China’s consideration of reducing its crude steel production by 50 million metric tons in 2025 compared to 2024 has created chatter in the market, driving up the prices of iron ore and steel. Nonetheless, uncertainty remains regarding whether the government will mandatorily enforce these cuts. As of mid-March, expectations suggest a surge in China’s pig iron and crude steel production during the peak demand period, given the rush of steel mills to counter potential losses from future government cuts.
Steel mills’ current strategy involves minimizing iron ore inventories, which could lead to a short-term increase in iron ore prices. To meet high demand, many mills are maintaining order bookings for approximately 15-20 days rather than the typical 10 days. This quick uptick in production capacity could lead to more optimism in the iron ore market, more so than in steel prices.
On March 14, China’s National Development and Reform Commission reiterated the need for ongoing production controls for 2025. Although definitive information regarding production cuts is forthcoming, the announcement positively influenced market sentiment. In line with this, Platts reported a 1.5% increase in the 62% Fe Iron Ore Index and slight increases in hot-rolled coil and rebar prices.
Looking ahead, if China enforces the proposed cuts, it could lead to a rise in steel prices while potentially reducing iron ore prices later in the year, as overall market demand might dip slightly due to economic factors. However, implementing such cuts could pose challenges, and if no mandatory reductions occur, a decline of 10-20 million metric tons in output may still happen due to weakened demand. In 2023, no severe output cuts were instituted, resulting in a slight increase in crude steel production.