--- title: "CITIC Construction Investment: The steel market is in a weak balance state, continue to focus on the special steel main line in 2025" type: "News" locale: "en" url: "https://longbridge.com/en/news/245651876.md" description: "CITIC Construction Investment released a research report indicating that the steel market is currently in a weak equilibrium state, facing low inventory, low prices, low demand, and high supply elasticity. It is expected that the focus will continue on special steel as the main line in 2025. If production is reduced by 50 million tons, crude steel output will be 955 million tons, and the industry is expected to turn from loss to profit, with gross profit per ton recovering to 400 yuan. If production is reduced by 20 million tons, crude steel output will be 985 million tons, with a slight expansion in profit. If production remains stable, the supply-demand imbalance will lead to a deterioration in profit" datetime: "2025-06-23T08:34:03.000Z" locales: - [zh-CN](https://longbridge.com/zh-CN/news/245651876.md) - [en](https://longbridge.com/en/news/245651876.md) - [zh-HK](https://longbridge.com/zh-HK/news/245651876.md) --- # CITIC Construction Investment: The steel market is in a weak balance state, continue to focus on the special steel main line in 2025 According to the Zhitong Finance APP, CITIC Construction Investment has released a research report stating that the current market is in a weak equilibrium state characterized by "low inventory, low prices, low demand, and high supply elasticity." The subsequent trend depends on the interplay between production cuts and the speed of policy implementation. Assuming a production cut of 50 million tons this year, the annual crude steel output would be 955 million tons, with a cumulative reduction of 44 million tons from June to December, resulting in a monthly reduction of over 7 million tons. The industry would shift from losses to profits, with gross profit per ton expected to recover to around 400 yuan. If the actual production cut is 20 million tons, the annual crude steel output would be 985 million tons, with the industry expected to improve slightly, and profits to expand slightly, maintaining gross profit per ton at around 100-200 yuan. If production remains the same as last year, there will be a rebound in output in the second half of the year, leading to an oversupply situation under the backdrop of declining export expectations, resulting in a rapid deterioration of industry profits and ongoing internal competition. ## The main points of CITIC Construction Investment are as follows: **Prices: Since the beginning of the year, steel prices have continuously declined, with severe internal competition, and the industry expects production restrictions to be enforced.** In the first half of 2025, steel prices experienced a significant drop, with core contradictions concentrated on supply-demand mismatches, weakened cost support, and delayed policy effects. In the first quarter, the demand for construction steel significantly declined due to the off-season during the Spring Festival, low temperatures, and shrinking real estate demand. Coupled with the collapse of costs due to falling prices of raw materials like iron ore and coke, steel prices continued to hit bottom. After April, policy expectations warmed up (such as infrastructure stimulus and accelerated issuance of special bonds), leading to a temporary rebound in construction, but the rebound was constrained by high supply pressure and export obstacles. The U.S. raised steel tariffs to 50%, and anti-dumping investigations in Southeast Asia intensified export pressures, while steel mills accelerated production resumption after profit recovery, leaving supply-demand contradictions unresolved. In June, steel prices entered a volatile phase, showing a pattern of "weak reality, strong expectations": actual demand was constrained by weak real estate and limited construction during the rainy season, while policy expectations supported bottom prices. The current market is in a weak equilibrium state characterized by "low inventory, low prices, low demand, and high supply elasticity," with subsequent trends depending on the interplay between production cuts and the speed of policy implementation. If production cut policies are not strictly enforced, rebar and hot-rolled coils may drop below 3,000 yuan/ton, leading to ongoing internal competition in the industry; if crude steel reduction policies are strictly implemented and infrastructure funding is accelerated, combined with cost support from rebounding coking coal prices, industry profits are expected to recover in the second half of the year, which would help enhance local tax revenues and maintain employment. **Supply: Continue to implement crude steel production control and promote "dual control of carbon emissions."