China Tightens Steel and Refining Capacity Limits Amid Supply Constraints

China's State Council has directed provincial authorities to enforce stricter capacity limits on steel production and oil refining, aiming to phase out 120 million metric tons of excess steel output and 18 million barrels per day of refining capacity by 2027. This follows a partial success in earlier rounds of overcapacity reduction, where only 60 million tons of steel capacity were retired between 2020 and 2025. The new directive mandates that all new steel projects must meet stringent energy efficiency standards and undergo mandatory environmental reviews. Refineries with outdated catalytic cracking units will be required to upgrade or shut down by 2026. These measures are part of a broader effort to meet carbon neutrality goals and reduce reliance on imported raw materials. Market analysts estimate the capacity cuts could reduce global iron ore demand by up to 25 million tons annually, pushing benchmark prices for seaborne iron ore above $120 per dry metric ton. Meanwhile, reduced refining throughput may tighten crude oil supply, supporting Brent crude (CL=F) at $95 per barrel and gold (GC=F) as a safe-haven asset amid inflationary pressures. Energy and materials companies with significant exposure to Chinese demand—particularly in Australia, Brazil, and the Middle East—are likely to see revised earnings forecasts. Infrastructure and construction sectors globally may face higher input costs, while commodity traders are adjusting inventory strategies to account for tighter supply chains.