Guotai Haitong: Steel demand after the holidays is still expected to gradually recover and grow, with the leading competition advantage and profitability becoming more prominent.

Guotai Haitong released a research report stating that steel demand is expected to gradually bottom out; even without considering supply policies, the industry has been in a prolonged period of losses, and market-driven supply clearing has begun to appear. The bank expects the fundamentals of the steel industry to gradually improve. If supply policies are implemented, the industry's supply contraction will be faster, and industry growth will proceed more quickly. The industry maintains a "buy" rating. In the long term, the increase in industrial concentration and promotion of high-quality development are inevitable trends for the future development of the steel industry. Steel enterprises with product structure and cost advantages will benefit greatly; under the background of stricter environmental protection, ultra-low emissions transformation, and carbon neutrality, leading companies' competitive advantages and profitability will be more prominent. Guotai Haitong's key points are as follows: Demand decreased month-on-month, inventory increased month-on-month Last week (referring to the week of October 6th to October 10th, 2025), the apparent consumption of the top five steel products was 7.5143 million tons, a decrease of 1.5339 million tons compared to the previous week; among them, the apparent consumption of construction materials was 2.2262 million tons, a decrease of 1.0846 million tons, and the apparent consumption of plates was 5.2881 million tons, a decrease of 0.4493 million tons. The production of the top five steel products was 8.6331 million tons, a decrease of 0.0376 million tons compared to the previous week; total inventory was 16.0072 million tons, an increase of 1.2786 million tons compared to the previous week, maintaining a low level. Last week, the blast furnace utilization rate of 247 steel mills was 84.27%, a decrease of 0.02 percentage points from the previous week; the blast furnace capacity utilization rate was 90.55%, a decrease of 0.1 percentage points; the electric furnace utilization rate was 60.26%, a decrease of 1.28 percentage points; the electric furnace capacity utilization rate was 52.03%, a decrease of 0.89 percentage points. Last week, influenced by 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 and inventory to gradually decline. Profit margin decreased month-on-month Last week, the imported iron ore inventory at 45 Hong Kong ports was 140.25 million tons, an increase of 0.2422 million tons. Last week, the simulated average gross profit per ton of rebar was 167.1 yuan/ton, an increase of 24.3 yuan/ton, and the simulated average gross profit per ton of hot-rolled coil was 112.1 yuan/ton, an increase of 29.3 yuan/ton; the profit margin of 247 steel companies was 56.28%, a decrease of 0.43%. Looking ahead, the bank expects iron ore production to accelerate, with limited demand increase, entering a loose cycle gradually. The upward elasticity of iron ore prices is limited, and the factors restraining steel costs are expected to gradually improve, and the industry's central profit is expected to gradually recover. Demand expected to stabilize, supply contraction expectations maintained With the downturn in real estate, the proportion of steel demand from the real estate sector continues to decrease, and the bank expects the negative impact of real estate on steel demand to diminish significantly; demand for steel in infrastructure and manufacturing sectors is expected to grow steadily. In terms of exports, steel exports from January to August maintained a year-on-year growth momentum. Overall, the bank expects steel demand to gradually stabilize. From the supply side, more than 40% of steel companies are still operating at a loss, and market-driven supply clearing has begun to appear. In terms of policies, the recently released "Steel Industry Stable Growth Work Plan (2025-2026)" proposes to "continue to implement production reduction policies, implement annual production control tasks based on the principles of supporting the development of advanced enterprises and forcing the exit of backward and inefficient production capacity, and promote the dynamic balance of supply and demand." The bank maintains expectations of supply contraction, expecting the fundamentals of the steel industry to gradually improve. Key recommendations 1) Baoshan Iron & Steel, with leading technology and product structure, Hunan Valin Steel and Beijing Shougang, which continue to upgrade product structure, Fangda Special Steel Technology and Xinyu Iron & Steel with low costs and flexible steel enterprises; 2) CITIC Pacific Special Steel Group and Yongjin Technology Group, low-valuation high-dividend competitive steel leaders; high barrier material companies such as Zhejiang JIULI Hi-tech Metals, Suzhou Xianglou New Material, and POCO Holding; leading high-temperature alloy companies Jiangsu Toland Alloy and Fushun Special Steel; 3) In the trend of demand recovery, it is optimistic about upstream resource products with long-term competitive advantages, recommending Hbis Resources, Dazhong Mining, Sichuan Anning Iron And Titanium, Inner Mongolia ERDOS Resources, Yongxing Special Materials Technology, and Inner Mongolia BaoTou Steel Union. Risk Warning: Supply contraction falls short of expectations, and demand decreases significantly.