According to the Zhitong Finance APP, Guotai Junan released a research report stating that steel demand is expected to gradually bottom out; even without considering supply policies, the industry has been experiencing losses for a long time, and market-driven supply clearance has begun to appear. The bank expects the fundamentals of the steel industry to gradually recover. If supply policies are implemented, the contraction speed of industry supply will be faster, and the industry's upward progress will unfold more quickly. The "overweight" rating for the industry is maintained. In the long term, the increase in industry concentration and the promotion of high-quality development are inevitable trends for the future development of the steel industry, and steel companies with product structure and cost advantages will benefit fully; under the backdrop of stricter environmental protection, ultra-low emission transformation, and carbon neutrality, the competitive advantages and profitability of leading companies will become more prominent.

Guotai Junan's main points are as follows:

Demand decreased month-on-month, inventory increased month-on-month

Last week (the "last week" in this report refers to the week from October 6 to October 10, 2025), the apparent consumption of the five major steel varieties was 7.5143 million tons, a decrease of 1.5339 million tons month-on-month; among them, the apparent consumption of construction materials was 2.2262 million tons, a decrease of 1.0846 million tons month-on-month; the apparent consumption of sheet materials was 5.2881 million tons, a decrease of 0.4493 million tons month-on-month. The output of the five major steel varieties was 8.6331 million tons, a decrease of 0.0376 million tons month-on-month; total inventory was 16.0072 million tons, an increase of 1.2786 million tons month-on-month, maintaining a low level. Last week, the operating rate of blast furnaces in 247 steel mills was 84.27%, a decrease of 0.02 percentage points month-on-month; the capacity utilization rate of blast furnaces was 90.55%, a decrease of 0.1 percentage points month-on-month; the operating rate of electric furnaces was 60.26%, a decrease of 1.28 percentage points month-on-month; the capacity utilization rate of electric furnaces was 52.03%, a decrease of 0.89 percentage points month-on-month. Last week, due to the impact of the National Day holiday, demand marginally decreased, and inventory increased month-on-month. However, it is still in the traditional peak season, and the bank expects steel demand to gradually recover, while inventory is expected to gradually decline.

Profitability decreased month-on-month

Last week, the inventory of imported iron ore in Hong Kong was 140.25 million tons, an increase of 0.2422 million tons month-on-month. Last week, the simulated average gross profit per ton of rebar was 167.1 yuan/ton, an increase of 24.3 yuan/ton month-on-month, and the simulated average gross profit per ton of hot-rolled coil was 112.1 yuan/ton, an increase of 29.3 yuan/ton month-on-month; the profitability of 247 steel companies was 56.28%, a decrease of 0.43% month-on-month. Looking ahead, the bank expects iron ore production to accelerate while demand is unlikely to see significant improvement, and iron ore may gradually enter a loose cycle, with limited upward elasticity in iron ore prices. The cost constraints in the steel industry are expected to gradually improve, and the industry's profitability center is expected to gradually recover.

Demand is expected to stabilize, supply maintains contraction expectations

With the downturn in real estate, the proportion of steel demand from the real estate sector continues to decline, and the bank expects the negative drag of real estate on steel demand to have significantly weakened; demand for steel from infrastructure and manufacturing sectors is expected to grow steadily. In terms of exports, the steel export volume from January to August maintained a year-on-year increase. Overall, the bank expects steel demand to gradually stabilize. From the supply side, there are still over 40% of steel companies in the industry experiencing losses, and market-driven supply clearance has begun to appear. From a policy perspective, the recently released "Steel Industry Stabilization and Growth Work Plan (2025-2026)" proposes to "continue to implement the production reduction policy, carry out annual production control tasks according to the principle of supporting the development of advanced enterprises and forcing the exit of backward and inefficient production capacity, and promote dynamic balance between supply and demand." The bank maintains its expectation of a contraction on the supply side, and the fundamentals of the steel industry are expected to gradually recover.

Key Recommendations

1. Baosteel, which leads in technology and product structure; Valin Steel and Shougang, which continuously upgrade their product structures; and low-cost and flexible steel companies Fangda Special Steel and New Steel; 2) The leading special steel companies with undervalued high dividends, CITIC Special Steel and Yongjin Co., Ltd.; high-barrier material companies Jiuli Special Materials, Xianglou New Materials, and Plake New Materials; high-temperature alloy leaders Tunan Co., Ltd. and Fushun Special Steel; 3) With the trend of demand recovery, we are optimistic about upstream resource products with long-term structural advantages, recommending Hebei Steel Resources, Dazhong Mining, Anning Co., Ltd., Ordos, Yongxing Materials, and Baotou Steel.

Risk Warning: Supply-side contraction may be less than expected, and demand may decline significantly