Baosteel's Profit Plunge: Navigating the Steel Sector's Storm in 2024

The steel industry’s struggles in 2024 came into sharp focus with Baoshan Iron & Steel (Baosteel) reporting a 38.4% year-on-year decline in net profit to 7.36 billion yuan, marking a stark reversal from the 11.43 billion yuan profit in 2023. This downturn was not merely a temporary blip but a reflection of systemic challenges reshaping the global steel landscape. From collapsing prices to geopolitical headwinds, Baosteel’s performance underscores the precarious balance between cost management and market volatility in one of China’s most vital industries.

The Perfect Storm: Drivers of Baosteel’s Decline

1. Steel Prices in Freefall
Global steel prices tumbled 7.67% year-on-year by Q3 2024, with the China Iron and Steel Association noting a 10% decline in the first quarter alone. This price erosion outpaced reductions in raw material costs, squeezing margins even as coal prices fell by 36.1% early in the year. By late 2024, the gap between falling revenues and stubbornly high operational expenses had become untenable.

2. Demand Collapse: Property and Infrastructure Blues
China’s real estate sector, once the engine of steel demand, entered a prolonged slump in 2024. Weakened sales, delayed construction projects, and tighter credit conditions slashed demand for rebar and structural steel. Meanwhile, infrastructure spending lagged behind expectations, further reducing demand. Together, these sectors accounted for roughly 40% of domestic steel consumption, and their stagnation left Baosteel grappling with oversupply.

3. Supply-Demand Imbalance and Overcapacity
The global steel market faced a brutal oversupply crisis in 2024, with Chinese steelmakers alone reporting a 34.1 billion yuan cumulative loss from January to September. Despite calls for production cuts, domestic mills struggled to curb output, exacerbating price wars. Baosteel’s production figures—12.56 million tons of pig iron and 13.3 million tons of steel in Q3—highlighted the futility of scaling up in a contracting market.

4. Trade Tensions and Geopolitical Risks
Trade barriers and geopolitical instability cast a shadow over Baosteel’s export ambitions. While export volumes rose to 4.66 million tons in the first nine months of 2024, tariffs and trade disputes in key markets limited profitability. The company explicitly cited “rising trade tensions” as a key risk, with global supply chains disrupted by sanctions and regional conflicts.

Quantifying the Fallout

Baosteel’s profit decline accelerated through 2024:
- First nine months of 2024: Net profit fell 29.56% to 5.88 billion yuan.
- Full-year 2024: The 38.4% drop to 7.36 billion yuan marked the lowest annual profit since 2016.

These figures align with broader industry trends. China’s steel sector, which accounts for half the world’s production, faced its worst year since 2015, with overcapacity and weak demand stifling recovery efforts.

Looking Ahead: Hope or Headwinds?

Late 2024 brought a glimmer of hope with China’s September stimulus package, which included infrastructure investments aimed at boosting demand. Additionally, falling coal prices in early 2025—down 50% compared to 2024 peaks—could ease input costs and support margins. Yet, structural challenges linger:
- Overcapacity remains unresolved, with global steel demand projected to grow only 1.5% annually through 2026.
- Trade tensions, particularly with the U.S. and EU, show no signs of abating, risking further export curbs.

Conclusion: A Delicate Balancing Act

Baosteel’s 2024 struggles are a microcosm of the steel industry’s existential crisis. With profit margins compressed by double-digit price declines, weak demand, and trade barriers, the company’s path to recovery hinges on three factors:
1. Demand Revival: A sustained rebound in China’s property and infrastructure sectors could stabilize prices.
2. Cost Discipline: Further cuts in operational expenses, paired with strategic production adjustments, might offset thin margins.
3. Global Trade Dynamics: Mitigating trade tensions and securing export markets will be critical to diversifying revenue streams.

Investors must weigh these variables against the 38.4% profit plunge and the industry’s 34.1 billion yuan cumulative losses. While 2025’s coal price declines offer a lifeline, the structural overcapacity and geopolitical risks suggest caution. For now, Baosteel’s story is a cautionary tale of an industry caught between cyclical downturns and long-term headwinds—a reminder that even giants in steel are vulnerable to the shifting tides of global markets.