"Breaking the Vicious Cycle": Paving the Way for a New Steel Industry Cycle

On September 16, the journal *Qiushi* published an important article by General Secretary Xi Jinping titled "Deeply Advancing the Construction of a National Unified Market," emphasizing that areas severely affected by "involution" must be effectively governed in accordance with laws and regulations. Currently, China's steel industry is grappling with the dual challenges of robust supply and weak demand. Fully, accurately, and comprehensively understanding the central government's call to combat "involution" is crucial for the steel sector as it navigates its phase of capacity reduction—helping the industry tackle the "involution" dilemma and driving a competitive transformation toward high-quality development. The author provides a concise analysis on how the steel industry can break through the current impasse in its anti-involution efforts, offering insights for industry stakeholders to consider and discuss.

1. The Policy Context Behind "Fighting Involution"

(1) "Anti-Involvement" Timeline

On July 30, 2024, the Central Politburo meeting first proposed measures to prevent "involution-style" cutthroat competition.

On December 11-12, 2024, the Central Economic Work Conference proposed comprehensively addressing "involutionary" competition and regulating the behavior of local governments and enterprises.

On March 5, 2025, "comprehensively addressing 'involutionary' competition" was included in the Government Work Report.

On July 1, 2025, the sixth meeting of the Central Financial and Economic Commission proposed governing enterprises' low-price, disorderly competition in accordance with laws and regulations, while promoting the orderly exit of outdated production capacities.

On July 30, 2025, the Central Politburo meeting proposed deepening the construction of a unified national market, continuously optimizing the order of market competition, emphasizing the lawful and regulatory governance of enterprises' disorderly competition, advancing capacity management in key industries, and, for the first time, calling for standardized local investment promotion practices.

(II) The Core Content of "Fighting Against Involution"

From the statements made at the Central Politburo meeting on July 30, it is clear that the core elements of "combating involution" primarily include the following aspects:

First, govern enterprises' disorderly competition in accordance with the law and regulations. Emphasize the need to address disorderly competition among enterprises through legal measures, while avoiding one-size-fits-all approaches and ensuring fair competition in the market.

Second, strengthen industry self-regulation. Emphasize leveraging the role of industry associations to guide enterprises in self-disciplined production control, prevent unhealthy competition, and encourage businesses to enhance their market competitiveness through technological innovation and differentiated strategies.

Third, promote technological innovation. Encourage enterprises to increase investment in technological research and development, enhance the technological sophistication of their products, avoid homogeneous competition, and reduce the occurrence of "involution."

Fourth is the comprehensive remediation measure. Deeply advance the nationwide unified market, address local protectionism, and ensure market integration and rational allocation of resources.

II. Analysis of the Supply and Demand Situation in China's Steel Industry

During the 14th Five-Year Plan period, China's steel industry has experienced a fundamental shift in its supply-and-demand dynamics. With ample supply capacity clashing against weakening demand, the industry now finds itself in a phase of deep structural adjustment. Overall, this downturn marks the sixth market cycle the Chinese steel sector has faced since the 1990s—a correction occurring amid a prolonged decline in overall steel consumption. Unlike previous adjustments that stemmed from temporary imbalances between supply and demand during periods of growth, this time the market situation—where supply significantly outpaces demand—is unlikely to undergo a fundamental reversal anytime soon. Looking ahead, the steel industry will enter a new development stage characterized by reduced production with improved quality, green transformation, and intelligent upgrading as its defining features.

(1) Supply capacity is ample and continues to grow.

On one hand, in recent years, the steel industry has deepened its supply-side structural reforms by implementing measures such as controlling production capacity and output, and promoting mergers and acquisitions. These efforts have accelerated the industry’s shift toward high-end, intelligent, and environmentally friendly practices, significantly enhancing its quality standards and competitiveness. On the other hand, steel production capacity continues to expand, with crude steel production capacity already returning to levels seen before the supply-side structural reforms. According to data from the National Bureau of Statistics, crude steel capacity has grown from 1.027 billion tons in 2018 to 1.108 billion tons in 2023. Moreover, considering factors like technological advancements that boost production efficiency, estimates suggest that the industry’s actual supply capacity could be even higher when accounting for the highest monthly crude steel output recorded in recent years—and factoring in the upcoming commissioning of reduction and replacement projects over the next two years.

(II) Weakening Consumer Demand and Ongoing Divergence

China's steel consumption is primarily concentrated in two major industries: construction and manufacturing. In recent years, driven by the downturn in the real estate market, steel demand from the construction sector has continued to decline—so much so that the reduction in construction-related steel usage has outpaced the growth in steel consumption by the manufacturing industry, leading to an overall downward trend in total steel consumption. From January to August this year, China's apparent crude steel consumption nationwide reached approximately 587 million tons, a year-on-year decrease of more than 5%. Notably, this decline exceeded the drop in crude steel production, further reinforcing the persistent imbalance between supply and demand in the domestic steel market, where supply continues to outpace demand. As the traditional powerhouse of steel demand, the construction industry has seen its steel consumption steadily contract, with its share declining to 50% by 2024. Conversely, steel demand from the manufacturing sector has been steadily rising, accounting for 50% of total consumption by 2024. Key growth drivers in this segment include industries such as machinery, automotive, home appliances, and shipbuilding, which are emerging as major contributors to the expanding steel needs of China's manufacturing sector.

