Baoshan Iron & Steel’s Output Cut Forecasts: Navigating China’s Steel Industry Crossroads

Baoshan Iron & Steel Co. (Baosteel), China’s largest listed steelmaker, has sent a stark signal to global markets: a significant reduction in China’s steel production in 2025 is not just probable, but likely. While the company’s leadership stresses that the cuts will not occur in the immediate term—specifically ruling out implementation in the first few months of 2025—the implications for investors are profound. From trade tensions to domestic demand headwinds, here’s how the steel industry’s pivot could reshape markets and investment opportunities.

The Case for Output Cuts: Overcapacity and External Pressures

Baosteel’s projections highlight a 50 million metric ton potential reduction in China’s crude steel output this year, driven by three key factors:
1. Overcapacity: China’s steel production has long exceeded domestic demand, with output peaking at 1.065 billion tons in 2020. The 2024 output of 1.005 billion tons already reflects a 5.6% decline, but further cuts are needed to align supply with demand.
2. Global Trade Frictions: Direct steel exports are projected to drop by 15 million tons in 2025 from 2024’s nine-year high of 110.72 million tons. Indirect exports (e.g., machinery, vehicles) could fall by 20 million tons, as countries like Vietnam and South Korea impose tariffs to counter “cheap Chinese steel.”
3. Domestic Demand Weakness: Baosteel forecasts a 2% decline in domestic consumption, driven by a sluggish real estate sector and broader economic slowdown.

These pressures have prompted the government to prioritize structural reforms over export-driven growth, even as it delays abrupt cuts to avoid market shock.

Export Dynamics: A Shift from Volume to Value?

While direct and indirect exports are set to decline, Baosteel’s strategy includes expanding high-margin exports. The company aims to boost steel exports to 10 million tons annually by 2028, focusing on niche products like automotive steel and specialized alloys. This pivot reflects a shift toward quality over quantity, leveraging its global distribution networks and product diversification.

Yet, the path is fraught with risks. will hinge on whether export markets can absorb these higher-value products without triggering further trade disputes.

Domestic Market Challenges: A 2% Consumption Drop

The 2% decline in domestic steel consumption underscores the vulnerability of sectors like construction and manufacturing. With real estate investment contracting for 13 consecutive months as of early 2025, demand for construction steel—40% of China’s total consumption—remains under pressure.

Baosteel’s Q1 2025 results offer a glimmer of hope: net profit rose 26.4% year-on-year to 2.43 billion yuan, driven by cost efficiencies. A sharp drop in coking coal prices (down 20% in 2024) narrowed input costs faster than steel prices fell. However, profitability faces an uphill battle as raw material prices stabilize and demand remains tepid.

Profitability and Pricing Adjustments

To counter weak demand, Baosteel has already implemented price hikes for domestic steel plates, raising base prices by RMB 100 per ton for most products in March . This move aims to protect margins amid rising production costs for pig iron (output targets for 2025: 48.79 million tons). Yet, the effectiveness of these adjustments depends on whether buyers can absorb higher prices without further reducing orders.

Investment Considerations: Risks and Opportunities

• Stock Performance: Despite the Q1 profit surge, Baosteel’s shares remain volatile. A 5.7% surge to 7.02 yuan in early 2025 reflects optimism about output cuts, but delays could trigger corrections.
• Commodity Markets: A 50 million-ton output cut would tighten steel supply, potentially boosting prices by 5-10%. However, raw material markets like iron ore could suffer, with prices already down 15% year-to-date due to cut rumors.
• Policy Uncertainty: The lack of a clear timeline for cuts creates operational risks for steelmakers. Companies lacking cost discipline or export diversification may struggle.

Conclusion: A Steel Industry in Transition

Baosteel’s outlook paints a clear picture: China’s steel industry is at a crossroads. The 50 million-ton output cut, if realized, would mark a historic shift toward sustainability and structural balance. Investors must weigh the potential benefits of higher steel prices against the risks of prolonged weak demand and policy delays.

Key data points underscore the stakes:
- A 26.4% jump in Q1 net profit signals cost efficiencies, but profitability hinges on exports and domestic pricing.
- The 15 million-ton direct export decline and 2% domestic consumption drop highlight the scale of industry contraction.

For now, the safest bets may lie in companies with export diversification (like Baosteel’s 2028 targets) or exposure to niche steel products. Meanwhile, raw material investors should brace for volatility tied to policy timing. As China reshapes its steel sector, patience—and a focus on fundamentals—will be critical to navigating this pivotal year.