The downward trend of iron ore costs and exchange rate fluctuations may lead to a further downward movement of steel prices in 2025

With the loose supply of raw materials and the two-way fluctuation of the RMB exchange rate, the steel market is seeking a new balance between cost reconstruction and weak demand.

The steel industry is undergoing a profound structural adjustment. In 2024, the prices of rebar and hot-rolled coil futures showed a fluctuating downward trend, with an annual decline of nearly 1,000 yuan/ton, and the price of the main rebar futures contract fell from 4,055 yuan/ton to 2,988 yuan/ton.

Entering 2025, the market is facing a dual force: on the one hand, the price pressure brought by the downward cost of raw materials such as iron ore and coking coal is released; on the other hand, the structural support of the narrowing decline in real estate and infrastructure demand is difficult to say.

At the same time, the RMB exchange rate fluctuations intensified, directly affecting the cost of imported iron ore, which accounts for more than 80% of China's steel raw materials. The steel market is looking for a new balance point between cost reconstruction and weak demand.

01 Industry trough, deep correction of the steel market in 2024
In 2024, the Chinese steel market has gone through a difficult road of "oscillating downward". From an industrial perspective, price fluctuations throughout the year can be divided into two distinct stages:

The first stage (January-August): a downward trend dominated by loose supply and demand. At the beginning of the year, under the impact of the suspension of infrastructure projects, demand expectations turned from positive to negative. After the Spring Festival, inventories did not decrease but increased. The price of rebar fell from a high of 4,000 yuan/ton to 3,412 yuan/ton at the end of March.

The second stage (September-December): a recovery trend that stopped falling and stabilized. With the shift of domestic and foreign macroeconomic policies to easing, coupled with the active production cuts and "export rush" effects of steel mills, the inventory of the five major steel products was significantly cleared, and the central axis of steel prices slowly moved up.

Weak supply and demand have become the main theme of the market. In 2024, my country's crude steel output will decrease by 3% year-on-year (about 35 million tons), and the apparent consumption of crude steel will decrease by 5.3% year-on-year, an increase of 4.2 percentage points from the previous year.

The demand for steel used in real estate has collapsed, and the construction area has decreased by 12.4% year-on-year, directly dragging down overall consumption. Exports have become an important channel for flood discharge, and the direct export volume of steel is expected to reach 110 million tons, a year-on-year increase of 23%, with obvious characteristics of price-for-volume exchange.

02 New demand situation, the continuous evolution of steel structure in 2025

In 2025, steel demand will enter a "soft landing" stage with a narrowing decline, but the downward trend of total volume is difficult to change. Jinrui Futures estimates that the total crude steel consumption in 2025 is expected to decrease by 0.7% year-on-year, which is an improvement from the 5.3% decline in 2024, but it has not reversed the negative growth trend.

Real estate sector: The policy focus has shifted to "destocking", and the steel consumption in real estate is expected to decrease by 7.7% year-on-year in 2025. Although the renovation of urban villages (1 million units) can partially offset the reduction in steel consumption, the newly started and construction areas will still maintain negative growth.

Infrastructure investment: Fiscal policy easing is expected to drive the recovery of infrastructure steel consumption. However, as the transportation projects of the 14th Five-Year Plan enter the final stage, the underground pipeline transformation has a weak pull on the demand for steel - only about 2.04 million tons of new consumption are added each year, which is less than 0.25% of the national consumption.

Export market: facing double pressure. In 2024, there were 83 overseas anti-dumping cases against my country's steel, involving 19 major export markets3. Combined with the uncertainty of Sino-US trade after Trump took office, crude steel exports are expected to decrease by about 10 million tons in 2025.

Manufacturing has become a key variable. The large-scale equipment renewal policy in 2025 focuses on activating traditional manufacturing, but the growth rate of investment in high-tech manufacturing has slowed down. This structural transformation of "traditional filling and high-end decline" has a complex impact on the demand for plate steel.

03 Cost reconstruction, downward channel for iron ore and coke prices
The loose pattern on the raw material side has become the core driving force for the downward shift of steel costs in 2025. Jinrui Futures predicts that in 2025, iron ore prices will drop to US$85/dry ton, coking coal to RMB 1,060/ton, and coke to RMB 1,410/ton.

The incremental supply of iron ore will be low at first and high at the end. The new production capacity of global mines is gradually released, and China's "energy conservation and carbon reduction" policy will suppress the output of molten iron (the average daily output of molten iron in 2024 has dropped by 3.8% year-on-year)34. Under the background of loose supply and demand, the central price of ore will continue to move downward.

