Regulatory restrictions should curb excess capacity, but the effect on global prices remains uncertain

China will continue to strictly regulate steel production and prohibit the emergence of illegal new capacities in the period 2026-2030. The decision was confirmed as part of the preparation of the Five-Year Development Plan for the industry, Reuters reports.

The restrictions, first introduced in 2021 to reduce CO2 emissions, were also a response to the prolonged decline in domestic demand caused by the crisis in the real estate market and chronic oversupply.

In the first 11 months of 2025, steel production in China fell by 4% year-on-year, and the annual figure is estimated to fall below 1 billion tons for the first time in six years. The National Development and Reform Commission (NDRC) emphasizes that the raw materials industry, including steelmaking, is facing an imbalance between supply and demand and needs to deepen reforms based on the principle of survival of the fittest.

At the same time, since 2023, China has been actively increasing steel exports, partially compensating for the weak domestic market. This has triggered a wave of trade restrictions in many countries. In response, Beijing announced the introduction of a licensing system for the export of about 300 steel products from 2026.

However, the Japan Iron and Steel Federation is skeptical about the effectiveness of this move. Federation Chairman Tadashi Imai said that the new permits are more likely to be aimed at controlling product quality and are unlikely to significantly limit export volumes or support price recovery. According to him, excess supplies of Chinese steel remain a global problem, particularly due to government subsidies.

Imai, who also heads Nippon Steel, noted that US trade barriers, including increased tariffs, will reduce the company’s profits, although the overall effect has been less than expected. This underscores that even with tighter regulation from China, the impact on the global steel market will remain ambiguous and will depend on actual supply reductions.

In November, Chinese steelmakers reduced steel production by 10.9% compared to the same month last year and by 2.9% compared to the previous month, to 69.87 million tons. The figure has been declining for the sixth consecutive month on a monthly basis and has reached its lowest level since December 2023.