China's steel industry remained under significant earnings pressure in the first half of 2026, with production discipline providing only marginal relief as structural demand weakness and elevated costs continued to erode profitability across the sector, according to data cited by SteelOrbis and sourced from BigMint. The ferrous metal smelting and rolling industry generated revenue of RMB 3.68 trillion ($513 billion) in January through June, a decline of 0.6 percent year on year. Operating costs fell at a slower pace, edging down 0.4 percent to RMB 3.50 trillion ($488 billion), while total profits collapsed 25 percent to RMB 31.77 billion ($4.4 billion), representing a year-on-year deterioration of RMB 14.51 billion ($2 billion).
Although the industry managed to remain in positive territory for three consecutive months between April and June, the cumulative earnings picture reflects a sector struggling to regain its footing. On a monthly basis, industry profit reached RMB 13.6 billion ($1.9 billion) in June, improving by RMB 3.01 billion ($420 million) from May. However, this figure still trailed June 2025 levels by RMB 990 million ($138 million), underscoring that sequential gains have not been sufficient to arrest the broader earnings decline.
China's crude steel output totaled 500 million metric tons in the first half of 2026, down 3 percent year on year, with pig iron and finished steel production also contracting. Output fell across most product categories, with cold-rolled sheets, welded pipes, and ferro alloys among the few exceptions. Despite these cuts, average per-unit profit stood at only RMB 64 per metric ton ($9 per metric ton) during the period, rising RMB 20 per metric ton ($3 per metric ton) or 45 percent from the prior quarter but falling RMB 26 per metric ton ($4 per metric ton) or 29 percent compared to a year earlier.
Such thin margins have left producers with limited financial buffer against ongoing cost pressures. Raw material costs remained the primary constraint on profitability. Operating expenses accounted for 95.2 percent of industry revenue during the first six months, up 0.2 percentage points from the prior year and only marginally lower than the preceding quarter.
The industry's cost-to-profit ratio stood at 0.91 percent, while the sales profit margin reached just 0.86 percent. Both metrics improved slightly from the previous quarter but declined by approximately 0.4 percentage points year on year, reflecting broadly weaker sector earnings. Among China's key steel producers, the pressure was more pronounced.
Their combined crude steel output declined 3.7 percent year on year to 408 million metric tons during the first half of the year. Despite cutting production at a faster rate than the industry average, these producers were unable to generate a meaningful recovery in earnings. Weak steel demand has been the dominant factor limiting any price recovery.
Domestic consumption has increasingly diverged between manufacturing and construction end-markets. While manufacturing demand has demonstrated greater resilience, the construction sector continues to face sustained headwinds. The property market remains the largest drag on steel consumption, with developers showing limited appetite for land acquisitions and new project starts, and the recovery in project completions falling short of expectations.
Infrastructure investment has yet to provide compensating support at a meaningful scale. Although local governments have continued issuing special-purpose bonds, delays between project approval, funding disbursement, and physical construction have meant that steel demand has not materialized in volumes capable of offsetting weakness in the real estate sector. Within manufacturing, traditional industries including construction machinery and steel structures have entered their seasonal slowdown, reducing demand further.
Emerging sectors such as wind power, energy storage, offshore engineering, new energy vehicles, and high-end equipment continue to support demand for flat steel products, but their collective consumption remains insufficient to compensate for declining volumes from traditional industries or to lift overall market sentiment. Conditions weakened further as the market entered its traditional off-season in July. Persistent rainfall in southern China, high temperatures in northern regions, and typhoon disruptions curtailed outdoor construction activity.
End-users adopted a hand-to-mouth purchasing strategy while keeping inventories lean, leaving spot market trading subdued and increasing inventory pressure on distributors. The market was caught between firm raw material costs and weak downstream demand. Iron ore and coke prices had previously provided cost support for steel prices, but end-user demand remained too weak to translate this into price gains.
More recently, raw material prices have begun to soften, with coke having already undergone two rounds of price cuts and further reductions anticipated, while iron ore prices have also retreated. Although lower input costs ease margin pressure for steelmakers, they simultaneously pull down finished steel prices, creating a negative feedback loop that continues to slow profit recovery. Looking ahead, China's broader economy continues to show resilience, supported by steady industrial production, expanding foreign trade, and growth in emerging industries.
Macroeconomic policy is expected to maintain its counter-cyclical orientation, with support targeting domestic demand, industrial upgrading, and key sectors including property, infrastructure, and manufacturing. However, the near-term operating environment for steelmakers is unlikely to improve materially. Producers are expected to continue prioritizing production discipline, expanding higher-value product offerings such as high-end plate and specialty steel grades, and tightening procurement and inventory management.
A sustained recovery in industry profitability will ultimately depend on a meaningful revival in demand from the property and infrastructure sectors alongside continued growth in new energy and advanced manufacturing applications. Until supply and demand rebalance more fundamentally, the sector is likely to remain characterized by narrow margins and ongoing production controls. Source: SteelOrbis / BigMint
Source: steelorbis.com