The outlook for China’s steel industry

With iron ore accounting for 98 percent of the raw material in steel, a declining steel market usually sounds alarm bells for iron ore producers, especially when the decline is occurring in China – the world’s largest steel manufacturer.

However, according to Clyde Russell of Thompson Reuters, the Australian iron ore sector need not worry that China’s steel output was down for the third year in 2025, dropping below one billion tonnes for the first time since 2019.
Nor that the decline is expected to continue for several more years.

He claims the downturn is a strategically managed process, designed to boost profitability among China’s domestic producers, in what was once a grossly over-supplied sector.

“It’s not exactly driven by market fundamentals,” Mr Russell said, ahead of the Global Iron Ore and Steel Conference. “The Chinese government wants China to rationalise its steel output. It wants to make sure the existing steel producers remain profitable, something that they were struggling to do when they were producing more than a billion tonnes a year.”

Moreover, the decline will not be sharp, Russell said, and may even fluctuate in parallel with China’s broader economy.

“It’s not going to be a massive drop. It’s not going to go from a billion tonnes in 2024 to 600 million tonnes by 2027. It’ll be very gentle and it might even stabilise; and then have a year where it rises a little bit if their economy does well or drops a little bit. But basically, you’re sort of saying it’s going to be a largely steady to very gentle decline.”

Good news for Australian iron ore

Acknowledgement of China’s steel market strategy should not only dispel concerns among Australian iron ore producers. It should excite them, Russell said.

“It’s actually pretty good news because it means China’s going to be continuing to buy a vast quantity of iron ore. Its share of the global iron ore seaborne market will dip slightly, but not dramatically.

“So, if you’re banking on China buying 1.2 billion tonnes of iron ore a year, that number is going to continue.”

A further trend, Russell said, is that more iron ore will come to market – virtually all of it going into China and displacing both seaborne grades and its own domestic output.

“We are looking at 120 million tonne a year being produced. That’s not expected to reach 120 million tonnes until about 2027, maybe even 2028. But it’s going to start ramping up from this year.

“So, you get 30 to 60 million tonnes this year, maybe 60 to 70, 80 million tonnes next year, that sort of thing. That’s enough of a tonnage to make a difference,” he said.

Compounding that, China is producing less iron ore and is struggling with grades.

“They already have very low-grade iron ore. It would actually make tremendous sense for the Chinese to end their domestic iron ore mining from an economic perspective, because the quality of the ore is not there. It’s expensive to process. You need a lot more energy to extract the iron and make it into pig iron and then into steel.

“So, it doesn’t really make much sense to have it at all. The only reason it’s likely being kept is because the industry employs lots of people and it will disappear jobs. It won’t be a popular decision and will require a contingency plan for that community.”

With these factors in mind, Russell predicts the current decline in China’s iron ore production to continue, with only pockets of the sector spared.

“What’s likely to stay for some time is China’s captive iron ore mines – i.e. mines linked directly to a steel mill. But the problem is, these steel mills are the least profitable, from what I can work out. It really makes very little economic sense for them to keep those mines open, but it does make political and social sense. So, I expect them to persist for some time.

“And besides, we are still going to see this overall trend of lower iron ore production, especially on a contained iron basis, because of their struggles with grade in coming years. So that’s positive for their imported iron ore demand, because they will need to have some to replace lower domestic output.”

Global iron ore production will even the playing field

In comparison with the steel decline, however, China’s drop in iron ore production is only a mildly influential factor in the global market.

That’s because Australia and Brazil – two major iron ore exporters – are rationalising their output, at the same time production from developing Asia is ramping up.

While steel demand is also rising sharply in these same Asian countries, Russell says most will rely on their own domestic iron ore supply.

“The biggest expansion of iron ore and steel across developing Asia will be in India, where you’re looking at maybe 100 – 150 million tonnes of steel making capacity over the next five, six years.

“If India builds according to its plans, a lot of iron ore will of course be needed for its steel plants, but much of them will use Indian ore.”

The extent to which India relies on its own iron ore market, however, will determine its iron ore export potential.

“India is a swing iron ore exporter. When the price is right, it tends to increase shipments. Most of it goes straight to China. But when the price is not right, the Indian producers can’t compete in the seaborne market. But if they are using domestic ore then it won’t be available for exports.

“It does tighten the iron ore market slightly, the seaborne market in Asia. But there’s also a fairly strong chance that India will have to turn to imports if it really does build as much capacity as they’re saying they’re going to. then they will need to import iron ore.”

Meanwhile, Vietnam is increasing its steel production, but the demand for iron ore will be modest.

“The numbers aren’t massive, but they are significant in that they will need more iron ore and are probably going to have to import it. And the same is true for many countries around Asia that are looking at expanding steel capacity. They might not have domestic resources.”

Further insight

Despite the uncertainties around global iron ore demand, Russell says the trends are working in favour of Australian iron ore producers.

“Outside of China, the picture is somewhat actually positive for iron ore. And inside China, it’s not as bad as its decline in steel production might suggest,” he concluded.

Sharing more expert insights, Russell will present at the upcoming Global Iron Ore and Steel Conference, hosted by Informa.

This year’s event will be held 25-26 March 2026 at the Pan Pacific Perth.

Learn more and register your tickets here.