Coking coal and coke face weakening cost support. The Australian floods in 2024 caused a disturbance in the supply of coking coal, but in 2025, as the international energy supply and demand are rebalanced, the price of coke is expected to fall to RMB 1,410/ton. The overall loosening of the cost side provides steel mills with a certain profit recovery space.

It is worth noting that the scrap steel supply chain is being reshaped. The downward trend in real estate investment has led to a decrease in the output of construction scrap steel. In 2024, the daily consumption of Fubao caliber scrap steel fell by 2.8% year-on-year34. The shrinking of scrap steel resources has kept the cost of electric furnace steelmaking high, accelerating the industrial differentiation of "output clearance first electric furnace and then blast furnace".

04 Exchange rate fluctuations, invisible variables in import costs

The two-way fluctuations of the RMB exchange rate have become a key variable affecting the import cost of iron ore. Chinese steel companies are highly dependent on imported iron ore, with an external dependence of more than 80%. Exchange rate fluctuations directly affect the cost of raw material procurement.

When the RMB depreciates, even if the international iron ore dollar quotation remains unchanged, the import cost of domestic steel mills will increase accordingly. When the international ore price soared to US$153 in early 2022, the increase in domestic futures (33%) was significantly lower than the overseas index (49%), which partially alleviated the pressure of imported inflation5.

In 2025, we will face a more complex exchange rate environment. Factors such as the divergence of monetary policies between China and the United States and the uncertainty of Trump's trade policy may exacerbate the fluctuation of the RMB exchange rate. Steel companies need to strengthen exchange rate risk management and use futures tools to lock in costs.

The reform of the pricing mechanism continues to advance. In recent years, the proportion of unit customer positions in iron ore futures of Dalian Commodity Exchange has reached 60%, and more and more steel mills are managing price risks through futures hedging5. The futures and spot markets work together to promote the reform of the iron ore pricing mechanism, which will help weaken the monopoly of overseas indexes.

05 Variety differentiation, the dual structure of rebar and hot-rolled coil
The steel market will continue to have distinct variety differentiation characteristics in 2025:

Construction steel (rebar, etc.): The output fell 40% from the peak in 2020, with an average weekly output of 2.18 million tons and a capacity utilization rate of only 48%. Electric furnace steelmaking continues to lose money, and the market has achieved capacity clearance by suppressing electric furnace profits.

Industrial materials (hot-rolled coil, cold-rolled, etc.): The average weekly output of hot-rolled coil is 3.14 million tons, a slight increase of 0.7% year-on-year. Medium and thick plates and cold-rolled materials benefit from the upgrading of manufacturing industry, with relatively stable profit margins, and high-end varieties such as flowerless galvanized sheets have performed well.

This differentiation stems from the deep transformation of China's economic structure. When the 14th Five-Year Plan shifts the investment focus from construction to manufacturing, the steel consumption structure will be adjusted synchronously - the proportion of construction steel consumption will decrease, while the proportion of industrial steel will increase.

In 2025, as the equipment update of traditional manufacturing industry advances, the resilience of plate demand is expected to continue. However, the policy orientation of "strictly controlling the increase and optimizing the stock" in real estate determines that the demand for construction steel is difficult to improve.

06 Price Outlook, Rhythm Game in the Downward Shift of Steel Price Center in 2025
Combining the changes in both supply and demand, the center of steel price will move further downward in 2025, but the operation rhythm will show the characteristics of high at the beginning and low at the end:

Support factors in the first half of the year: low inventory (the inventory of the five major materials decreased year-on-year), the lag effect of policy easing, and the new ore production capacity has not been fully released. Rebar futures are expected to test the upper edge of the 3,600 yuan/ton range.

Pressure in the second half of the year will intensify: seasonal demand weakens, iron ore supply increases, and export momentum weakens. Prices may test the lower limit of the fluctuation range.

There is a window period for steel mill profit recovery. In the first quarter of 2025, driven by low inventory and marginal improvement in demand, the profit of blast furnace rebar may expand temporarily. However, in the whole year, the supply decline (estimated to be 1.5%) will be smaller than the demand decline, which will restrict the space for profit expansion.

A new balance point in the steel market is taking shape. The futures market has given a clear expectation: the fluctuation range of the main rebar contract in 2025 will be 2,600-3,600 yuan/ton, and the fluctuation range of hot-rolled coil will be 2,700-3,700 yuan/ton.

As the price of iron ore drops to US$85/dry ton and coke falls back to 1,410 yuan/ton, the collapse of raw material costs will drive the central price of steel further downward.

The operating rate of Tangshan billet steel enterprises has dropped to single digits, and finished product inventories continue to be reduced. These micro signals confirm the arrival of a new era - scale expansion gives way to structural optimization, and the output competition ends in value creation. The steel market in 2025 will find a new balance between cost reconstruction and demand reshaping.