Guotai Haitong: Steel demand continues to rise, inventory continues to decline.

Guotai Haitong released a research report stating that it maintains a "buy" rating for the steel industry. In the long term, the increase in industry concentration and promotion of high-quality development are inevitable trends for the future development of the steel industry. Steel companies with product structure and cost advantages will benefit fully; under the backdrop of stricter environmental protection, ultra-low emissions transformation, and carbon neutrality, leading companies' competitive advantages and profitability will become more prominent. Key recommendations: 1) Leading in technology and product structure; 2) Steel leading companies with competitive advantages in low valuation and high dividends, high barrier materials companies, and high-temperature alloy leading companies; 3) Optimistic about upstream resource products with long-term structural advantages. Guotai Haitong's main points are as follows: Demand rose month-on-month, inventory decreased month-on-month Last week (in this report, last week refers to the week of October 20, 2025, to October 24, 2025), the apparent consumption of steel in the five major varieties was 8.92 million tons, an increase of 173,200 tons month-on-month; among them, the apparent consumption of construction materials was 3.1526 million tons, an increase of 110,900 tons month-on-month; the apparent consumption of plate was 5.7747 million tons, an increase of 62,300 tons month-on-month. The total production of the five major types of steel was 8.6532 million tons, an increase of 83,700 tons month-on-month; the total inventory was 15.5485 million tons, a decrease of 274,100 tons month-on-month, maintaining a low level. Last week, the blast furnace capacity utilization rate of 247 steel plants was 84.71%, an increase of 0.44 percentage points month-on-month; the blast furnace capacity utilization rate was 89.94%, a decrease of 0.39 percentage points month-on-month; the electric furnace operating rate was 60.9%, unchanged month-on-month; the electric furnace capacity utilization rate was 52.27%, a decrease of 0.23 percentage points month-on-month. After the holiday, demand growth is expected to recover, and inventory is expected to return to a downward trend. Profit margin decreased month-on-month Last week, imported iron ore inventory at 45 ports was 144.24 million tons, an increase of 1.45 million tons month-on-month. The simulated average gross profit per ton of rebar was 126.1 yuan/ton, an increase of 14.5 yuan/ton month-on-month, and the simulated average gross profit per ton of hot coil was 16.1 yuan/ton, a decrease of 5.5 yuan/ton month-on-month; the profit margin of 247 steel companies was 47.62%, a decrease of 7.79% month-on-month. Looking ahead, the bank expects iron ore production to accelerate, with limited demand growth, iron ore may gradually enter a loose cycle, iron ore prices have limited upside elasticity, and factors limiting steel costs are expected to gradually improve, with the industry's profit center expected to gradually recover. Demand is expected to stabilize, supply is expected to remain tight Demand is expected to stabilize, and supply is expected to remain tight. With the downturn in real estate, the proportion of steel demand in the real estate sector continues to decrease, and the bank expects the negative drag effect of real estate on steel demand to have significantly weakened; demand for steel in infrastructure and manufacturing sectors is expected to grow steadily. In terms of exports, steel exports from January to September maintained a year-on-year growth trend. Overall, the bank expects steel demand to gradually stabilize. From the supply side, currently, over 40% of steel companies are still operating at a loss, and market-driven supply has begun to appear. In terms of policies, the recently published "Steel Industry Stability and Growth Plan (2025-2026)" proposes to "continue to implement production reduction policies, implement annual production control tasks based on supporting the development of advanced enterprises and forcing the exit of backward and inefficient capacity, and promote the dynamic balance of supply and demand." The bank maintains its expectation of supply-side tightening, and the steel fundamentals are expected to gradually improve. Risk warning: Supply-side contraction is less than expected, and demand decreases significantly.