Waking from a nap at his desk, Xiao, a steel trader from Wuhan in central China, reflects on how, at the end of one of the greatest booms in recent economic history, he is a lucky survivor.
About half of his competitors in this gritty office park, built near the site of China’s first iron works, have gone bust during the country’s three-year-long property crisis. The park itself is overshadowed by the enormous concrete skeleton of an unfinished real estate project.
“The decline was quite severe in the first half of [last] year,” says Xiao, referring to the price of rebar, a steel product used in construction to reinforce concrete. A government pivot towards economic stimulus which began in the autumn has yet to reignite real estate construction, he says. “Demand is still poor.”
Wuhan is the birthplace of China’s steel industry, which rode the country’s meteoric development in recent decades to become the biggest in the world.
The scale of Chinese appetite for steel has been epic. As China built up its cities, according to government data, the country consumed twice as much of the metal in the two decades from 2000 to 2020 as the US did during the entire 20th century.
This massive industrialisation and urbanisation, at a pace the world had never seen before, drove a huge commodities supercycle. It sent prices of raw materials like iron ore and steelmaking coal skyrocketing, and profoundly reshaped the global mining and energy industries.
But that supercycle, which started to wane during the Covid-19 pandemic, has now finally come to an end. Last year China’s steel production fell to a four-year low, and is expected to shrink again this year. The country’s consumption of iron ore, a key ingredient for making steel and iron, declined last year after peaking in 2023, according to Macquarie. There are even some indications that Chinese demand for oil is starting to peak — well before most forecasts said it would.
Steele Li, vice-chair of mining company CMOC, says that the real estate boom that drove the Chinese economy has ended. “That engine is over, and I don’t think it will come back, ever. So China’s economy needs to find a new engine, with similar size,” says Li.
While Chinese demand has been limping along for several years, especially since the pandemic, some had hoped that the government stimulus measures would lead to a new spurt. But the resources industry has now given up hope of another construction boom, like the ones that accompanied earlier stimulus packages.
Experts quibble about the exact timing of the peak in Chinese demand. But as Tom Price, head of commodities strategy at Panmure Liberum, puts it: “The China commodities supercycle is definitely over.”
For the countries and companies that rode the wave of the Chinese supercycle for the past 20 years, it is a profound and at times painful shift.
“Is it the end of an era? It does seem like it,” reflects James Campbell, steel analyst at CRU, a commodity data firm. Even with the recent stimulus measures, he says, “there is not really a way to supercharge steel demand further”.
Within the industry, some executives are hopeful that the end of the China boom is coinciding with the start of a new cycle. Huge investments in clean energy, in China and around the world, have laid the foundation for another, very different kind of commodities boom.
This next phase will require lots of copper for building out electricity grids, data centres, and renewable power — as well as metals such as lithium, cobalt and nickel for electric vehicle batteries.
“We are between supercycles,” says Peter Toth, chief strategy officer at Newmont, a US-listed gold miner, who previously worked at BHP and Rio Tinto. “We are coming out of the China supercycle and we are still on the edge of the next supercycle, which will be driven by electrification, the energy transition and artificial intelligence.”
However, if there is a new boom in commodities, it will take place in a very different global economy — one that is being shaped by competition between Beijing and Washington.
The China cycle was in many ways the apogee of the era of globalisation: Beijing was able to access open markets to feed its economy with iron ore from Brazil, copper from DRC and oil from Saudi Arabia. The demand in the next cycle, however, is more spread out geographically, with dozens of countries vying for the raw materials to build out their own renewable energy and electricity infrastructure.
That dynamic means competition over scarce resources will play a much greater role. Already western countries are racing to build their own supply chains, outside of Chinese control, for critical materials such as cobalt, lithium and copper.
Under the Biden administration, the US government has started to intervene in certain mining deals in Africa, in an effort to steer control of crucial commodities towards US-allied companies. The political tensions around the new boom in commodities could become even sharper in Donald Trump’s new term.
“The biggest challenge in the future is the geopolitics,” says Li, of CMOC. “The world is becoming more divided . . . That’s the fundamental issue.”
Back when the last supercycle started, around 2000, the scale of the demand caught everyone by surprise. “China came along and completely changed everything,” recalls Toth, the mining executive, who joined BHP in 1994.
Mining giants BHP and Rio Tinto each reported more than $100bn in operating profits from iron ore during the 2000-20 period. Some in the mining industry joke that they were scooping money out of the ground.
But now the structural and demographic factors that underpinned that boom — China’s rapid urbanisation and industrialisation — have become much less powerful. On a per capita basis, China has already passed the level of annual steel consumption of the US and other developed countries. The vast migration to cities, in which half a billion people moved from rural to urban settings during the boom years, is starting to slow down.
“Peak steel in China has been reached: structurally there is no realistic growth [in steel demand],” says Marcus Garvey, head of commodities strategy at Macquarie Group. Going forward, he expects China’s steel production will “cycle around” current levels of 1bn tonnes annually, with exports helping to compensate for slack domestic demand.
China’s previous rounds of economic stimulus — including those in 2009, 2013 and 2016 — pumped money into heavy industry and construction, bolstering the steel industry again and again.
But this time is different. Starting in late September, Beijing announced a series of stimulus measures aimed at helping local governments reduce their debt, rescuing the property market, and loosening monetary policy. While some of these are directed at infrastructure or stimulating consumption to stave off an economic downturn, none of them will have the same big impact on steel. Indeed, most economists argue China needs to rebalance its economy towards household consumption and services. Another steel-heavy construction stimulus is the exact opposite of what is needed at this point in its development, they say.
