"How significant is the impact of the 'anti-inside-spiral' policy on the steel industry?"
A Review of Supply-Side Reforms from 2015 to 2018
Industrial Policies and Their Effects
In February 2016, the State Council issued the "Opinions on Resolving Excess Capacity and Achieving Recovery and Development in the Iron and Steel Industry," marking the beginning of supply-side reforms in the steel sector. The years 2016–2018 saw the concentrated implementation of industrial policies aimed at reshaping the steel industry's supply side. During this period, through measures such as phasing out outdated production capacity, enforcing environmentally friendly production restrictions, and promoting capacity-reduction-and-replacement initiatives, the industry eliminated more than 150 million tons of excess capacity and successfully cleared over 140 million tons of "strip steel"—a substandard product—well ahead of schedule. This achievement not only met but exceeded the upper-bound targets set by the 13th Five-Year Plan for capacity reduction two years ahead of its deadline.
Over the past three years, industry policies have shifted their focus: In 2016, the priority was phasing out small blast furnaces and resolving excess capacity exceeding 65 million tons. In the first half of 2017, the main effort centered on eliminating "strip steel," successfully clearing 140 million tons of such inefficient production capacity. Additionally, through capacity replacement and environmentally driven production restrictions, an additional 50 million tons of crude steel capacity were addressed. By 2018, efforts continued to steadily reduce capacity and enforce stricter environmental production limits, further resolving another 30 million tons of crude steel capacity.
Supply and Demand Dynamics and Price Trends
Crude steel production has grown steadily year by year.
In 2015, steel mills operated at a low production base (as they were continuously suffering losses and output was declining). From 2016 to 2018, Pig iron Both crude steel production and pig iron output have risen year by year, yet the iron-to-steel ratio has declined, as the increase in pig iron production has lagged behind that of crude steel. The primary reason for this trend is that blast furnace operations have been constrained by policy measures.
During the period of capacity elimination and reduction, the main reasons why output not only failed to decline but actually increased include: First, off-balance-sheet production shifted onto the balance sheet. In the first half of 2017, "strip steel" was banned, leading to the concentrated withdrawal of off-balance-sheet medium-frequency furnace output from the market (with year-on-year production growth starting in the second quarter of 2017). Second, driven by high profit margins, blast-furnace steel plants achieved increased production through various means. On one hand, they boosted Iron ore Taste and quality continue to drive up the premium for high-grade iron ore; on the other hand, increasing the converter process环节 Scrap steel By adjusting addition volumes, we can achieve increased production. Meanwhile, phasing out and reducing产能 are more evident in two key areas: the decline in blast furnace operating rates, and the elimination of off-balance-sheet medium-frequency furnaces.
Steel profit per ton expands significantly.
From 2016 to 2018, China’s per-ton steel profit saw a significant increase. In 2015, steel plants as a whole were operating at a full-scale loss, with profitability falling short of 10%. Starting in 2016, as outdated production capacities were shut down, the profit situation markedly improved. As a result, per-ton steel profits reached 250 yuan in 2016, 560 yuan in 2017, and 818 yuan in 2018.
Profitability and operating rates show an inverse relationship: as the operating rate gradually declines, steel mills' profit margins continue to rise. For instance, in 2018, blast furnace operating rates fell by 7 percentage points year-on-year (from 74% to 67%), while steel mill profitability surged to 90%. This shift in operating rates and profit margins closely aligns with the law of supply and demand—where supply acts as the variable. When supply decreases, the supply curve shifts to the left, pushing prices upward. This, in turn, squeezes out some demand, ultimately leading to a new equilibrium between supply and demand.
棚改货币化安置拉动需求
From 2016 to 2018, China’s crude steel consumption showed a trend of stabilizing after declining and then rebounding, with particularly strong growth rates in 2017 and 2018. Data indicate that the growth rates of crude steel consumption during these three years were 1%, 8%, and 15%, respectively.
The rebound in crude steel demand has been primarily driven by the monetary resettlement program linked to urban shantytown redevelopment in the real estate sector. Real estate investment growth, after hitting a low point in 2015, has once again picked up, reaching relatively high levels of 6.9%, 7%, and 9.5% in 2016, 2017, and 2018, respectively. In June 2015, the State Council issued the "Opinions on Further Strengthening Work Related to Urban Shantytown Renovation, Dangerous Housing Reconstruction in Urban and Rural Areas, and Supporting Infrastructure Construction," outlining a three-year plan for shantytown renovation that aimed to complete the transformation of 18 million housing units between 2015 and 2017. Subsequently, it was clearly stated that shantytown redevelopment serves as a crucial tool for reducing inventories of commercial housing, with local governments mandated to ensure that the proportion of monetary resettlement in these projects remains no lower than 50%. Additionally, efforts were intensified to boost lending support for monetary resettlement initiatives.
