China's resilient manufacturing exports support steel sector amid weak local demand

China's steel production remained high, while inventories were low over January-July, helping the domestic steel industry secure higher profit margins, largely driven by strong exports of steel and manufactured goods despite tepid local demand.

Chinese goods exports are expected to remain resilient for the rest of 2025, supported by growing overseas demand from emerging markets, China-based market participants told Platts, part of S&P Global Energy.

They added that this would continue to support steel demand and sustain higher steel production.

China's steel industry saw an aggregate profit of Yuan 64.36 billion ($8.99 billion) over January-July, up from Yuan 1.22 billion in the same period of 2024, data from the National Bureau of Statistics showed Aug. 27.

China's manufacturing sector maintained year-over-year growth in steel demand in August, continuing to support mills' healthy profit margins, several mill sources said, adding that most steel mills are likely to see third-quarter profits surpassing Q2 due to strong performance in July and August.

Resilient exports of manufactured goods

Amid the ongoing downturn in China's property sector, domestic construction steel demand has further declined in 2025, making the manufacturing sector a key driver of local steel consumption.

Some market sources expect year-over-year growth in Chinese manufacturing production and steel demand to slow in the coming months, following a surge in manufactured goods exports in the first half of the year and a high base effect from late 2024.

However, they noted that the export competitiveness of Chinese steel-intensive manufactured goods, together with Belt and Road Initiative efforts, would help sustain China's manufacturing activity and related steel demand despite tariff headwinds.

Over January-July, amid rising tariffs and uncertain trade policies, the export value of Chinese steel-intensive manufactured goods to the US fell 15.66% year over year to $65.672 billion, data from S&P Global Market Intelligence's Global Trade Analytics Suite showed.

These manufactured goods included electrical machinery and equipment and their parts, vehicles, ships, aircraft and railway or tramway locomotives.

However, exports of these goods to other regions -- particularly Southeast Asia, South Asia, Africa and the Middle East -- expanded more rapidly during the first seven months of 2025.

"I think exports of China's manufactured goods -- particularly cars, electrical machinery and ships -- can remain strong in the long run due to their quality and cost advantages," a mill source said.

"China's efforts to promote the Belt and Road Initiative have also boosted infrastructure construction in these countries, driving up demand for Chinese-manufactured goods and steel," another mill source said.

According to these steel mill sources, steel demand from the manufacture of cars, home appliances, ships and wind turbines has remained strong so far this year and is expected to continue supporting the flat steel market in the coming months.

Falling raw material costs

"In addition to the stable demand growth from the manufacturing sector, the strong profits of steel mills so far this year have also been attributed to the significant decline in raw material prices, particularly coking coal," a trade source said.

As the oversupply of coking coal is unlikely to ease for the remainder of 2025, prices may remain low, benefiting steel mills' profits, the source added.

The Platts-assessed Shanxi premium low volatile coking coal prices averaged Yuan 1,301/mt over Jan. 1-Aug. 26, down 36.5% from Yuan 2,049/mt a year earlier.

The Platts-assessed domestic hot-rolled coil prices fell 11.6% to an average of Yuan 3,343/mt over the same period.

Chinese domestic profit margins for HRC have currently reached around Yuan 200/mt, down from over Yuan 300/mt in early August but roughly the same level as in early July, market sources said.

Rising steel production

Steel production is currently rising due to healthy profit margins, but overall supply and demand in the steel market have remained balanced, supported by momentum from export markets for manufactured goods and steel, some steel mill sources said.

According to the China Iron and Steel Association, the daily pig iron and crude steel output of its member mills averaged 1.919 million mt and 2.095 million mt, respectively, over Aug. 1-20, up 0.6% and 1.2% from July's daily averages and up 4.8% and 4.9% year over year.

As of Aug. 20, finished steel inventories at steel mills and major spot markets monitored by the CISA totaled 24.01 million mt, up 6.1% from the end of July but still about 9.8% lower year over year.

Some market sources said rising steel production will make it difficult for steel prices and profit margins to improve further in September, adding that the market is likely to decline again in Q4 under oversupply pressure, which could contract steel mills' profits.