Insights 
VT 
China’s Ministry of Industry and Information Technology has introduced a two-year plan aimed at stabilising the steel sector’s growth while addressing overcapacity. The strategy targets a 4% annual value-added growth and enforces strict regulations on expanding production capabilities.
The plan emphasises the need to balance supply and demand through output modifications and industrial advancements. It also places a priority on modernisation and low-carbon development, with a mandate to phase out outdated facilities like blast furnaces. By 2025, over 80% of steelmaking capacity is required to meet ultra-low emissions standards.
Enhancing Supply Control
This initiative indicates enhanced supply control, which supports the margins of leading producers and boosts green investments. Although the enforced emissions standards might increase costs in the short term, the focus on consolidation and capacity controls is designed to stabilise growth and reduce overcapacity overall.
China’s new plan signals a fundamental shift toward supply discipline in the steel sector. We should view this as a bullish catalyst for steel prices, especially after Shanghai rebar futures recently tested lows below ¥3,500 per tonne earlier this month. The government’s strict prohibition on new capacity is a strong signal that they will enforce production cuts to support the market.
Consequently, we are positioning for a rise in steel prices by looking at long positions in steel rebar and hot-rolled coil futures. The plan’s focus on balancing supply and demand should provide a floor for prices, reducing downside risk in the coming weeks. This is reminiscent of the price action we witnessed during the supply-side reforms of 2016-2018, which triggered a significant rally.
Outlook For Iron Ore
For iron ore, the outlook is more complex, as overall production caps could limit total demand. However, the push for ultra-low emissions will increase demand for high-grade ore, likely widening the price spread between different grades. We’ve already seen the premium for 65% Fe content ore widen to over $15 per tonne, and this trend makes long positions in high-grade futures contracts attractive.
The policy explicitly favors leading firms, creating opportunities in the equity derivatives market. We should consider buying call options on major, low-emission producers like Baoshan Iron & Steel, who are set to gain market share from this consolidation. Conversely, smaller, less efficient mills will face margin pressure from rising compliance costs, making them vulnerable.
This announcement comes as recent data already showed signs of market weakness, making government intervention more likely. China’s National Bureau of Statistics reported August 2025 crude steel output at just 85 million tonnes, a slight decrease from the previous year. The new plan effectively turns this market-driven softness into a structural policy, providing a much stronger basis for a sustained price recovery.
