China steel output remains at seasonal lows as cost shocks pressure mill margins

Overview

This report is J.P. Morgan's Channel checker on the China steel value chain. The core conclusion is that China's crude steel output has remained at seasonal lows since the start of the year, with the 10-day run rate easing slightly at the end of March; at the same time, iron ore inventories, coking coal costs, energy prices, and ocean freight are jointly affecting steel mill profits and the valuation of mining stocks. Although the report expects steel output to improve seasonally from April to June, it believes cost pressure and downside risks to global growth are not yet fully reflected in European mining and steel stocks.

Core views

First, China's 10-day annualized crude steel output run rate was 945Mt, down 2% from the previous 10 days and 4% YoY, but the late-March slowdown is consistent with historical seasonality ahead of the early-April short holiday. Second, April to June is usually the peak season for steel output, so run rates could still rebound seasonally. Third, China's iron ore port inventories are around 166Mt and at record levels, up about 10% year to date; once destocking begins, it could put short-term pressure on iron ore prices. Fourth, steel mill profits remain in the red and have worsened recently, mainly because domestic coking coal costs are up about 7% year to date and the Middle East conflict has pushed up energy and commodity prices. Fifth, the report keeps a negative view on European mining and steel stocks, arguing that commodity prices and expected 2026 earnings do not yet fully reflect the downside risk to global growth from Middle East events.

Analysis framework

The report uses high-frequency output tracking, year-on-year and period-on-period comparisons, inventory monitoring, cost decomposition, and equity rating mapping to connect China's steel run rate, iron ore inventories, coking coal costs, energy shocks, and freight changes to earnings and valuation risk for mining and steel stocks.

Methodology notes

• Industry high-frequency trackingChannel checker

  Use the 10-day crude steel output run rate to observe China's steel supply pace.

  The report compares China's 10-day average daily crude steel output as of March 31 with the prior 10 days and the same period last year, and contrasts the annualized run rate with the 2025 comparable period to judge whether supply is at a seasonal low or entering an improvement phase.

• Supply-chain cost analysisInput cost pressure framework

  Map changes in coking coal, energy, freight, and iron ore inventories to steel mill margins.

  The report argues that rising coking coal costs, the energy-price shock from the Middle East conflict, the risk of a closure of the Strait of Hormuz, and higher bulk freight rates from Australia, Brazil, and South Africa to China will compress steel mill margins through the cost side and affect mining stock expectations.

• Equity rating mappingJ.P. Morgan rating system

  OW, N, and UW correspond to Buy, Hold, and Sell categories, respectively.

  The report states that in J.P. Morgan's framework, Overweight falls into the Buy category, Neutral into the Hold category, and Underweight into the Sell category; the report covers Rio Tinto, BHP, Anglo American, and Kumba Iron Ore.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• China steel industry

  core monitoring target

  Strengths

  March output increased versus the February estimate, and April to June is typically the seasonal peak for output.

  Weaknesses

  The 10-day run rate is still at a seasonal low, down 4% YoY, and steel mill profits are in the red and have worsened recently.

  Comparison

  The current 10-day annualized run rate of 945Mt is below 986Mt in the same period of 2025.

  Risks

  Demand recovery weaker than expected, export orders disrupted, coking coal and energy costs continue to rise.

• Iron ore

  steel upstream raw material and a profit driver for mining stocks

  Strengths

  Nominal iron ore prices have risen about 10% year to date since the Middle East conflict, and prices are above US$105/ton.

  Weaknesses

  China's port inventories are about 166Mt and at record highs; if destocking occurs, it could pressure short-term prices.

  Comparison

  The report says iron ore prices are broadly flat year to date after stripping out freight effects.

  Risks

  Inventory destocking, elevated freight rates, reduced purchasing appetite due to steel mill losses.

• Coking coal

  key input on the steel mill cost side

  Strengths

  Rising prices reflect supply tightness or a risk premium on the energy and raw-material side.

  Weaknesses

  Domestic coking coal costs are up about 7% year to date, directly compressing steel mill margins.

  Comparison

  Compared with iron ore inventory pressure, coking coal is a more direct driver of higher steel mill costs.

