In-Depth Research | Chinese Steel: Exploring the Path to Transformation and Upgrading of Traditional Industries

Dubbed the “grain” of industry, steel is a foundational industry underpinning the national economy and a critical benchmark used in measuring a country’s industrial development. Today, changes around the world are accelerating alongside the many breakthroughs driving a new wave of technological revolution and industrial transformation. Where does China’s steel industry stand? How competitive is it on the global stage? What new challenges does it face? How best can it navigate the era of digital intelligence? To find answers to these questions, this research team set out on field studies across the country.

I. The path of transformation

In the early years of the People’s Republic of China (PRC), the steel industry was among the weakest and most underdeveloped sectors of the country’s industrial system. Today, China’s crude steel output has ranked first globally for 30 consecutive years, making the country a major force in the global steel industry with its total output reaching 961 million tons in 2025, more than half of the global production. China has achieved sustained innovation and development, profoundly reshaping the cost curves and technological benchmarks of the world’s steel sector. How did it achieve this dramatic transformation?

Production capacity: the historic shift from “expanding scale” to “improving quality”

In 1949, China’s steel output amounted to only 158,000 tons, less than half a day’s production in the US. After the founding of the PRC, China laid out strategic plans to “build three major steel production bases, five medium-sized steelworks, and 18 smaller mills,” seeking to steadily consolidate the foundation of its steel industry. Following the advent of reform and opening up, China’s steel industry underwent rapid development, with crude steel output surpassing 100 million tons in 1996 and ranking first in the world. The industry has continued to expand since, with crude steel output registering an average compound annual growth rate of 9.2% between 2000 and 2020.

After China’s economy entered a phase of focusing on high-quality development, the steel industry took the lead in launching supply-side structural reform. Since the 13th Five-Year Plan period (2016-2020) in particular, the country has achieved notable progress in easing overcapacity—cumulatively reducing crude steel capacity by over 150 million tons and eliminating the production of 140 million tons of substandard steel products. At the same time, it has established a dynamic adjustment mechanism for ensuring the determination of quotas based on individual projects and permitted energy consumption based on efficiency. Through extensive technological and equipment upgrades, process optimization, and adjustments to the logistics layout, China has developed a massive system of steel production capable of maintaining stable supply.

Industry structure: from “small, scattered, and disordered” to “concentrated and coordinated”

China’s steel industry has achieved well-coordinated development through careful and logical planning. It is characterized by the following features.

The interior of the main power generation plant of Chaotan One, the world’s first supercritical carbon dioxide power generator, which began commercial operation at Shougang Shuicheng Iron & Steel (Group) Co., Ltd. in Liupanshui City, Guizhou Province, December 20, 2025. XINHUA / PHOTO PROVIDED BY THE NUCLEAR POWER INSTITUTE OF CHINA UNDER CHINA NATIONAL NUCLEAR CORPORATION

First, the steel sector has seen continued industry concentration. What was previously described as “small, scattered, and disordered,” with numerous small steelworks dispersed across the country and operating with little coordination, has undergone significant change. Through mergers and regrouping, the total number of separate actors has decreased as ultra-large steel enterprises have successively taken shape. As of 2025, the top 10 enterprises in the industry had expanded their market share to 43.1%, an increase of 4.2 percentage points compared to 2020.

Second, the layout of newly-added production capacity has continued to be optimized. Logistics plays a critical role in the steel industry and accounts for a substantial portion of its costs. This is particularly the case for China’s steel sector, which relies heavily on imported ore. Recently-built steelworks cluster in areas with easy access to logistics networks, such as in coastal and riverine areas or regions close to major consumer markets (automotive, machinery, construction, etc.). In 2025, coastal and riverine provinces in east China accounted for 72% of the country’s crude steel output, effectively reducing logistics costs for both raw material imports and product distribution.

Third, resource allocation has continued developing along a globalizing trend. Soon after acquiring the Smederevo Steelworks in Serbia, HBIS Group ended the facility’s seven-year streak of financial losses. With the investment of hundreds of millions of dollars in large-scale technological upgrades, the Chinese group was able to significantly enhance the steelworks’ technical capabilities and overall competitiveness, making it a model for high-quality cooperation in the steel industry under the Belt and Road Initiative.