In 2017, the State Council once again launched a three-year攻坚 plan, aiming to complete an additional 15 million units of shantytown renovation between 2018 and 2020. According to calculations based on relevant data on monetized resettlement, after 2015, monetized resettlement played a significant role in boosting the growth of commercial housing sales area. From 2015 to 2018, commercial housing sales areas reached 1.25 billion square meters, 1.53 billion square meters, 1.63 billion square meters, and 1.65 billion square meters, respectively, with monetized resettlement accounting for approximately 12%, 16%, 19%, and 16% of these figures, respectively.
Inventory continues to run at low levels.
Looking at the year-on-year trend of steel inventories, in 2016, inventory clearance was thorough, with levels declining compared to 2015. However, during 2017–2018, Reinforcing steel bars Winter storage inventories have shown a year-on-year upward trend, which largely aligns with the pattern of inventory rising as prices increase (since higher prices typically signal strong demand expectations, leading to a corresponding rise in inventory levels).
From a seasonal perspective, the phase of inventory accumulation occurring out of season typically coincides with periods of price corrections. For instance, in 2016, rebar stocks accumulated from April to May, while hot-rolled steel stocks piled up from September to October; in 2017, hot-rolled steel inventories increased from February to April. During these periods, Steel prices All have experienced a phased decline.
Summary
After three years of supply-side reforms, the steel industry has achieved effective control and optimization of its production capacity. Specifically, capacity reductions exceeded 150 million tons, and more than 140 million tons of "strip steel" were eliminated, bringing China's crude steel production capacity down to below 1 billion tons. Meanwhile, steel plant operating rates have slightly declined, while capacity utilization rates have risen significantly. Data show that from 2015 to 2019, steel plant operating rates dropped by nearly 10 percentage points (from 94.4% to 84.8%), while capacity utilization rates climbed by nearly 4 percentage points (from 81.6% to 85.46%).
In December 2015, Rebar prices After hitting bottom and beginning to rebound, this trend closely aligns with the timing of the Central Economic Work Conference in December 2015, which designated supply-side reform as the main focus for China’s economic agenda in 2016. As industrial policies were gradually rolled out and implemented, supply was effectively constrained. At the same time, the demand side benefited from the government’s policy of monetizing resettlement programs related to urban shantytown redevelopment. Under the combined influence of these two factors, the steel industry experienced a shift toward reduced supply and increased demand, thereby initiating a new round of upward momentum. From 2015 to 2018, the price of threaded steel surged by nearly 3,000 yuan per ton, peaking at 4,400 yuan per ton.
"Anti-Involution" Policy Tracking and Impact
Current Status of the Steel Industry
Achieve phased production and inventory clearance
Since the real estate sector entered a downturn in 2021, demand for rebar—primarily used in the property industry—has shown a declining trend. Meanwhile, the cost of electric furnace-produced rebar has consistently remained higher than that of blast furnace-produced rebar, pushing electric furnace rebar production into sustained losses and causing a significant drop in operating rates. By 2021, electric furnace utilization had fallen to around 62%, a decrease of 19 percentage points compared to 2018. At the same time, blast furnace steelmakers have also implemented various measures to cut back on rebar output, such as reducing the proportion of scrap steel added and adjusting overall production levels.
According to data from the National Bureau of Statistics, crude steel production declined by 30 million tons from 2021 to 2024. When comprehensively factoring in the phasing out of scrap steel consumption, the reduction in steel output during this period is estimated to fall within the range of 90 million to 100 million tons. Meanwhile, based on data from the Mysteel sample, rebar production plummeted by 33%—equivalent to 56 million tons—from 2021 to 2024. Notably, the drop in rebar output contributed most significantly to the overall decline in crude steel production.
Meanwhile, China's steel exports have continued to grow, effectively absorbing the production volume. Looking back at the past Steel prices During the downturn period (2011–2015), China's steel exports continued to grow, yet prices moved inversely to export volumes. In 2015, when steel prices hit a cyclical low, they coincided with the highest-ever export volume of 112 million tons.
From 2021 to 2025, China’s steel exports continued to grow steadily. Despite facing anti-dumping pressures from overseas markets, China’s steel exports have maintained their upward momentum thanks to the country’s competitive price-to-performance advantage. In 2024, China’s steel exports increased by 44 million tons compared to 2021. As of June 2025, China’s steel exports reached 58.15 million tons, representing a year-on-year growth of 9.2%.
In 2025, blast furnace steel plants turn profitable.
After enduring sustained price declines and production cuts throughout 2024, by the end of the year, China’s steel production and inventory levels both saw a temporary clearance. Meanwhile, steelmakers’ profits gradually recovered from losses to move toward profitability. In the first half of 2025, rebar and hot-rolled steel production continued to operate with positive profit margins. As a result, the proportion of profitable steel plants climbed significantly—from 36% in 2024 to 55% in the first half of 2025.
Steel inventory remains at low levels.
