On September 15, China Iron and Steel Association (CISA) issued an initiative calling for self-discipline production control, inventory reduction and stronger resistance to below-cost sales.

This followed a notice released by the National Development and Reform Commission (NDRC) and the State Administration for Market Regulation on September 10, which published detailed guidance on how authorities will assess production costs when investigating suspected cases of disorderly low-price competition in key industrial sectors.

Steel market behavior
The two announcements address different aspects of market behavior, but both are aimed at improving profitability and market order amid a prolonged period of weak demand and depressed steel prices.

The steel industry initiative described current market conditions as characterized by “strong supply, weak demand, low prices and weak profitability.” It noted that domestic steel consumption has continued to decline while inventories held by both mills and traders remain elevated, leading to persistent pressure on prices and margins.

According to China-based industry information providers, less than 10% of steel mills are running at positive profits in mid-September.

Fastmarkets’ price assessments for major steel products showed that prices generally trended upward following China’s supply-side reform launched in 2015. The closure of outdated and inefficient production capacity reduced market supply, supporting steel prices and improving mill profitability, according to a China-based industry analyst.

However, steel prices have gradually declined since 2021, amid weakening demand following the Covid-19 pandemic and a slowdown in global economic growth.

Industry associations argued that while demand remains the primary challenge, supply-side adjustment is necessary to restore market balance. The proposal therefore urged mills to strictly comply with output-control targets, reduce inventories and organize production according to actual market demand.

Cost-based oversight may curb aggressive pricing
The NDRC’s notice focuses on pricing behavior rather than production levels.

Under the new framework, regulators may conduct cost investigations into companies suspected of engaging in disorderly low-price competition. Authorities will primarily calculate costs based on individual company production costs, while industry-average costs may be used as a reference when company-specific calculations are not available.

The document also states that regulators may consider factors such as capacity utilization rates when determining production costs, particularly for companies operating significantly below industry-average utilization levels.

Market participants said the guidance could increase scrutiny of loss-making sales and discourage some mills from pursuing market share through aggressive discounting.

In recent years, periods of oversupply have often resulted in intense price competition among steel sellers, putting additional pressure on industry profitability.

“Some sellers have quoted prices at exceptionally low levels over the past several years, disrupting normal market competition and reducing profitability across the steel supply chain,” a China-based exporter said.

Potential impact across the steel supply chain
If steelmakers respond to the industry’s call for output restraint, the immediate impact is likely to be felt throughout the supply chain.

Lower steel production would reduce consumption of raw materials including iron ore, coking coal and coke. Traders and producers in upstream markets may therefore closely monitor blast furnace operating rates and inventory trends over the coming weeks.

“Demand for lower-grade iron ore and coke may face increasing pressure over the longer term if steelmakers continue to reduce output of commodity-grade steel products and shift toward higher-value steel grades,” the analyst said.

At the same time, reduced output and inventory drawdowns could help slow the accumulation of steel stocks and ease downward pressure on finished steel prices. Market participants have frequently cited high inventories as one factor weighing on sentiment in both spot and futures markets during 2026.

CISA’s proposal also emphasized the principle of “efficiency first” and called on mills to align production decisions more closely with market demand, suggesting a greater focus on profitability rather than volume growth.

Structural shift rather than short-term stimulus
Neither document contains mandatory nationwide production cut targets or direct market intervention measures. Instead, both focus on encouraging more rational market behavior.

The steel industry initiative noted that China’s steel sector has entered a phase of “optimization under declining demand” rather than the expansion phase seen in previous decades. Against that backdrop, the latest measures are likely to be interpreted as part of a broader effort to improve industry profitability and stabilize market conditions rather than stimulate steel demand.

For steel market participants, the effectiveness of the measures will ultimately depend on the scale of production reductions implemented by mills and whether inventory levels begin to decline in the coming months. While the announcements may provide support to market sentiment, most participants expect underlying demand trends to remain the key factor influencing steel prices and supply-chain activity.

“Steel mills have already reduced output of construction steel products such as rebar in response to weak demand, while increasing production of products with relatively stronger demand, such as hot-rolled coil. However, the shift has not been sufficient to eliminate disorderly price competition. Supply of products facing persistently weak demand needs to be reduced further,” a second China-based trader said.

From: Fastmarkets, 17 SEPT 2026.