Products: from rudimentary production to greater variety, top quality, and price competitiveness

At Shanxi Taigang Stainless Steel Co., Ltd., the research team witnessed firsthand steel foil that measures just 0.015 mm in thickness and can be easily ripped apart by hand. This material, once long monopolized by foreign companies and being a bottleneck in Chinese industry, has become a landmark achievement of independent innovation in China’s steel industry. It is now widely used in flexible displays, aviation, aerospace, and many other fields.

At Baosteel, a subsidiary of China Baowu Steel Group Corporation Limited, the research team gained an in-depth understanding of the development process of high-grade non-oriented silicon steel. Critical to the manufacturing of high-efficiency, small-sized, and lightweight motors, this material directly impacts the energy efficiency and real-world performance of new-energy vehicles, high-efficiency home appliances, embodied intelligence, and other cutting-edge products.

In the early 1950s, China had the smelting capacity for just over 100 steel grades, and it could roll only some 400-odd types of steel products. Today, the Chinese steel sector deals with 3,000 types across 22 categories, operating with a self-sufficiency rate of nearly 100% for key varieties of steel products. Its share of the production and application of high-strength, high-performance steel has increased significantly, a progress indicative of the unparalleled comprehensive competitiveness empowering Chinese manufacturing to charge onto the world stage.

Production process: a fundamental transformation from experience-driven to data-and algorithm-driven

Blast furnaces account for about 70% of the total cost of steel production, the temperatures inside which can exceed 2,300 degrees Celsius. In the past, the smelting process had to be monitored in real time by seasoned operators wearing flame-resistant suits and specialized furnace observation goggles. They relied on experience to visually confirm the color and state of the flame and assess carbon temperature and slag formation, adjusting the process accordingly. Any misjudgment could ruin a batch of steel worth tens of thousands, or even hundreds of thousands, of yuan.

Today, of the enterprises the research team visited, nearly 90% have established manufacturing execution systems, energy management systems, and environmental monitoring systems, with robot density reaching 65 units (sets) per 10,000 employees. Intelligent operation has become the norm in the industry, utilizing digitally-controlled smelting, intelligent scheduling, unmanned transportation, precise batching, automated quality inspection, and real-time temperature monitoring. At the Baosteel plant, AI models have been fully deployed for furnace monitoring, with the prediction accuracy of key indicators exceeding 90%. This has reduced the annual cost of each blast furnace by over 10 million yuan.

Green transition: transforming steelmaking under the strictest standards

Green development has become a general consensus for the transformation of the global steel industry. Industry as a whole accounts for about 70% of China’s total carbon emissions, of which the steel sector contributes 15-20%. The green transition of the steel sector therefore has a direct bearing on China’s goals of achieving peak carbon emissions and carbon neutrality. A milestone in this transition came in 2019, when five central departments, including the Ministry of Ecology and Environment, jointly issued the Guidelines on the Implementation of Ultra-Low Emission Standards in the Steel Industry. This marked the start of the largest and most stringent green revolution in global steelmaking history.

At Shougang Qian’an Iron & Steel Co., Ltd., a subsidiary of the Shougang Group, the first steelmaker in China to complete ultra-low emission retrofitting across the entire production process, real-time emission level data was displayed at the environmental control center: particulate matter from key emission sources below 5 mg/m³, sulfur dioxide below 20 mg/m³, and nitrogen oxides below 30 mg/m³. On these three core indicators, China’s ultra-low emission standards are nearly ten times stricter than those currently applied in some developed economies.

As of the end of June this year, full-process ultra-low emission retrofitting has been completed for the production capacity of over 900 million tons of crude steel, placing China’s steel industry at the forefront of global green development.

II. Contemporary challenges

In recent years, some people have labeled the steel sector “overcapacity” and a “sunset industry,” some even suggesting it would be best to leave it to decline in order to redirect resources toward emerging industries. However, this cannot be further from the truth. The steel industry remains a fundamental and strategic pillar of the national economy.

It is the foundation for emerging industries. The 300M steel used in the ultra-high strength landing gear of the C919 large passenger aircraft, the D2 steel for high-speed train wheels, and the corrosion-resistant alloys for deep-sea explorers would have been impossible without breakthroughs in steel materials. Furthermore, steel is also the cornerstone of national security. The steel used in armored vehicles and shipbuilding for the military, special steel types for strategic reserves, and steel for major infrastructure projects all rely on support from the steel industry.