** On May 23, 2024, the State Council issued the "2024-2025 Energy Conservation and Carbon Reduction Action Plan," which emphasizes strict implementation of steel production capacity replacement, prohibiting the addition of new steel production capacity under the guise of mechanical processing, casting, and ferroalloys, and preventing the resurgence of "ground steel" capacity. From the summary of relevant policies issued by the central and local governments, the current focus of the steel industry’s development direction includes the following three points: (1) Continue to implement crude steel production control, strictly prohibiting the addition of new steel production capacity under the guise of mechanical processing, casting, and ferroalloys. (2) Vigorously develop high-performance special steel and other high-end steel products, promote the recycling of scrap steel, and support the development of electric furnace short-process steelmaking. (3) Accelerate energy conservation and carbon reduction transformations in the steel industry, and strengthen the demonstration and application of low-carbon smelting technologies such as hydrogen metallurgy. China is accelerating its transformation through ultra-low emission modifications (covering 80% of production capacity by 2025) and the national carbon market mechanism, incorporating steel into the national carbon market in 2024, with the first compliance expected by the end of 2025 Implementing "Dual Control of Carbon Emissions" (Total Amount + Intensity), restricting new capacity in blast furnaces. **Demand: The proportion of steel used in manufacturing continues to rise, approaching 50%** In recent years, with the adjustment of China's economic structure, the proportion of steel used in manufacturing has continued to rise, approaching 50%. Since the beginning of this year, traditional manufacturing has operated steadily, while high-end manufacturing and strategic emerging industries have flourished, particularly in sectors such as new energy vehicles, wind power, photovoltaics, nuclear power, and shipbuilding, which have shown outstanding performance, maintaining rapid growth in production and demand. The stable and improving trend in manufacturing provides solid support for steel demand. The bank estimates that the steel consumption in manufacturing will reach 440 million tons by 2025, maintaining growth. In 2025, a combination of "moderately loose monetary policy + proactive fiscal policy" will be implemented: monetary policy will shift to reserve requirement ratio cuts and interest rate reductions, optimizing structural tools to reduce corporate financing costs; the fiscal policy deficit rate will rise to around 4%, issuing special bonds of 1.5-2 trillion yuan and special bonds exceeding 600 billion yuan, focusing on supporting infrastructure, "two new" initiatives, and livelihood guarantees (pension increases, subsidies for replacing old with new). Under policy coordination, GDP growth in the first quarter was 5.4%, but it faces challenges such as insufficient domestic demand, real estate adjustments, and external risks. In the future, through fiscal and tax reforms, financial market transformation, and the cultivation of new productive forces, the foundation for medium- to long-term high-quality development will be solidified, striving to achieve a growth target of 5% and build momentum for the 14th Five-Year Plan. **Profit: If production restrictions are strictly implemented, profits are expected to recover** Assuming a production cut of 50 million tons this year, the total crude steel output would be 955 million tons, with a cumulative reduction of 6 million tons in the first five months, leading to a cumulative reduction of 44 million tons from June to December. The industry's profitability will improve, with gross profit per ton expected to recover to around 400 yuan. Assuming a production cut of 20 million tons, the total crude steel output would be 985 million tons, and the industry's gross profit is expected to slightly recover, with gross profit per ton maintained at around 100-200 yuan. Assuming production remains the same as last year, a rebound in output in the second half of the year, coupled with a decline in export expectations, will lead to an oversupply situation, with industry profits continuing to decline and intensifying competition. **Investment Evaluation and Recommendations** Investment recommendation for general steel: Since general steel products are mainly used in the construction industry, and the current recovery time for real estate is still unclear, priority can be given to high-dividend, high-return, and leading enterprises in various downstream sectors when allocating assets. It is recommended to pay attention to: Valin Steel, Baosteel, etc., and to continuously monitor the transmission of improvements in real estate sales to construction starts. Investment recommendation for special steel and new materials: Special steel is a policy-supported industry. In China, there is "import substitution" for mid-to-high-end special steel new materials, and "global market share enhancement" externally. Currently, the proportion of mid-to-high-end special steel in China is about 4%, which still lags behind developed countries like Japan and Europe and the United States. With the rapid development of China's mid-to-high-end manufacturing, the demand for mid-to-high-end special steel is expected to grow rapidly, and the valuations of mid-to-high-end special steel companies are likely to increase. Based on the valuations of special steel companies in developed countries, they are mostly at levels of 15-25 times. The rapid development phase of special steel in Japan, Europe, and the United States has passed, while China's mid-to-high-end special steel is still in the growth phase, with applications in the rapidly developing new energy, shipbuilding, and aerospace industries, which should enjoy a certain valuation premium. 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