“There have been a lot of stimulus packages over the years that have kept steel demand going,” says Campbell, the CRU analyst. “But what we see now is that they have reached that limit.”
Many Chinese steel mills have turned to exports to try to compensate for weaker demand at home. Last year China’s steel exports reached 111mn tonnes, a nine-year high. But mounting trade tensions, including with the US, mean there is little room to increase exports further.
Others have shifted to produce more flat steel products, which are used in the automotive and manufacturing sectors, and fewer of the long steel products used in construction. Manufacturing, including cars, has grown to account for nearly half of Chinese steel demand.
“This year, the manufacturing sector will remain the major driver to prop up China’s overall steel demand,” says Vivian Yang, head of editorial at MySteel, a Shanghai-based commodity data provider. “But still the property sector will be a major drag.” She forecasts China’s steel consumption will fall 2-3 per cent this year, after dropping 3 per cent last year.
Some steel mills have had to close their doors entirely — and about 50 per cent of Chinese steel mills are losing money, according to a MySteel survey this month.
In the town of Ezhou, near Wuhan, a large privately owned steelmaker, Hongtai Steel, stopped production last year. When the FT tried to visit the plant, a receptionist said “there are no plans to resume production”.
The company’s slogan, written in huge letters on top of its office block, still harks back to happier times — Gang De Shi Li, Tie De Xin Yu, meaning “Steel-like Strength, Iron-clad Integrity”.
For the global steel industry, the rest of the world is not able to pick up the slack left by the decline in China. Although demand is growing in India, the world’s second-largest steel producer, its annual domestic output is still just one-eighth of China’s.
“The world has got to get used to slower growth,” says Campbell, the analyst at CRU. He expects global steel demand growth to slow to 0.6 per cent per annum between now and 2050, compared with an average of 2 per cent annual growth over the past 20 years.
Iron ore prices, which have been trending down, are expected to keep falling. Macquarie’s Garvey expects iron ore to fall to an average of $80 per tonne next year, from around $140 per tonne at the start of 2024.
There is a future for iron ore, but it will look different: demand is expected to shift to the higher grades of iron ore used in steelmaking processes that have significantly lower carbon emissions. Within the Chinese steel industry, the downturn could finally provide the impetus to reduce the overcapacity that has plagued the industry for decades, and speed up the retirement of older, more polluting mills.
“Now there will be a process of supply and demand equilibrium, finding a new level,” says Toth, the mining executive at Newmont. “The low-grade seaborne [iron ore] will come out of the market, and you’ll be left with the high-grade.”
Even as steel mills struggle, there are signs of hope for those in the resources sector more generally — particularly when it comes to copper, the metal that is central to the energy transition.
Near Wuhan, in the town of Huangshi, which literally means “yellow stone”, producers of copper products are busier than ever.
Huangshi claims a long pedigree in copper production — with evidence of mining and smelting dating back to the Bronze Age — and is home to several major smelters today. On a recent visit, a warehouse belonging to Youhe Copper was busy with trucks loading huge coils of copper sheet, coming and going late into the evening. “Business is good this year,” says a staff member.
Outside China, the mining companies that made their fortunes selling materials into the Chinese real estate boom have rapidly been reorienting themselves towards what they hope to be a new copper boom. Last year BHP launched a £39bn bid for Anglo American, primarily to get access to its copper assets. And Rio Tinto splashed out nearly $7bn to scoop up a lithium company, Arcadium, to tap into demand for electric vehicle batteries.
As the energy transition requires more electrical cables, more electric vehicles, and more solar and wind farms, the resulting surge in demand will be huge. Copper demand is expected to increase 50 per cent by 2040, and lithium demand is expected to surge seven-fold by that time, according to the International Energy Agency Net Zero Scenario.
“The only reason these guys are coming up with these strategies is because they know China’s iron ore demand has peaked, and the sector that the iron and steel went into — property and real estate — has also peaked,” says Price of Panmure Liberum.
The new cycle does not revolve around China, but the country is still one of the driving forces. China remains the world’s largest buyer of many raw materials — and will be the world’s biggest steel producer for decades to come. Its dominance in battery materials is even greater: it controls two-thirds of global lithium and cobalt processing.
The critical minerals needed for the energy transition are often more niche than the commodities that drove the real estate boom, and lower value in terms of market size. And the trade war between the US and China is encompassing a widening circle of niche metals. After the US introduced export controls aimed at the Chinese semiconductor industry, China recently restricted its exports of gallium and germanium — which are used in certain semiconductor and defence applications.
Some executives fear that the competition over resources could escalate in a dangerous manner.
“I personally think the next war is going to be a war of metals,” says Hugo Schumann, a mining entrepreneur and chief executive of EverMetal, a Denver-based recycling investment firm. “China has so much power, because they have consolidated all the downstream production of these metals.”
Even if few would go that far, there is a growing recognition that competition over resources will shape the new era for commodities.
“There is this collision between the upcoming critical minerals boom and heightened geopolitical tension in almost every part of the world,” says Thijs Van de Graaf, energy fellow at the Brussels Institute for Geopolitics.
Van de Graaf adds that Trump’s recent comments on Greenland and Canada have big implications for critical minerals. “Under Trump, I expect critical raw materials to become part of a more transactional type of geopolitics.”
While mining companies see grounds for optimism, many executives are a touch nostalgic for the China boom years.
“At its height, the China supercycle in iron ore was something I’ve never seen,” says Toth. “And will never see again in my career.”
Data visualisation by Steven Bernard
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