Chinese steel output in the first quarter of 2026 fell to 247.55 million tons, a 4.6 percent decline from the same period in 2025, according to data from China's National Bureau of Statistics. The contraction accelerated through the quarter.
March bore the sharpest decline. Output that month reached 87.04 million tons, a 6.3 percent year-on-year drop and the lowest March figure in six years. Average daily production also fell below prior-year levels, confirming sustained operating pullbacks rather than calendar effects.
Margin compression drove the decline. Iron ore and raw-material costs rose through Q1, amplified by elevated freight rates tied to shipping restrictions and Middle East tensions, pushing landed costs higher for Chinese buyers. Finished steel prices, constrained by large existing inventories, grew more slowly than input costs. Market estimates show a smaller share of steelmakers operated profitably in March versus the prior year, causing postponements of planned capacity additions.
Demand from construction—the largest end-market for Chinese steel—provided no offset. New housing prices continued to fall, limiting steel consumption from residential projects. The real estate sector contraction that drove 2025's full-year production decline persists into Q1 2026.
Exports collapsed in March. Shipments fell sharply as geopolitical risks reduced demand from certain buyers and new Chinese export licensing rules added compliance friction. The European Union's Carbon Border Adjustment Mechanism added a structural cost disadvantage for Chinese mills selling into European markets, particularly those relying on coal-fired blast furnaces.
Chinese production fell to a seven-year low in 2025. Q1 2026 shows no reversal—output ran below an already-depressed 2025 baseline.
A second-half recovery would require either stabilization in raw-material freight costs if Middle East tensions ease or policy-driven recovery in Chinese construction. Housing prices were still falling in the latest data, and freight markets remain exposed to geopolitical disruption outside Beijing's direct control.
Industry structure reinforces the pressure. Chinese steelmakers are predominantly blast-furnace producers with high fixed costs and limited ability to cut output proportionally when margins compress. Mills tend to run near capacity even at thin or negative margins, keeping finished steel supply elevated and preventing the price recovery needed to restore profitability. The cycle persists until demand rises or a material number of mills close capacity permanently.
The profit squeeze is expected to extend through the end of 2026. Raw-material costs show no clear path lower in the near term, and the demand recovery needed to absorb existing inventories and lift finished steel prices has not materialized.