  Risks

  Continued energy-price shocks, risks linked to the Strait of Hormuz, and further upstream price shocks being passed through to producers.

• Rio Tinto plc and BHP Group Ltd London listings

  equity assets with iron ore exposure

  Strengths

  They have iron ore exposure and may benefit from higher nominal iron ore prices.

  Weaknesses

  The report assigns only Neutral, indicating the risk/reward is not especially compelling.

  Comparison

  The rating is better than the Underweight view on Anglo American and Kumba Iron Ore.

  Risks

  Iron ore inventory destocking, global growth downside, commodity prices not fully reflecting Middle East risks.

• Anglo American and Kumba Iron Ore

  mining equity assets

  Strengths

  They have mining and iron ore-related exposure.

  Weaknesses

  J.P. Morgan assigns Underweight, showing a more cautious view on relative performance.

  Comparison

  The rating is weaker than the Neutral view on Rio Tinto and BHP's London listings.

  Risks

  Iron ore price pressure, slower demand, cost shocks, and global growth risks.

• European mining and steel stocks

  sector-level investment view target

  Strengths

  A seasonal rebound in China steel output could support some upstream demand.

  Weaknesses

  The report maintains a negative outlook, arguing that commodity prices and 2026 earnings do not fully reflect downside risk.

  Comparison

  The sector risk call is more cautious than a simple view that output seasonality will improve.

  Risks

  A Middle East event-driven global growth slowdown, high energy costs, worsening steel mill profits, and disrupted export orders.

Key data

• 10-day annualized run rate of China's crude steel output945Mt10-day data as of March 31, 2026, down 2% from the previous 10-day period and 4% YoY.
• 2025 comparable run rate986MtUsed to compare with the current 945Mt run rate, showing that output has been at a seasonal low so far this year.
• Estimated total China steel output for March 202677MtUp 4% from the estimated 74Mt in February 2026.
• China iron ore port inventoriesapprox. 166MtAt record highs and up about 10% year to date.
• Iron ore price change>US$105/ton, up about 10% year to dateThe report says iron ore prices are broadly flat year to date after adjusting for freight.
• Bulk freight rates to Chinaup about 40%-45% year to dateCovers bulk shipping rates from Australia, Brazil, and South Africa to China.
• Domestic coking coal costsup about 7% year to dateThe report sees this as one of the key reasons for worsening steel mill margins in China.
• Current prices of involved companiesAAL.L 3,308p；BHPB.L 2,760p；KIOJ.J 32,578c；RIO.L 7,102pPrices as of the market close on 2026-04-02.

Impact & implications

For the steel value chain, supply may seasonally improve from April to June, but margins will still be squeezed by coking coal, energy, and freight costs. For iron ore, high port inventories raise destocking pressure, which may cap price upside or lead to a short-term pullback. For European mining and steel stocks, J.P. Morgan believes current commodity prices and 2026 earnings expectations do not fully reflect risks from a prolonged Middle East conflict, rising energy costs, slowing demand recovery, and disrupted export orders, and therefore maintains a negative sector view.

Risks

• The Middle East conflict lasts longer than expected, potentially pushing up energy and commodity prices further.
• Risk of closure of the Strait of Hormuz could intensify input price shocks.
• China's domestic demand recovery could weaken.
• Export orders could be disrupted.
• If China's iron ore port inventories are destocked, iron ore prices may face short-term pressure.
• Further increases in coking coal and energy costs could compress steel mill margins further.
• 2026 earnings expectations for European mining and steel stocks may not yet reflect the risk of a global growth slowdown.

What to watch

• Whether China's steel output from April to June enters the peak season as historical seasonality suggests.
• Whether the 10-day crude steel output run rate can continue to recover from 945Mt.
• Whether China's iron ore port inventories of about 166Mt start to destock materially.
• Whether domestic coking coal costs and energy prices continue to rise.
• Whether bulk freight rates from Australia, Brazil, and South Africa to China remain elevated.
• The impact of Middle East conflict and Strait of Hormuz-related risks on China's input prices and export orders.
• Any subsequent rating or earnings-estimate changes for Rio Tinto, BHP, Anglo American, and Kumba Iron Ore.