China steel production is recovering on a month-on-month basis, but profit pressure remains pronounced
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China steel production is recovering on a month-on-month basis, but profit pressure remains pronounced
JPMorgan tracking shows that annualized crude steel output for the first 10 days of April reached 996Mt in China, up 5% from the prior 10-day period, but down 2% year-over-year, with steel mill profits still constrained by higher coking coal costs and softer demand.
- The latest 10-day annualized Chinese crude steel output was 996Mt, up 5% from the prior 10-day period and down 2% year-over-year.
- Chinese steel production was up 6% versus the prior 30-day period over the last 30 days, but down 3% year-over-year, with the rebound largely matching post-Lunar New Year seasonality.
- China’s port iron ore inventories are at historically high levels, cited at about 180Mt and up roughly 10% year-to-date.
- Steelmill profits remain negative, mainly under pressure from domestic coking coal costs that are up about 6% year-to-date.
- JPMorgan keeps Rio Tinto and BHP at Neutral, and keeps Kumba Iron Ore and Anglo American at Underweight.
Report interpretation
Overview
This report is JPMorgan’s China steel industry channel checker update, focusing on crude steel output, steel exports, steel and iron ore inventories, coking coal costs, and steelmill profitability. The report argues that Chinese steel production accelerated and improved from March to April and followed normal post-Lunar New Year seasonal patterns, with utilization rates moving from the bottom of the five-year range back toward its five-year midpoint, but year-over-year growth remains negative.
Core views
The core view is: first, Chinese steel production is improving in the short term on a month-on-month basis, but year-over-year is still down, indicating that supply recovery does not necessarily signal strong end-demand recovery. Second, iron ore port inventories remain elevated, and if BHP constrained iron ore inventories are released, this may become a near-term source of downward price pressure. Third, steelmill profits are still negative and remain under pressure due to rising coking coal costs and limited downstream pass-through. Fourth, within its EMEA metals and mining coverage, the report remains Neutral on Rio Tinto and BHP and Underweight on Kumba Iron Ore and Anglo American.
Analysis framework
The report combines high-frequency production tracking, inventory tracking, export seasonality comparisons, and cost-profit analysis, comparing the latest 10-day and 30-day crude steel output against prior periods, year-over-year figures, and the five-year historical range while monitoring iron ore inventories, freight costs, coking coal prices, and steel mill profits for linkage.
Methodology notes
Assesses industry utilization and margin shifts using short-cycle data on output, inventories, exports, and profits.
This framework emphasizes the comparison of month-over-month changes, year-over-year changes, and historical seasonal ranges to distinguish whether output recovery is driven by seasonality or demand improvement.
If upstream energy and raw material costs rise but cannot be passed through downstream, producer profits are compressed.
The report argues that the energy shock is pushing up upstream input costs, while soft domestic demand limits downstream transmission, so steelmill profits may remain under pressure for the coming weeks.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- Chinese steel industryCore investment focus
- Strengths
- Output is recovering on a month-on-month basis, with utilization returning near the midpoint of the five-year historical range.
- Weaknesses
- Still down year-over-year, steelmill profits are negative, and downstream demand transmission remains limited.
- Comparison
- The current recovery appears consistent with post-Lunar New Year seasonality and should not be interpreted as a simple rebound into strong demand.
- Risks
- Rising costs, high inventories, weaker demand, and continued profit pressure.
- Iron oreUpstream raw material for steel production
- Strengths
- Improving China crude steel output can support near-term demand.
- Weaknesses
- Port inventories are at historical highs, while FOB pricing is roughly flat year-to-date.
- Comparison
- Following a sharp rise in freight costs year-to-date, price performance appears weaker after adjusting for transport costs.
- Risks
- Release of BHP constrained inventories could create additional price pressure.
- Coking coalKey steel production input cost item
- Strengths
- Rising energy costs have supported higher coking coal prices.
- Weaknesses
- Higher coking coal costs are compressing steelmill margins.
- Comparison
- Compared with steel demand, coking coal cost rises are transmitted to upstream production costs more quickly.
