Chinese steelmakers are facing a severe profit squeeze expected to persist through the end of the year. The industry's profit for the first half of 2026 plummeted by 25% year-on-year to $4.4 billion, a decrease of $2 billion from the same period last year. This downturn is primarily attributed to weak demand and high operating costs, which accounted for 95.2% of industry revenue, only marginally lower than the previous quarter. The sales profit margin for the industry stood at a mere 0.86%, indicating significant earnings pressure.
Despite efforts to cut production, profitability remains low. China's crude steel output in the first half of 2026 decreased by 3% year-on-year to 500 million metric tons. However, the average profit per metric ton was only $9, a 29% decrease from a year earlier, highlighting that current margins are insufficient to offset rising operating pressures. The share of profitable mills dropped to 32.03% by early August, with nearly seven out of ten surveyed producers operating at a loss, leading to further anticipated production cuts.
The struggling property sector is a major contributor to the weak demand, as developers show limited interest in new projects, and the recovery in project completions falls short of expectations. While manufacturing demand has shown some resilience, it is not enough to offset the construction sector's woes. The market is caught between firm raw material costs and weak downstream demand, creating a negative feedback loop where lower raw material costs also lead to falling finished steel prices, thus slowing profit recovery. Steelmakers are expected to continue prioritizing production discipline and flexible output adjustments to safeguard marginal profitability.
