China's potential steel output cuts supporting iron ore, steel markets: sources

Market talk about China potentially reducing its annual crude steel production in 2025 by 50 million mt from 2024 have continued to push up iron ore and steel prices in the country.

However, it remains unclear whether the government will order steel output cuts or whether such a move would be strictly enforced, market participants said March 17.

From mid-March through April, China's pig iron and crude steel production is expected to rise rapidly, they indicated.

The anticipated government-mandated steel output cuts may inadvertently fuel a ramp-up in steel production during the high-demand season, according to some sources. This is to enable steel mills to mitigate potential output losses in the event that the government imposes mandatory cuts later on.

Potential steel output cuts benefit near-term iron ore market

As steel mills currently adopt a strategy of low iron ore inventories, the increase in iron and steel production is likely to result in stronger upward momentum for iron ore prices in the short term compared to steel prices, sources said.

Steel mills typically aim to maintain enough iron ore stocks for about 10 days of production, with some having enough for only three to five days, some sources said. But as the market has entered the high-demand season, mills are generally holding steel order bookings for around 15-20 days of production.

That means a quick boost to steel production can easily affect market sentiment, lending a stronger boost to iron ore prices than steel in the short term.

On March 14, China's National Development and Reform Commission officially called for the continued implementation of crude steel production controls for 2025. Although there is still no substantial information about production cuts, NDRC's call still boosted market sentiment.

In tandem, Platts, part of S&P Global Commodity Insights, assessed 62% Fe Iron Ore Index on March 14 up 1.5% day over day at $105.05/dry mt CFR North China.

Platts also assessed domestic hot-rolled coil and rebar prices up 0.6% at Yuan 3,410/mt ($471/mt) and Yuan 3,240/mt, respectively.

As of mid-March, the average utilization rate at China's blast furnaces reached about 87%, up from 86% in late February and around four percentage points higher year over year, according to trade sources. The increase in blast furnace utilization is expected to gain pace in late March.

Output cut scenarios

If China strictly enforces the 50 million mt output cut in 2025, China's steel prices are expected to see strong gains, while iron ore prices would take a hit later in the year, as total steel demand from both domestic and international markets is likely to fall just 1%-2% year over year, some market participants said.

However, other sources said that implementing such a move in 2025 could be challenging, as a production cut of 50 million mt may impose economic burdens on some local economies.

"If it turns out that there is no mandatory steel output cut of as high as 50 million mt for 2025, there may be still some downside room for steel prices, given sluggish domestic demand and shrinking exports amid rising trade barriers," a mill source said.

According to market sources, without government-mandated steel output cuts, China's crude steel output in 2025 is still likely to fall 10 million-20 million mt year over year in tandem with falling steel demand.

In 2023, given the pressure of economic growth, government-mandated steel output cuts were not implemented, resulting in 0.3% year-over-year increase in China's crude steel output to 1.022 billion mt, National Bureau of Statistics data showed. Similarly, 2024 also saw no mandated steel output cuts.