China’s steel market – by far the world’s largest – is flashing multiple warning signs as the property downturn and weaker factory activity have ravaged domestic demand this year, with prices plunging to multiyear lows and mills racking up losses.

The decline in global steel prices is driven by the ongoing real estate crisis in China and, to a lesser extent, by the weak manufacturing activity worldwide. These have resulted in an oversupply of steel, pushing prices down. A situation that echoes the devastating slumps in 2008 and 2015, which led to the consolidation of China’s steel producers.

China’s efforts to revive its construction sector have failed, with new construction starts (a key driver of steel demand) declining by approximately 24% in the first half of 2024, following significant drops in 2022 and 2023. In the forthcoming months, it is unlikely for demand from the property sector to improve because of the significant time lag between land purchase and construction completion. Consequently, many steel mills are expected to cut production further to balance the market and stabilise prices.

Iron ore prices in China have also significantly decreased, as it is the primary ingredient in steel making. Iron ore prices fell further below the USD 100-per-ton mark and major mining companies are likely to reduce their production to prevent iron ore prices from falling too drastically. Shipments from Australia and Brazil already slowed significantly in July.

The world’s biggest steel producer sounded the alarm about an industry crisis in China that carries the potential to ripple around the globe and plunge the sector into a deeper downturn.

“Conditions in China’s steel sector are like a harsh winter that will be longer, colder and more difficult to endure than we expected,” said China Baowu Steel Group Corp. chairman Hu Wangming.

Baowu alone produces about 7% of the world’s steel, and Hu’s stark message will likely be a worry for rivals across Asia, Europe and North America as they grapple with a fresh wave of Chinese exports.

As mills struggle, iron ore inventories are swelling, while reinforcement bar, used in construction, is cheaper than at any time since 2017. It’s increasingly unprofitable to make steel, putting mills under pressure to cut production. Meanwhile, exports are on course to top 100 million tons, the most since 2016.

Baowu’s warning underscores a darkening mood, with iron-ore – the key commodity needed to make steel – tumbling back below $100 a ton.