Meanwhile, driven by a series of comprehensive incremental policies such as the "Two New" initiatives rolled out across the country, as well as the rapid growth of emerging industries, steel demand in the manufacturing sector has continued to rise. Demand for steel used in construction machinery, new-energy vehicles, and wind- and photovoltaic power equipment has remained robust. Meanwhile, products like silicon steel, automotive sheets, home appliance panels, and wear-resistant steels have seen particularly strong market traction. Additionally, green energy infrastructure projects are boosting demand for weathering steel used in wind turbine towers, specialized stainless steels for nuclear power applications, nickel-based cryogenic steels for liquefied natural gas vessels, and high-strength, thin-gauge shipbuilding plates—these now emerging as key growth drivers in consumption.

3. Accurately Understanding the Steel Industry's "Anti-Involution" Initiative

The steel industry needs to accurately grasp the "anti-involution" requirement, getting to the root of the issue and strengthening its foundations while nurturing sustainable growth. At the same time, it should draw on the relevant experiences from developed countries that have already reached peak crude steel production—using insights from others as a valuable reference for its own development.

(1) Oversupply is neither the source nor the primary cause of "involution."

First, it is normal for supply to exceed demand after crude steel production reaches its peak. As a traditional industry, the steel sector boasts relatively mature market-oriented operational characteristics, and oversupply is one of the defining traits of a maturing industry. Drawing from the experiences of developed nations—take Japan as an example—we can see that since crude steel production peaked in 1973, steel consumption demand has fluctuated downward, deepening the imbalance between supply and demand and prompting a gradual reduction in production capacity. As a result, Japan’s steel industry has gone through key phases: initial capacity cuts, a post-peak recovery phase, and, more recently, steady growth following a second peak. Today, Japan’s crude steel output remains stable at around 80 to 90 million tons (for details, see the October 30, 2024 issue of China Metallurgical News, titled "How Developed Countries Managed Production Decline After Peaking? Breaking the 'Involution' Trap to Build a New Industry Ecosystem").

Second, after crude steel production reaches its peak, industry self-discipline becomes the new normal. Developed countries' steel industries all experienced a prolonged period of oversupply after reaching peak production. Take the United States as an example: under the guidance of industry associations, it regularly publishes capacity utilization data and implements early warning systems for industry health, prompting steel companies to flexibly adjust their production rhythms in response to shifting market demands, thereby fostering self-discipline across the sector. In 2024, U.S. crude steel output stood at 79.5 million tons, with a capacity utilization rate of 75.6%. Yet, thanks to these proactive measures, the industry avoided the pitfalls of low prices and chaotic, cutthroat competition—commonly referred to as "involution"—caused by oversupply. Similarly, the European Union, Japan, and other regions, after peaking in crude steel production, have adopted strategies such as promoting mergers and acquisitions, encouraging cross-shareholdings, restructuring product portfolios, collaborating on industrial chains, expanding overseas operations, and phasing out outdated production capacities. These efforts have significantly accelerated the process of rebalancing supply and demand post-peak production.

(II) At the heart of "countering involution" and stabilizing the market lies the preservation of prices.

First, at this stage, the steel industry is focusing on "countering involution," with the primary goal of safeguarding—rather than merely maintaining—market prices, rather than just defending market share.

Since 2021, the steel industry has achieved a continuous decline in crude steel production through policy adjustments, creating valuable time and space for the industry to stabilize prices, maintain profitability, and eventually phase out inefficient production capacities. However, some enterprises have responded by slashing prices to grab market share at the expense of their competitors, ultimately intensifying chaotic, low-price competition. This, in turn, has squeezed profit margins—both for individual companies and the industry as a whole—leading to tighter cash flows and rising operational risks. Therefore, under the backdrop of declining steel demand, pursuing high market share via price wars will not deliver substantial profits to industry players; instead, it will only exacerbate cash flow pressures and heighten business risks for companies.

According to monitoring by the China Iron and Steel Association, the average value of China's steel price index from January to July this year was 95.87 points, down 1.16% year-on-year. Meanwhile, the average prices of iron ore, metallurgical coke, and scrap steel all declined significantly—by 12.97%, 29.36%, and 14.81%, respectively, compared to the same period last year. Notably, the total profits of key statistical member steel enterprises increased by more than 80% year-on-year during the same period. This demonstrates that the improved profitability of China's steel industry in the first seven months was driven not only by relatively stable steel prices but also by substantial cost reductions, particularly in raw material and fuel expenses. The simultaneous efforts to stabilize steel prices and cut costs have thus played a crucial role in boosting overall industry performance.

Second, controlling production to stabilize prices is a short-term measure; in the long run, expanding new steel demand and phasing out inefficient capacity must be pursued simultaneously.

