Steel surges to four-month high

Steel futures in China rose to CNY 3,170 per tonne in July, the highest in over three months, as expectations of reduced output and increased public investment in construction softened concerns over a previously oversupplied steel market.

The rise in prices reflects shifting sentiment, fueled by signs that Chinese policymakers are serious about reforming industrial policy to address chronic overcapacity in the steel sector. These reforms are part of broader efforts to stabilize key manufacturing industries and align output more closely with actual demand.

Authorities have reiterated their commitment to reducing excess steel production, which has long weighed on global prices and strained margins for domestic producers.

By curbing inefficient or redundant capacity, Beijing aims to support healthier market conditions for steelmakers, particularly in light of the ongoing property crisis that continues to suppress private-sector construction activity. Additionally, growing trade protectionism in key importing countries, such as the United States and those in the EU, is adding further downward pressure on Chinese steel exports, reinforcing the need for internal market adjustments.

Major domestic producers, including Baosteel, have echoed these expectations. The company recently projected that China’s steel output could fall by as much as 50 million tonnes this year, a significant contraction that would help align supply with the more tepid demand landscape.

At the same time, market optimism has been buoyed by the announcement of a massive CNY 1.2 trillion hydropower plant project, which not only supports bids for steel and other ferrous metals but also signals the Chinese government’s readiness to rely on large-scale infrastructure investment as a counter-cyclical economic lever.

This project is part of a broader stimulus strategy aimed at mitigating the adverse effects of a faltering property sector and sluggish domestic demand. Analysts see such state-led initiatives as a key buffer for industrial metals demand in the second half of 2025, potentially helping to offset weaker private sector activity and support a modest recovery in steel prices.