The world's largest steel market is about to reverse. The Australian government's forecast shows that China's steel output will peak in 2018, and then steel production will shrink next year due to falling domestic demand, and this change will bring greater difficulties to iron ore.

The Australian Ministry of Industry, Innovation and Science said in a quarterly report this week that steel production in mainland China is expected to peak in 2018.

The department said that after reaching a high of 886 million tons, steel production is expected to fall to 861 million tons in 2019 and continue to fall to 842 million tons in 2020. In the same time frame, China's domestic steel demand is expected to decrease by 34 million tons.

China accounts for half of global steel production, and its huge steel industry trends shape the global market.

This year, the Chinese government's measures to curb excess capacity and control pollution have helped to increase profit margins, promote the booming of the steel industry, and record a record high output of steel mills.

Chinese steel mills are the largest buyers of iron ore export markets. The Australian government believes that China's steel production peaks are in stark contrast to the outlook of Australia's largest mining company, such as BHP Billiton.

The Australian Ministry of Industry, Innovation and Science said that the projected decline in steel production in mainland China is “driven by a series of government policies”, including stricter environmental regulations, supply-side reforms to reduce some of the loss-making capacity, and initiatives to drive debt levels down.

The department said that at the same time, due to increased production outside of China, global steel production is expected to remain stable by 2020.