On one hand, expanding steel application areas is the driving force behind the steady development of the steel industry. Currently, China's steel consumption shows a contrasting trend: declining demand for construction steel but growing demand from manufacturing sectors. Guided by market needs, strengthening collaborative efforts across the industrial chain is an effective strategy for helping enterprises optimize and adjust their product portfolios, as well as opening up new avenues for steel usage. For instance, Germany’s ThyssenKrupp has achieved deep integration with industries such as automotive and equipment manufacturing, while Japan’s JFE Steel has fostered robust industrial synergy with the construction sector—both approaches have successfully secured significant market shares in these key areas and continue to expand steel demand in these growing fields.

On the other hand, supportive policies have been introduced to guide inefficient production capacity toward exit. For instance, during the 1970s and 1980s, the European Community implemented the Davignon Plan, which included measures such as steel production quotas, minimum price controls, and government subsidies. These initiatives helped cut excess steel capacity by approximately 40 million tons, while also advancing privatization reforms and fostering mergers and restructuring within the industry. Meanwhile, Japan’s steel sector, guided by the "Smooth Adjustment Act," the "Special Measures Act," and the "Industrial Structure Act," took decisive steps to address overcapacity—such as formulating strategies for structural improvements and setting targets for the electric-arc furnace industry, providing government compensation, and even acquiring surplus equipment with public funds before scrapping it entirely. Additionally, Japan actively leveraged its "Employment Adjustment Subsidy System" to ensure employment stability and promote workforce rationalization.

Additionally, stringent enforcement measures will be applied to enterprises that fail to meet ultra-low emission standards, energy efficiency benchmarks, and carbon emission requirements, compelling them to either rectify issues within a specified timeframe, undergo restructuring, or ultimately exit the market. For instance, in the 1970s, the United States enacted landmark legislation such as the Clean Air Act and the Clean Water Act, forcing some less competitive steel companies to shut down, shift operations, or restructure altogether. Similarly, Europe introduced specialized air pollution control plans tailored for the steel industry in the 1970s—such as Germany’s Environmental Agency’s targeted plan specifically designed for the North Rhine-Westphalia region. Today, carbon emissions trading initiatives being promoted by countries like the European Union and China are further accelerating the transition or exit of enterprises that cannot comply with environmental and carbon emission regulations.

IV. Key Recommendations for the Steel Industry to "Combat Involution"

Firmly implement the decisions and arrangements of the Party Central Committee and the State Council, the steel industry continues to coordinate efforts on both the supply and demand sides, deeply studies and promotes foundational measures for a new mechanism to manage production capacity, expands the application scope of steel materials, and adapts as quickly as possible to the historic shifts in supply-demand dynamics. This will help ease the pain associated with optimizing existing capacities and driving transformation and upgrading, ultimately fostering high-quality development within the industry. Specific recommendations are as follows:

First, strengthen industry self-discipline. Steel enterprises must abandon the ingrained mindset of relying on volume for success, adjust their production pace, and firmly adhere to the "Three Constants and Three No's" business principles. Instead, they should adopt a more pragmatic approach by implementing measures such as controlling output, optimizing structure, enhancing product variety, strengthening management, reducing costs, and proactively managing risks—ultimately enabling the industry’s profitability to gradually return to sustainable and reasonable levels.

Second, it is about reshaping the sense of competition. Steel enterprises must accurately understand that maintaining (stabilizing) the market primarily means safeguarding prices—persistently driving prices down will only exacerbate unhealthy competition within the industry, ultimately harming both the industry as a whole and the companies' own long-term development. Steel firms should firmly oppose price wars, protect the collective interests of the industrial chain, and jointly resist "involutionary" competition.

Third, strengthen overseas expansion. Expanding overseas is a crucial strategy for tackling the "involution" challenge in the steel industry. Steel companies, especially leading enterprises, should proactively plan and draw on successful experiences from regions such as Southeast Asia, the Middle East, and Africa—particularly by advancing project development within existing industrial parks to mitigate investment risks.

Fourth, we must uphold innovation-driven development. We must steadfastly drive the development of new, innovative steel productivity, increase investment in scientific research, and prioritize the patenting, standardization, and branding of technological achievements. This will foster deep integration and synergy between steel technology innovation and industrial innovation, ultimately shaping a robust and sustainable growth engine for our enterprises.

Fifth, we will jointly build the industrial chain. By collaborating with upstream and downstream industries as well as leading enterprises, we will drive the simultaneous attraction of talent, quality, R&D, and services, fostering close synergy to ensure that the innovation chain and the industrial chain are mutually dependent and complementary. This approach will enhance the overall competitiveness and risk resilience of the steel industry's value chain.

Six is to comprehensively advance the "Three Reductions" initiative. Reducing capacity, output, and the number of enterprises will be the defining feature and key focus for the steel industry in the coming period. These "three reductions" vary in difficulty, with differing levels of effectiveness, risks, and broader impacts. It is recommended that they be advanced in a coordinated manner—before substantial reductions in production capacity and equipment are achieved, output control will serve as an important policy tool. At the same time, thorough research into corresponding countermeasures and the establishment of complementary exit mechanisms are essential to ensure the smooth implementation of the "three reductions." (Metallurgical Industry Information Standards Research Institute)