- Policy discipline to curb steel overcapacity
- Structural shift toward high-value steel products
Mysteel Global: With China’s National People’s Congress opening its annual session in Beijing on March 5, the 2026 government work report was submitted to the country’s top legislature for deliberation. The policy framework outlined in the 2026 government work report emphasizes economic stability while accelerating structural transformation, Mysteel notes.
For China’s steel sector, the policy direction suggests continued capacity discipline and structural upgrading, while softer raw material costs may help modestly improve the steel sector’s overall profitability, according to Mysteel’s latest analysis.
2026 growth target moderately lower, policy support largely stable
China set its 2026 GDP growth target at 4.5-5%, slightly lower than the previous year. The adjustment reflects more cautious expectations as many provinces have already lowered their growth targets. Meanwhile, the lower bound of 4.5% signals the Chinese government’s determination to prevent a sharp economic slowdown.
Fiscal policy will remain supportive. The planned budget deficit ratio is around 4%, with both the deficit size and total public expenditure rising compared with 2025. Government bond issuance will remain broadly stable, including ultra-long special treasury bonds and local government special bonds. Overall, fiscal policy will be moderately more proactive, but not dramatically expanded.
Monetary policy is expected to remain accommodative. The report prioritizes stabilizing prices and improving monetary transmission, suggesting continued liquidity support. Market expectations point to modest interest rate cuts of about 20-30 basis points during the year, possibly accompanied by targeted reductions in mortgage rates and continued use of instruments such as MLF operations, reverse repos, reserve-requirement cuts, and government bond purchases.
Consumption policy is also shifting. Funding for trade-in subsidies for consumer goods will decline slightly compared with 2025, while greater emphasis will be placed on raising household income and improving public services, including pensions, childcare, education, and healthcare. This indicates a strategic shift from short-term stimulus toward a long-term “income-consumption” cycle.
Another notable policy tool is the issuance of Yuan 800 billion ($115.9 billion) in new policy financial instruments, designed to leverage additional private investment. Authorities estimate that this could generate up to Yuan 9 trillion in investment over three years, supporting infrastructure and manufacturing investment.
Overall, China’s macro policy in 2026 remains broadly consistent with 2025. While the scale of incremental stimulus is limited and may initially fall short of market expectations, clearer implementation pathways could improve policy effectiveness and provide medium-term support for the country’s real economy.
Structural transformation accelerates, domestic demand becomes growth anchor
External uncertainties – including geopolitical tensions and rising trade protectionism are expected to continue weighing on global trade. Against this backdrop, China is increasingly prioritizing domestic demand as the main driver of growth, with the development of a strong domestic market at the center of policy strategy.
As the first year of China’s 15th Five-Year Plan (2026-2030), 2026 places strong emphasis on high-quality development, particularly through technological innovation and green transformation.
The government has identified emerging industries such as artificial intelligence, semiconductors, aerospace, biomedicine, and the low-altitude economy as key investment areas over the next two years.
At the same time, traditional industries are expected to enter a phase of quality improvement and structural upgrading, while high-tech sectors will gradually play a larger role in driving economic expansion.
Environmental policy is also evolving. The 2026 government work report shifts its focus from energy-consumption targets to carbon-emissions targets, aligning more closely with China’s long-term carbon neutrality strategy.
During the 15th Five-Year Plan period, carbon emissions per unit of GDP are expected to decline by 17% cumulatively, with a 3.8% reduction targeted for 2026.
In addition, the Chinese government is accelerating the construction of a national unified market, aiming to curb excessive competition and improve market order. Measures such as production capacity management, higher standards, pricing enforcement, and quality supervision are expected to reduce disorderly competition across various industries.
Overall, China’s economic policy is increasingly focused on clear implementation pathways – improving the business environment, reducing payment delays, and enhancing administrative efficiency – to strengthen confidence among market participants.
Steel sector to continue capacity reduction, see modest improvement in profitability
Given the limited scale of incremental macro stimulus, China’s domestic steel demand in 2026 is likely to continue declining modestly. However, stricter industry discipline and ongoing capacity controls could help alleviate supply pressure.
On the downstream demand side, the policy direction will continue to focus on stabilizing the property market while promoting a new development model. Local governments are expected to further relax home purchase restrictions, expand programs to convert unsold housing into affordable housing, and accelerate urban village redevelopment.
These measures may support a gradual stabilization in housing sales. However, investment and construction activity will likely remain weak in 2026, though the decline pace may slow. Overall, steel demand from the property sector is expected to decline by less than 5% on year in 2026.
In terms of the infrastructure sector, China’s central budget investment and funding for major infrastructure projects will increase slightly. Investment will be directed toward new infrastructure, urban and county-level facilities, and security-related projects.
However, this year’s pipeline of major projects is seen smaller than 2025, which could delay construction starts. As such, steel demand from infrastructure projects may decline by around 2% on year in 2026.
When it comes to the manufacturing industry, the growth momentum in automobiles and home appliances has slowed after two years of expansion. Combined with slightly reduced trade-in subsidies, demand growth for related steel products is expected to moderate.
In the meantime, China’s equipment upgrades will continue to receive policy support, but demand growth for machinery steel may soften slightly this year.
The shipbuilding sector remains a relative bright spot due to strong order backlogs at Chinese shipyards, which will continue to shore up steel demand for the next three years. However, growth in new ship orders has started to slow, and the high base effect may lead to moderate growth deceleration in shipbuilding steel demand this year.
On the supply side, China’s crude steel output is expected to decline by about 10 million tonnes in 2026. Although the steel sector’s large-scale capacity elimination and ultra-low-emission upgrades have largely been completed, ongoing capacity replacement policies and environmental regulations will continue to limit mills’ production expansion.
More importantly, with the sector’s profit margins still hovering around break-even levels, steel producers have limited incentives to significantly increase output.
Meanwhile, China’s steel supply structure is likely to shift. As steel demand from the construction sector weakens, production of rebar and wire rod may decline, while output of flat products such as hot-rolled coil, cold-rolled coil, and plate is expected to increase to meet demand from the manufacturing industry this year.
Policy guidance is also encouraging the development of higher-value steel products, including bearing steel, gear steel, high-temperature alloys, and tool steels used in advanced equipment manufacturing. Chinese steel producers are thereby likely to accelerate investments in high-end production lines and specialty steel capacity.
Overall, the 2026 government work report suggests that China’s steel industry will continue transitioning toward lower output but higher-quality development.
While China’s domestic steel demand is likely to weaken slightly due to slower construction activity, the sector’s tighter supply discipline, structural upgrading, and potentially lower production costs could support a modest improvement in steel mills’ profitability over the course of the year.
Note: This article has been written in accordance with a content exchange agreement between Mysteel Global and BigMint.
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