China Curbs Steel Output, but Familiar Economic Pressures Test Its Mettle

HONG KONG—A two-month fall in China’s steel output, ordered by economic officials, handed Beijing a global showcase for advancing climate goals and controlling commodity markets. A brewing economic slowdown is testing the government’s will to sustain the cuts.

China’s production of crude steel, half the world’s annual total, fell in July by the widest year-on-year margin since the 2008 global financial crisis. Early indicators suggest it might slip again this month. Culled by state inspections and other official curbs at mills nationwide, the usually prodigious flow that is often the subject of global trade and environmental tensions has fallen by 12.5 million metric tons—about twice Britain’s annual total—in July from May’s record high.

The steel cuts have driven global iron-ore prices down 40% since mid-July, delivering China twin triumphs: a show of policy leadership ahead of a major climate summit in Glasgow in November, and a demonstration that it can tamp down rising global commodity prices. Beijing has set a national goal to secure peak carbon emissions by 2030, with an earlier target of 2025 for the steel sector, China’s second-largest such emitter after power utilities.

“We have to resolutely implement the output-cut policy—this is a political issue, and there is no room for bargaining,” said Chen Derong, chairman of Baowu Steel Group, China’s largest producer, at a conference this month. Also this month, climate envoy Xie Zhenhua said China plans to stick to its emissions goals and present them in Glasgow.

But with the economy slowing as Covid-19 surges once more, China’s top brass has begun to provide some wiggle room. A high-level meeting in late July chaired by President Xi Jinping warned against “campaign-style” climate measures. State media weighed in to discourage “unrealistic pledges.”