In recent history, the Rust Belt in the US offers a bitter but valuable lesson. The hollowing-out of traditional industries will inevitably trigger a chain reaction leading to regional economic decline, job losses, and waning innovation. For foundational industries underpinning our country’s fundamental interests, we cannot allow unchecked market clearing, disorderly offshoring, or passive industrial decline. Today, the development environment, market dynamics, and competition rules are experiencing profound changes, while, in contrast, the traditional growth dividends driven by massive input of factors of production are diminishing. The demands of the new era require the steel industry to tackle a new set of challenges head-on.

Challenge 1: The imbalance between ample supply and weak demand has yet to be alleviated, while structural disconnects and cutthroat competition persist

On the demand side, China’s steel consumption has peaked in total volume and entered a phase focusing on structural optimization. In recent years, the demand for steel used in construction has declined due to factors such as profound changes in the real estate market and the slowdown in infrastructure investment. At the same time, new demand continues to emerge amidst the transformation and upgrading of the manufacturing sector. In 2025, steel used in manufacturing accounted for approximately 51% of the total steel consumption, surpassing the amount used in construction for the first time in history. This shift in demand means the steel industry must pivot as quickly as possible from real estate-driven growth to manufacturing-driven growth.

On the supply side, China’s steel industry boasts adequate production capacity, yet faces prominent structural problems. First, it is crowded with an excessively large number of market players, which lowers the level of industrial concentration and makes industry self-regulation difficult. Second, some small and medium-sized enterprises cling to the old approach of competing on low prices to pursue higher sales volumes. Cutthroat competition inevitably leads to a vicious circle where the more they produce, the greater their losses become; and in order to make up for the losses, they produce even more. This process exacerbates market volatility. Third, there has yet to be a fully established exit mechanism based on market rules. Steel enterprises, with large assets and huge employment capacity, often function as pillars supporting local economies and are therefore prone to covert protectionism in some regions. As a result, production capacity adjustments lag behind market changes.

Challenge 2: The industry needs to strengthen basic capacities while combating existing weaknesses in certain high-end fields and key materials

The research team found that China’s steel industry still relies on imports for advanced equipment and core components, including servo valves in high-end rolling mills, high-precision sensors, and specialty refractories. Although breakthroughs have been made in the domestic production of some key materials, improvements are still needed in terms of batch-to-batch stability, uniformity, and consistency.

Examining further, one will find that the industry is beset by multiple deep-seated problems. One is insufficient support for basic research: most R&D funds are channeled into short-term technological applications, leaving a relatively small share for basic research.

Another is weak collaboration among manufacturers, universities, research institutes, and end-users: universities, research institutes, and enterprises work in isolation, resources are scattered, and investment is often duplicated. This makes it difficult to efficiently pool efforts toward breakthroughs in basic and generic technologies that span multiple disciplines, demand a long research cycle, and involve high risks.

In addition, inconsistent standards, lack of data sharing, and poor commercialization of research outcomes have slowed progress in disruptive and frontier technologies, impeding the Chinese steel industry’s shift toward the high end of the value chain.

Challenge 3: Steel exports face growing difficulties and risks under the dual pressure of trade barriers and shrinking profit margins

As the international steel market is showing a clear trend toward fragmentation, the external environment for China’s steel exports has become increasingly complex amidst ever-increasing risks and pressures. From 2020 to the first half of 2026, Chinese steel products faced more than 110 original trade remedy investigations. Trade restrictions have expanded from low-end products, such as traditional construction steel and generic steel profiles, to high-tech, high-value-added products, including electrical steel, high-end coated sheets, and pipes for energy projects. For instance, the US Section 337 investigation of carbon and alloy steel imported from China directly affected China’s exports of high-end steel products.

At the same time, infrastructure construction in emerging markets, such as Southeast Asia and the Middle East, has slowed down, triggering a fierce price war over ordinary steel products. In 2025, the price of China’s steel exports stood at only 694 dollars per ton, a decline of approximately 18% compared with 2020, further squeezing profit margins.