In 2024, domestic demand saw a noticeable decline. Following the continued downturn in the real estate market, traditional infrastructure projects were halted in 2024, further dampening demand for infrastructure and pushing it into a downward spiral. Under these circumstances, steel faced dual pressures from high production levels and soaring inventory. After a year of sustained production cuts and price declines aimed at reducing stockpiles, inventory levels hit historically low baselines by 2025. As of July 2025, inventories of the five major steel products had fallen by 24% year-on-year.
The Impact of the "Anti-Involvement" Policy
Needs to wait for relevant industry policies to be confirmed.
"Anti-involution" was first mentioned at the Central Politburo meeting in July 2024. On July 1, 2025, the sixth meeting of the Central Financial and Economic Affairs Commission proposed "addressing enterprises' low-price, disorderly competition... and promoting the orderly exit of outdated production capacities," sparking heightened expectations for "anti-involution" and prompting the market to begin trading on this theme. Meanwhile, several industries have gradually rolled out industry-specific policies aimed at countering involution.
Currently, expectations for the "anti-involution" policies related to the steel industry are primarily reflected in the following two areas: First, stable growth action plans have already been rolled out for ten key industries, including steel, non-ferrous metals, and petrochemicals. Second, the Comprehensive Department of the National Energy Administration has issued a document titled "On Organizing and Conducting Inspections of Coal Mine Production Conditions to Promote..." Coal "Notice on Stable and Orderly Supply," which mandates the suspension of production and rectification for coal mines whose monthly raw coal output from January to June 2025 exceeds the announced production capacity by more than 10%. This measure has confirmed expectations of a contraction in supply within the coal industry. However, whether expectations of an "anti-inward competition" trend in the steel sector will indeed materialize remains to be seen, pending the release of further industrial policies.
The leverage could be structural adjustment.
Currently, the steel industry's overcapacity has eased compared to the previous cycle. From 2012 to 2015, steel plants maintained an operating rate of 94% to 99%, yet their capacity utilization remained at just 71% to 81%. In contrast, from 2021 to 2025, plant operating rates dipped to 78% to 82%, while capacity utilization climbed to 85% to 89%. This shift—higher capacity utilization paired with lower operating rates—indicates that the industry structure has been further optimized, leading to improved operational efficiency.
However, the loosely supplied structure in the steel industry has yet to change. In 2025, steel plants are operating with low inventory levels and positive profits, primarily due to reduced production at mills and growing export volumes. Compared to the overall overcapacity characteristic seen during the industry cycle from 2011 to 2015, today’s surplus in the steel sector is more accurately described as a structural overcapacity. As China’s economy shifts toward high-quality development, the demand structure for steel products continues to evolve, with a sustained decline in demand for construction rebar. Meanwhile, there is increasing demand for green, low-carbon steel, as well as high-performance steel plates and strips. Ultra-high-strength steel Demand for products such as bars and wires continues to grow. Therefore, a potential entry point for addressing "anti-inward competition" in the steel industry could be through structured adjustments.
Impact Outlook
Looking at the upward trajectory of black metal prices since June, in June, coking coal production was cut due to environmental inspections, causing prices to stop falling and begin to rebound. Meanwhile, despite being in the off-season for demand, steel consumption demonstrated remarkable resilience, with inventories remaining low and showing no signs of accumulation. Iron ore prices It also stopped declining as a result.
Immediately afterward, on July 2, "anti-involvement" trading boosted market sentiment. With both the marginal improvement in industry supply and demand (with coking coal and iron ore inventories declining) and a rebound in market confidence working in tandem, steel prices began to rise.
On July 18, the Ministry of Industry and Information Technology stated that "the 'Ten Major Industries Stabilization and Growth Plan' will be released soon," a remark that once again heightened market expectations of supply contraction.
On July 22, the National Energy Administration issued a document mandating production halts and rectifications for mines exceeding their output quotas, confirming market expectations of an "anti-inward spiral" strategy in the coal industry. Against this backdrop, coking coal led gains, while black metal prices continued their upward trend.
The recent rise in black metal prices can be understood as the result of a synergy between low industry inventories and improving macroeconomic expectations. Since 2024, reducing inventory levels has been the industry's primary task. As a result, steel products have consistently remained in a state of low stock. Iron ore inventory Although at a high level, it has also seen some decline. In the first half of the year, Coal prices The continuous decline has resulted in Coal Inventory Stuck at upstream mines. Recently, market investor sentiment has improved somewhat, and the industry has begun gradually replenishing its inventories, while mine stockpiles continue to decline.
Looking at the market trends from 2016 to 2018, only the consistent implementation of industrial policies—particularly those aimed at reversing the current scenario of loose supply and demand—can sustain the upward momentum. Currently, the steel industry's low inventory levels are providing crucial support for prices. However, in the medium to long term, the overall supply situation remains relatively ample, underscoring the need for additional, well-coordinated industrial policies to address this challenge effectively.