- Risks
- If downstream demand remains weak, steelmills may be unable to pass on costs, and profit losses may persist.
- Rio Tinto plcMining equity exposed to China steel and iron ore cycles
- Strengths
- Large diversified mining company with meaningful exposure to the iron ore cycle.
- Weaknesses
- Elevated iron ore inventories and steelmill profit pressure may weigh on sentiment.
- Comparison
- The report rates it Neutral, relatively less negative than Kumba Iron Ore and Anglo American.
- Risks
- Iron ore downside risk, steel producer margin pressure, and potential conflicts from investment-banking relationship disclosures.
- BHP Group LtdMining equity impacted by China steel and iron ore demand
- Strengths
- Large mining company with a Neutral rating within coverage.
- Weaknesses
- Potential release of constrained BHP inventories could become a source of price pressure.
- Comparison
- Together with Rio Tinto, it is rated Neutral, above the Underweight-rated names.
- Risks
- Iron ore inventory releases, steelmill losses, freight cost moves, and uncertain China demand.
- Kumba Iron Ore LimitedIron ore mining equity
- Strengths
- Has exposure to iron ore price sensitivity.
- Weaknesses
- The report assigns an Underweight rating, indicating unattractive risk-reward.
- Comparison
- Weaker relative to Rio Tinto and BHP.
- Risks
- Iron ore price declines and high China inventory levels pressure earnings expectations.
- Anglo AmericanDiversified mining equity
- Strengths
- Has exposure across multiple mining assets.
- Weaknesses
- The report assigns an Underweight rating.
- Comparison
- Shares the lower-rated group with Kumba Iron Ore and is weaker than Rio Tinto and BHP.
- Risks
- Weak demand in the steel chain, cost pressure, and falling commodity prices.
Key data
- 10-day annualized China crude steel output996MtData for the 10 days to Apr. 10, up 5% from the prior 10 days and down 2% year-over-year.
- 30-day Chinese steel output change+6% month-over-month, -3% year-over-yearImproved versus the prior 30-day period, but still down year-over-year.
- China steel exports25Mt in Q1 2026Represents about 10% of total output; March 2025 export run-rate was 107Mtpa, near the upper end of historical averages.
- China steel output estimate for 2026about 1,000MtThe chart cites official NBS output and JPMorgan estimates.
- Steel inventories-1% week-over-week, year-over-year flatAs of the week to Apr. 9, total steel inventories were still below the historical seasonal average.
- Iron ore port inventoriesabout 166Mt to 180MtThe text states about 180Mt and up roughly 10% year-to-date; the chart title cites about 166Mt and notes it is at historical highs.
- Domestic coking coal costsabout +6% year-to-dateRising coking coal costs are a key reason for worsening steelmill profitability.
- Freight costsabout +40% to +50% year-to-date from Australia, Brazil, and South Africa to ChinaThe report factors in higher dry-bulk freight costs when assessing FOB iron ore prices.
Impact & implications
For the steel value chain, the month-on-month recovery in output may improve short-term utilization, but high inventories, rising costs, and weak demand imply limited profit recovery. For mining equities, high iron ore inventories and potential stock releases could weigh on price expectations, while ongoing steelmill losses will limit the sustainability of upward moves in raw material prices.
Risks
- Chinese steel demand remains soft, so month-over-month output recovery may be only a seasonal rebound.
- Rising coking coal and energy costs are keeping steelmill profits under pressure.
- High iron ore port inventories may weigh on iron ore prices.
- A potential release of constrained BHP iron ore inventories could amplify near-term downward price pressure.
- Large freight cost swings can distort both delivered-cost interpretation and iron ore price reading.
What to watch
- Whether China crude steel output over the next 10 and 30 days continues to improve.
- Whether steelmill profits can recover from negative earnings.
- Whether China port iron ore inventories decline from historical highs.
- Whether coking coal prices and energy costs continue to rise.
- Whether steel export run-rate stays in its historical high range.
- Whether BHP-related constrained iron ore inventories are released and how that affects prices.