China will implement export license management for certain steel products starting January 1, 2026, as announced by the Ministry of Commerce. The policy aims to address passive low-price exports due to weakening domestic demand and increasing overseas trade investigations, preventing further escalation of trade conflicts. It is expected to mitigate global steel industry "involution," stabilize domestic steel prices, and signal efforts to optimize supply-side structures.
Key points from Sinolink Securities' analysis include:
1. **Export License Management Effective 2026** On December 12, 2025, the Ministry of Commerce issued a notice (Customs Announcement No. 79 of 2025) imposing export license requirements on certain steel products under HS codes 72 and 7301-7307, covering pig iron, scrap steel, crude steel, and finished products. The policy primarily impacts steel billets and finished steel exports. Market expectations were partially priced in, given earlier rumors and a 2.12% drop in the Wind Steel Index on December 9.
2. **Direct Cause: Preventing Trade Conflict Escalation** From December 2021 to October 2025, China’s steel exports surged 94.4% (monthly volume: 5.03 to 9.78 million tons), but average export prices plummeted 65.5% amid weak domestic demand. Over 2024–2025, 59 anti-dumping cases were filed against Chinese steel exports (covering ~50% of total exports). The new measures seek to curb trade tensions.
3. **Opportunities from Asymmetric Price Elasticity** Export controls enforce volume caps and market segmentation. Globally, curbing dumping during oversupply may aid industry value recovery. Domestically: - Steel prices hover near breakeven (only 36% of 247 sampled mills were profitable as of December 5), with marginal support likely to squeeze high-cost capacity. - Export restrictions could boost price elasticity while shielding firms from foreign tax penalties, benefiting compliant listed companies.
4. **Policy as a Signal Against "Involution"** Historical parallels: - **2007 controls** lifted export prices without disrupting domestic supply-demand balance. - **2014–2015 anti-dumping wave** followed post-2008 overcapacity, prompting 2016–2018 supply-side reforms.
5. **Three Potential Policy Channels to Curb Overcapacity** - **Channel 1**: Ultra-low emission upgrades may force out ~220 million tons of non-compliant capacity (mostly underfunded SMEs). - **Channel 2**: Crackdown on "nominal capacity swaps" (e.g., loopholes like zombie revivals), targeting ~50 million tons of disguised expansion. - **Channel 3**: Tackling data fraud (e.g., overstated finished steel output) to eliminate hidden overcapacity.
**Risks**: Short-term price pressure, macroeconomic deterioration, or delayed supply-side reforms.
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