MNI: China's Steel Futures Face Near-term Downward Pressure

China’s steel rebar futures are set to face further downward pressure over the next two-to-three months, with prices potentially sliding below CNY3,000 per tonne as expectations for major stimulus and a sharp demand rebound fade, local analysts told MNI, noting that anticipated “anti-involution” production cuts have also fallen short of earlier hopes.

The May contract on the Shanghai Futures Exchange, recently trading around CNY3,100, is likely to drift lower in the coming months, said Zhu Shanshan, analyst at JLC Network Technology. While policy optimism for 2026 could help support the price level before the Spring Festival, Zhu said any upside would likely be capped near CNY3,200. After the holiday, prices may test CNY3,000 or even fall to CNY2,950 if demand recovery disappoints. (See MNI EM: China's Positive 2026 Policy Tone Aimed At 5% GDP)

“A downward pullback outweighs an upward breakout, unless sudden bullish sentiment emerges from major easing such as a combination of reserve-requirement-ratio cuts and real-estate stimulus,” Zhu said.

While CNY3,000 per tonne acts as a short-term cost floor, upward momentum is constrained by ample supply of iron ore and coking coal, said Xing Yawen, analyst with Huatai Futures Research Institute, adding that traders remain reluctant to undertake large-scale winter stockpiling. 

The May contract closed at CNY3,068 per tonne in Friday morning Asia trading. (See MNI: China's Steel Futures Face Downward Pressure In H2)

CONSUMPTION OUTLOOK

JLC Analyst Guo Yang said policymakers aim to stabilise, rather than significantly stimulate the housing market, as the Central Economic Work Conference this week emphasised city-specific policies to control new supply and reduce inventory, providing weak support for demand of construction steel. Though the meeting also mentioned promoting urban-renewal initiatives, such projects vary in scale and pace, making it difficult to generate explosive demand growth in the short term, he said, adding that steel prices are unlikely to gain additional momentum from the meeting while winter stockpiling, production cuts and raw material prices will play a greater role on near-term prices.

While national projects under the 15th Five-Year Plan may aid steel demand, the impact will be weaker than in previous cycles, Guo Yang said. Emerging sectors such as new energy, aerospace and low-altitude aviation will instead drive incremental demand.

Xing said real estate’s role in steel demand has already dropped sharply, accounting for about 15% this year, down from around 40% in 2020. “Even if the property sector underperforms next year, the overall drag on steel consumption will be limited,” he noted.

Looking to 2026, Xing expects domestic consumption to edge up 0.1% y/y as manufacturing remains resilient amid policy support for domestic demand. Direct steel exports could rise by a net of 8% on strong competitiveness, while total consumption is projected at around 1 billion tonnes this year, despite earlier expectations for up to 20 million tonnes in production cuts. Xing added reductions have been loosely enforced as growth and employment are prioritised.

PRODUCTION CUTS

JLC Analyst Guo Xinjie expects more substantial production cuts next year of 20-30 million tonnes backed by more precise controls and stricter assessments. Beijing’s push to curb “involutionary” competition and promote efficiency-driven output would reinforce reductions, she said.

With many mills operating on thin margins or at a loss, higher willingness for voluntary cuts is also likely, Guo Xinjie added.

Xing, however, said no administrative cuts have been confirmed for 2026 and he expects loss-driven voluntary reductions to have only a limited impact. “Once profits recover, production is likely to rebound,” he said.