Global Iron Ore Market Dynamics: How China's Steel Sector Reshapes Commodity Demand and Pricing Power

China’s steel industry is at a crossroads, with rising inventories and slowing domestic factory activity creating a paradox: iron ore prices remain resilient despite weakening demand fundamentals. This tension between supply-side policies, export-driven production, and structural economic shifts is redefining the global iron ore market.

Export-Driven Demand Outpaces Domestic Weakness
Chinese steel production in July 2025 fell to 79,700 thousand tonnes, a 4.2% drop from June 2025, while apparent steel consumption in May 2025 plummeted 12.3% year-over-year to 75.57 million tonnes [1]. Yet, steel exports surged to 11.95 million tonnes in May 2025, a 20.2% annual increase, as mills offloaded overcapacity into global markets [1]. This export boom, driven by competitive pricing (e.g., HRC export prices fell 13.3% year-on-year to $442/mt FOB China), has offset domestic demand declines and kept iron ore demand afloat.

Production Policies and Inventory Dynamics
Steel inventories at major Chinese mills rose 4% in mid-August 2025 to 15.7 million tonnes, though they remain 4.8% lower year-on-year [2]. This reflects a strategic balance: mills are cutting domestic output to meet environmental targets but maintaining production for exports. For instance, Tangshan’s temporary production halts ahead of a Beijing military parade in August 2025 initially spooked markets, but the narrower-than-expected restrictions allowed mills to restock higher-grade iron ore (65% Fe) to meet green steel export demands [3].

Structural Challenges: Property Sector and EAF Transition
The property sector, which accounts for 26% of China’s steel consumption, remains a drag. New home sales by top developers fell 16.9% year-on-year in April 2025, with cumulative declines of 10.2% in the first four months of the year [6]. This has pushed property-related steel demand down 8% in 2025, a trend unlikely to reverse soon despite government rate cuts and housing policy revisions. Meanwhile, the global shift toward electric arc furnace (EAF) steelmaking, which relies less on iron ore, poses a long-term threat to demand [5].

Policy Tailwinds and Short-Term Resilience
A ¥870 billion infrastructure stimulus has propped up steel output in transportation and urban projects, temporarily boosting iron ore demand [4]. This, combined with logistical bottlenecks at major producers (BHP, Rio Tinto, Vale) and geopolitical tensions (e.g., 135% EU/US tariffs on Chinese steel), has created a supply-demand imbalance. By August 2025, iron ore prices hit $104/ton, a 4% monthly gain, as mills stockpiled to hedge against production restrictions and rising raw material costs [2].

Investment Implications
The iron ore market is caught between short-term resilience and long-term fragility. While export-driven demand and policy interventions support prices in 2025, structural headwinds—including property sector weakness and the EAF transition—threaten to erode demand. Investors should monitor China’s anti-involution campaign (targeting overcapacity) and global trade policies, which could further reshape pricing power. For now, the market’s ability to absorb higher-grade ore and maintain margins suggests iron ore will remain a strategic asset, albeit with heightened volatility.

Source:
[1] China Steel Production, [https://tradingeconomics.com/china/steel-production]
[2] Iron Ore Price Rebounds as China Demand Concerns Fade, [https://discoveryalert.com.au/news/iron-ore-price-rebound-china-demand-2025/]
[3] China's Steel Export Surge and Its Implications for Iron Ore, [https://www.ainvest.com/news/china-steel-export-surge-implications-iron-ore-demand-2508/]
[4] Iron Ore Market Resilience in 2025: A Strategic Buy Amid Supply Constraints and Robust Steel Demand, [https://www.ainvest.com/news/iron-ore-market-resilience-2025-strategic-buy-supply-constraints-robust-steel-demand-2508/]
[5] China's property woes persist, haunting steel markets, [https://www.spglobal.com/commodity-insights/en/news-research/latest-news/metals/051325-chinas-property-woes-persist-haunting-steel-markets]
[6] Global iron ore market: 2025 outlook, [https://www.fastmarkets.com/insights/global-iron-ore-market-2025-outlook/]