According to customs statistics, from January to May 2025, China exported 48.469 million tons of steel, a year-on-year increase of 8.9%; of which, 10.578 million tons were exported in May, a year-on-year increase of 9.8%. During the same period, indirect steel exports—electromechanical product exports—increased by 9.3% year-on-year, accounting for 60% of China's total exports, both maintaining good growth momentum. If future Sino-US trade negotiations yield results and the intensity of the "tariff war" weakens, China's steel exports in both aspects will exceed expectations.

Therefore, the period of greatest pressure on China's steel price may be over. As some uncertainties disappear and the steady improvement of total steel demand continues, if steel companies can exercise self-discipline in production control, the bottoming out and rebound of China's steel prices should not be far off. (Original article by Lange expert Chen Kexin, please indicate the source when reprinting)