Challenge 4: The industry’s heavy reliance on imports for key resources raises concerns regarding industrial chain security and cost control

Domestic iron ore, imported iron ore, and scrap steel are the three major ferrous sources in China. Due to factors such as resource endowments and extraction costs, the production of domestic iron ore falls far short of the demand of China’s steel industry. This has therefore long forced China to rely primarily on imports, with its foreign ore dependence above 80%.

Though the world’s largest iron ore consumer, China has limited influence over prices because its supply is concentrated among a small number of producers. Susceptible to the influence of international political and economic developments as well as financial speculation, imported ore prices may fluctuate to the point of diverging from supply-demand fundamentals.

For instance, the price of imported iron ore soared to 233 dollars per ton in 2021, a 215% increase from the low point in 2019. Calculated using the average iron ore price, this surge added approximately 480 billion yuan to the costs of China’s steel industry, roughly 1.4 times the total profits of key steel enterprises monitored by the China Iron and Steel Association that year. This resulted in a severe imbalance in profit distribution across the industrial chain.

As for scrap steel, China’s steel accumulation has a relatively short history, leaving the scrap supply insufficient for its needs. During the 14th Five-Year Plan period (2021-2025), the annual amount of scrap used in steelmaking was only about 200 million tons on average, accounting for just about 20% of the raw material input.

In general, China’s reserve system of strategic resources for the steel industry remains underdeveloped, and its capacity to cope with potential risks of sudden supply disruptions must be strengthened.

III. A new path for high-quality development

Today, China’s steel industry faces a completely new landscape shaped by three deeply interconnected major variables: the industry’s trend toward long-term capacity reduction and structural adjustment, a wave of transformation empowered by rapid advances in digital technologies such as artificial intelligence, and the imperative of a green, low-carbon transition across society and the economy.

In the current era when global steel production approaches its peak, a new wave of technological revolution and industrial transformation is sweeping across the world. As China imposes tighter constraints in its pursuit of peak carbon emissions and carbon neutrality, more non-government capital is flowing into emerging industries. In the face of such circumstances, will a traditional industry like steel be neglected and marginalized? Will China follow the US in adopting a laissez-faire approach and allow the sector to wither away, creating its own Rust Belt? These are the questions of our times that must be answered. We must seize the development opportunities arising from industrial transformation and upgrading to forge a lasting “steel backbone” for Chinese modernization.

Establishing a new mechanism for dynamic supply-demand balance

Supply-demand balance cannot be achieved simply by issuing administrative orders that impose production limits; rather, it must rely on a long-term mechanism that provides predictability, facilitates self-adjustment, weeds out the incompetent, and rewards the competitive. The key to success is ensuring that inefficient production is phased out, high-quality production prospers, and market competition abides by the rules.

Another measure is to leverage market-based mergers and acquisitions to overhaul and upgrade small and medium-sized enterprises with outdated equipment, substandard environmental and energy performance, and a long streak of financial losses. Reduction and replacement of outdated production capacity should proceed in coordination with quality improvement and layout optimization. In this process, it is essential that we avoid straining local fiscal revenues and hurting employment by haphazardly shutting down plants, while simultaneously preventing inefficient production capacity from continuing operation under any guise.

We should establish differentiated regulation mechanisms, evaluating production with quality, environmental protection, energy consumption, and carbon emissions as core benchmarks. The goal is to ensure practical application of the principle of “planning production according to sales, profits, and cash reserves” and guide enterprises to abandon the old approach of price undercutting while ramping up output to compensate for lost margins.

In areas with intense homogeneous competition, such as flat sheet and construction steel, it is particularly important to foster a consensus on self-regulation for coordination across regions, product categories, and export pacing. The goal is to prevent a “stampede effect,” where the blind production expansion of a few enterprises triggers an industry-wide cycle of overcapacity and losses.

Promoting the integration of a traditional industry with technological innovation

The steel industry is experiencing sharp divergence. For instance, the gross profit margin of silicon steel ranges from 7% to 14%—the highest in the industry, while that of rebar is only a fraction, at 0.3-1.3%. On the demand side, China’s steel industry is shifting from heavy reliance on real estate and infrastructure toward a more diversified structure, with manufacturing emerging as the primary driver and new infrastructure also providing strong impetus.

