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At a recent seminar on high-quality collaborative developments in the electrical steel industry, held as a side event of the 13th China International Iron & Steel Congress in Shanghai on Monday September 2, experts warned delegates that the rapid growth in the sector to capitalize on emerging opportunities could also lead to overcapacity in high-end electrical steel products.
Updated IE5 motor efficiency standards in China are expected to drive strong demand across various sectors. High-efficiency motors, essential for energy savings and carbon reduction, are particularly sought after for wind turbines and pumping systems. And as China strives to meet its carbon peak and neutrality goals, the upgrading of motor systems will be critical, according to the experts at the seminar.
“High efficiency and energy savings will be the dominant theme for the electric motor industry over the next decade,” Ruilin Pei, the chairman of INN-MAG New Energy, which produces motors for electric vehicles and rail transit, told delegates at the seminar.
“Upgrading motor systems to meet IE5 efficiency standards is critical for achieving carbon peak and carbon neutrality. This is a significant opportunity for the electrical steel market,” he said
According to Pei, the market for energy-saving motors exceeded 400 billion yuan ($55 billion) in 2023, adding that, by 2025, demand for non-oriented electrical steel is projected to reach 8.50 million tonnes.
He said that much of this demand will come from sectors such as wind power generation and pump motor replacements, while the electric vehicle (EV) industry, although smaller, is also expected to see steady growth.
“By the end of 2025, demand for electrical steel in the EV sector will reach 1.15-1.30 million tonnes, while the high-efficiency motor industry will require even more – up to 8.50 million tonnes of non-oriented electrical steel,” Pei added.
But despite the promising outlook for demand, the rapid expansion of China’s electrical steel sector has raised concerns about potential overcapacity – particularly in terms of high-end products, such as grain-oriented electrical steel. And as China’s supply continues to grow, experts are urging manufacturers to carefully manage production levels to avoid market saturation.
“China dominates global capacity for both grain-oriented and non-oriented electrical steel,” Pei said. “And in 2023, China’s output of grain-oriented electrical steel reached 620,000 tonnes, accounting for 56% of global production, with Baosteel alone producing 500,000 tonnes.
“For non-oriented electrical steel, China accounted for 72% of global production,” he added, “[with] Chinese producers such as Baosteel, WISCO, Ansteel, and Shagang leading the global market.”
According to Pei, the global market for new energy-grade electrical steel reached 1.3 million tonnes in 2023, with Chinese manufacturers accounting for more than half of the output.
And Baosteel (with 360,000 tonnes) and Shougang (230,000 tonnes) were the major producers, he added, with China’s leadership in the field coming at a time when global demand for energy-efficient solutions is growing – particularly as countries work to meet carbon reduction targets.
Chinese manufacturers are well-positioned to capitalize on this demand, but the risk of overcapacity remains, Pei said.
While the market for high-quality electrical steel looks promising, industry insiders called for caution and other experts at the seminar warned that overcapacity was a widespread issue in the steel sector and said the same could happen with high-end electrical steel products if production continues unchecked.
“Due to the decreasing production of IE3 motors, demand for mid- and low-grade non-oriented electrical steel – such as 50W600 and 50W800 – will gradually decrease,” the vice president of the China Electrical Equipment Industry Association, Guo Zhenyan, told delegates.
On August 23, the Ministry of Industry and Information Technology (MIIT) issued a notice suspending the replacement of lost steel capacity.
And experts at the seminar said the steel industry faces significant overcapacity and that the suspension aimed to “hit the brakes” on capacity growth, with plans to revise the policy and release new guidelines in the future.
“The suspension of capacity replacement is an opportunity for us,” Zhuo Chen, adviser at the Technology Development Center of the China Iron & Steel Association (CISA) told delegates. “Managing capacity is something every company needs to consider [and] we must remind the industry to avoid creating new overcapacity issues in high-end product manufacturing.”
As China pushes even harder for electrification, the balance between supply and demand will be crucial for sustaining growth.
“The country is vigorously promoting electrification, driving growth in downstream sectors for electrical steel—whether it’s in power generation, transmission, or consumption. However, my supply growth may outpace demand growth,” Chen said.
Speaking to Fastmarkets on the sidelines of the event, a manager from one of the country’s leading steel producers said that, while China’s electrical steel industry is poised for significant growth, because it directly supports the country’s electrification and energy saving goals, managing capacity carefully will be essential to prevent overproduction in the high-end sectors.
“While opportunities for high-quality electrical steel are clear, the industry must stay cautious of potential overcapacity in the high-end market because demand and supply dynamics will continue to shift,” the manager said.
It is against this backdrop that Fastmarkets is launching new electrical steel prices for the China domestic and India import markets, amid rising calls from market participants for more price transparency into this growing market. Find out more about our electrical steel prices.