According to the Zhitong Finance APP, China International Capital Corporation (CICC) released a research report stating that from the government's work report in March emphasizing the regulation of involution-style competition, to the revision and implementation of the Anti-Unfair Competition Law in June, and finally to the proposal of combating involution competition and regulating disorderly competition at the Central Financial Committee meeting in July, there is an expectation for the regulation of steel production in the second half of 2025. Coupled with the inventory cycle at the bottom, a rebound in market expectations is anticipated, leading to an improvement in industry supply and demand. Meanwhile, the deterioration of the raw material landscape further enhances the certainty and elasticity of profit cycle recovery. The steel industry is currently at the left side of a major cycle bottom reversal, and the gradual recovery of industry profits and valuations is promising.

CICC's main viewpoints are as follows:

Event: On July 1, 2025, the sixth meeting of the Central Financial Committee was held, clearly requiring the legal governance of low-price disorderly competition among enterprises, promoting the orderly exit of backward production capacity, and releasing a new signal of "anti-involution" policy at the national level.

The importance of "anti-involution" is continuously rising, and the transformation of the steel supply side is expected to accelerate.

From the government's work report in March emphasizing the regulation of involution-style competition, to the revision and implementation of the Anti-Unfair Competition Law in June, and finally to the proposal of combating involution competition and regulating disorderly competition at the Central Financial Committee meeting in July.

CICC believes that the intensive statements on anti-involution signify the government's attention to the issue of involution, particularly prominent in the steel industry, where low-price competition and homogenization are fierce. In the context of insufficient effective demand, on one hand, this leads enterprises to abandon the improvement of environmental protection levels and product quality in favor of pursuing low costs, ultimately resulting in "bad money driving out good," harming the benefits of high-quality steel mills and hindering industry clearance; on the other hand, enterprises dilute fixed costs through increased production, which exacerbates industry supply surplus, further eroding profits from upstream raw materials, leading to a simultaneous decline in steel product prices and profits, and an expanding loss situation in the industry. The urgency of "anti-involution" in steel is imminent, and with the central government's increasing attention and promotion of anti-involution efforts, the transformation of the steel supply side is expected to accelerate.

Optimistic about the upward resonance of the industry cycle, a bottom reversal may be expected.

CICC believes that the path of this round of steel supply-side transformation is gradually becoming clear: 1) Production will be regulated in a differentiated manner based on efficiency and environmental protection indicators to achieve overall supply control and accelerate the clearance of backward and inefficient production capacity; 2) Promote industry mergers and acquisitions to enhance concentration and improve the pattern of disorderly competition in the industry; 3) Encourage steel companies to upgrade their product structure in line with manufacturing upgrades to avoid homogenization competition.

Looking ahead to the second half of 2025, under the background of anti-involution, production regulation is expected to be implemented, and the inventory cycle at the bottom is anticipated to rebound alongside market expectations, leading to an improvement in industry supply and demand. Meanwhile, the deterioration of the raw material landscape further enhances the certainty and elasticity of profit cycle recovery. The steel industry is currently at the left side of a major cycle bottom reversal, and the gradual recovery of industry profits and valuations is promising.

Focusing on two investment main lines

1. In the long-cycle dimension, better quality means a higher likelihood of achieving absolute returns. Currently, the valuations of core assets in the industry are generally at historical lows and undervalued by the market. The top recommendation is Valin Steel (000932.SZ). Related companies in the industry chain include CITIC Special Steel (000708.SZ), NISCO (600282.SH), and Shougang (000959.SZ)
2. Short-term production regulation and mid-term capacity clearance have a greater marginal impact on rebar steel companies, with related companies in the industry chain including FANGDA S.Steel (600507.SH).

Risk Factors

Unexpected decline in the construction industry chain; unexpected decline in exports; policy implementation falling short of expectations