High-end, non-oriented silicon steel for new-energy vehicles, low-temperature, fatigue-resistant steel plates for wind turbine towers, high-temperature, radiation-resistant pressure vessel steel for nuclear power plants, and high-precision, lightweight structural steel for embodied intelligence devices... they all point to the clear reality: the steel industry faces an urgent need for strategic restructuring and upgrading. To this end, steel enterprises should therefore be guided to transition toward high-performance, specialized, and low-carbon products. They should provide strong support for strategic emerging industries such as high-end equipment, aviation and aerospace, deep-sea engineering, rail transit, and new energy.

Pursuing a differentiated model and coordinated development

Across China’s vast territory, resource endowments, industrial foundations, and market demands vary significantly by region. Planning for the steel industry therefore cannot follow a uniform approach, but rather one grounded in each region’s comparative strengths. This will create a model in which coastal areas continue to build on their strengths, inland areas pursue green development, and the two complement each other.

Ultra-thin 0.1-0.15 mm non-oriented silicon steel with ultra-low iron loss to be shipped at the Fifth Smart Factory of the Silicon Steel Department of Baoshan Iron & Steel Co., Ltd. (Baosteel). July 8, 2026. Baosteel ranks first among listed steel enterprises worldwide in silicon steel output. BAOSTEEL OF CHINA BAOWU STEEL GROUP

On the one hand, the steel sector requires further industry concentration. Given the pressures of rising costs, stricter environmental standards, and heavy technology investments, higher concentration can help foster a strong innovation synergy within China’s steel industry to increase its pricing power. On the other hand, integrated steel plants in coastal areas and mini-mills in inland regions should each leverage their respective strengths and pursue differentiated paths.

With their port access and advantages in scale, coastal and riverside bases should focus on integrated operations to boost quality, efficiency, and the supply capacity of steel products for core manufacturing sectors. Inland regions, by contrast, should explore ways to utilize their unique conditions to create value through differentiation. In particular, areas with a growing inventory of scrap steel and abundant clean energy resources such as hydropower hold the potential to promote the orderly introduction of electrosmelting. This will not only significantly reduce carbon emissions, but also enable the localized recycling of scrap steel, meeting local demand for steel while also easing the cross-region disconnect between supply and demand.

Accelerating green transition to achieve peak carbon emissions and carbon neutrality

In the long run, the green transition will not create a greater burden, but rather present opportunities for the steel industry. Those who take the lead in low-carbon technology will seize an advantageous position in future competition. In the short term, however, the green transition will incur huge investment, span a long cycle, and push up costs. Some forerunners may find themselves at a competitive disadvantage and under extra pressure.

The key to resolving this problem is to implement mechanisms for sharing green premiums. The low-carbon technological renovation, green electricity adoption, and higher scrap-to-ore ratio in steel production have all contributed to rising costs, which, however, are not being reflected in market prices, a disconnect that erodes the willingness of enterprises to embrace green transition.

We must move beyond the current model under which the costs of green transition are borne solely by steelmakers, and instead distribute them in reasonable proportions among raw material suppliers, producers, manufacturers, and consumers. At the same time, we should ensure products made with low-carbon steel receive policy support and realize market value.

Furthering opening up, international cooperation, and exchanges in the steel industry

Past experience has demonstrated that China’s steel industry cannot thrive in isolation from the rest of the world, and the world in turn needs China’s steel for development. With the world’s most developed industrial chain and most competitively priced products, China’s steel industry provides strong support for infrastructure projects all over the world and the industrialization efforts in developing countries. It is important that we work to safeguard a fair and orderly export regime, optimize the makeup of exports, and promote the export of high-value-added products such as high-end silicon steel, steel sheet for automobiles, and steel for energy projects.

By enhancing our capacity to understand international market trends and apply international rules, we can more adeptly respond to trade disputes and more resolutely defend China’s legitimate interests. We should become deeply engaged in setting international standards and advance mutual recognition of Environmental Product Declaration (EPD) platforms across the steel industrial chain to remove carbon barriers. We should make full use of both domestic and international resources, strike a balance between domestic and international markets, and develop a robust, sustainable global supply chain. By doing so, we will help China’s steel industry to steadily improve its capacity for leveraging resources from around the world and open up new horizons for its international growth.

This article was written by Guo Feiran, Jiang Wei, Sun Ning, and Shu Yu.

(Originally appeared in Qiushi Journal, Chinese edition, No. 16, 2026)