China’s Ministry of Industry and Information Technology has launched a two-year plan to stabilize growth in the steel sector and tackle overcapacity. The strategy aims for a 4% annual growth in value and sets strict rules on increasing production capabilities. The plan stresses the need to align supply and demand by adjusting output and advancing the industry. It also prioritizes modernization and low-carbon development, mandating the retirement of outdated facilities, such as blast furnaces. By 2025, more than 80% of steel production must comply with ultra-low emissions standards.

Enhancing Supply Control

This initiative enhances supply control, benefiting leading producers and encouraging green investments. While the stricter emissions standards could raise costs temporarily, the emphasis on consolidating operations and controlling capacity is intended to stabilize growth and address overcapacity. China’s new plan marks a significant shift toward stricter supply management in the steel sector. This news is likely to be positive for steel prices, especially after Shanghai rebar futures recently dipped below ¥3,500 per tonne earlier this month. The government’s ban on new production capacity strongly indicates their intention to cut back on production to support the market. As a result, we are preparing for a rise in steel prices by considering long positions in steel rebar and hot-rolled coil futures. The focus on balancing supply and demand should help stabilize prices, reducing risk in the coming weeks. This situation is reminiscent of the price movements seen during the supply-side reforms from 2016 to 2018, which sparked a significant rally.

Outlook For Iron Ore

The outlook for iron ore is more complicated, as production limits could reduce overall demand. However, the shift towards ultra-low emissions will likely boost demand for high-grade ore, increasing the price gap between different grades. We’ve noticed the premium for 65% Fe content ore has risen to over $15 per tonne, making long positions in high-grade futures contracts appealing. The policy favors leading companies, opening opportunities in the equity derivatives market. We should consider purchasing call options on major low-emission producers like Baoshan Iron & Steel, who stand to gain market share from this consolidation. In contrast, smaller, less efficient mills may struggle with rising compliance costs, making them more vulnerable. This announcement follows recent data showing signs of market weakness, making government intervention more probable. The National Bureau of Statistics of China reported that crude steel output for August 2025 was just 85 million tonnes, a slight drop from the previous year. The new plan turns market-driven softness into a structural policy, laying a stronger foundation for a long-term price recovery. Create your live VT Markets account and start trading now.

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