Guotai Haitong believes that maintaining expectations of a contraction in the supply of steel will gradually help repair the industry's fundamentals.

Guotai Haitong released a research report stating that last week, the apparent consumption of five major types of steel was 8.606 million tons, a decrease of 63,300 tons compared to the previous week; among them, the apparent consumption of construction materials was 3.0335 million tons, a decrease of 40,200 tons compared to the previous week; and the apparent consumption of plate materials was 5.5725 million tons, a decrease of 23,100 tons compared to the previous week. It is expected that the accelerated increase in iron ore production and limited demand growth may lead to a gradual entry into a loose cycle for iron ore prices, with limited upward elasticity. Factors constraining the cost of steel production are expected to gradually improve, and the industry's profit center is expected to gradually recover. The industry has been incurring losses since 2022 Q3, with nearly 60% of steel companies still experiencing losses, and market-driven supply clearance has begun to appear. Maintaining expectations of a contraction in the supply side, the fundamentals of the steel industry are expected to gradually improve. Key points from Guotai Haitong: - Decrease in demand and decrease in inventory Last week (referring to November 10th to November 14th, 2025 in this report), the apparent consumption of five major types of steel was 8.606 million tons, a decrease of 63,300 tons compared to the previous week; among them, the apparent consumption of construction materials was 3.0335 million tons, a decrease of 40,200 tons compared to the previous week; and the apparent consumption of plate materials was 5.5725 million tons, a decrease of 23,100 tons compared to the previous week. The production of the five major types of steel was 8.3438 million tons, a decrease of 223,600 tons compared to the previous week; the total inventory was 14.7735 million tons, a decrease of 262,200 tons compared to the previous week, maintaining a low level. Last week, the blast furnace operating rate of 247 steel mills was 82.81%, a decrease of 0.32 percentage points from the previous week; the blast furnace capacity utilization rate was 88.8%, an increase of 0.99 percentage points from the previous week; the electric arc furnace operating rate was 60.9%, an increase of 1.28 percentage points from the previous week; and the electric arc furnace capacity utilization rate was 52.55%, an increase of 0.61 percentage points from the previous week. After the holiday, there was a slight decline, and the inventory continued to decrease. - Decrease in profit margins Last week, the iron ore inventory at 45 ports in China was 151.30 million tons, an increase of 2.31 million tons. Last week, the simulated average gross profit per ton of rebar was 81.40 yuan/ton, an increase of 4.30 yuan/ton, and the simulated average gross profit per ton of hot rolled coil was -16.60 yuan/ton, an increase of 4.30 yuan/ton; the profit margin of 247 steel companies was 38.96%, a decrease of 0.87% compared to the previous week. Looking ahead, it is expected that the acceleration of iron ore production and limited demand growth may lead iron ore to gradually enter a loose cycle, with limited upward elasticity for iron ore prices. Factors constraining the cost of steel production are expected to gradually improve, and the industry's profit center is expected to gradually recover. - Stabilization of demand and maintenance of supply contraction expectations The continuous decline in the real estate sector has led to a decrease in its share of steel demand, and the negative drag of the real estate sector on steel demand is expected to weaken; demand for steel in infrastructure and manufacturing sectors is expected to grow steadily. In terms of exports, steel exports for January to October maintained a year-on-year growth. Overall, it is expected that steel demand will gradually stabilize. Looking at the supply side, the industry has been incurring losses since 2022 Q3, with nearly 60% of steel companies still experiencing losses, and market-driven supply clearance has begun to appear. From a policy perspective, the recently released "Stable Growth Plan for the Steel Industry (2025-2026)" proposes to "continue to implement production reduction policies, implement annual production control tasks in accordance with the principle of supporting the development of advanced enterprises and inducing the exit of backward and inefficient production capacities, and promote the dynamic balance of supply and demand." Maintaining expectations of a contraction in the supply side, the fundamentals of the steel industry are expected to gradually improve. - Maintaining a "Buy" rating In the long run, the increase in industrial 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; in the context of stricter environmental regulations, ultra-low emission transformation, and carbon neutrality, the competitive advantage and profitability of leading companies will be more prominent. Key recommendations: 1) Baoshan Iron & Steel (600019.SH) with leading technology and product structure, Hunan Valin Steel (000932.SZ) and Beijing Shougang (000959.SZ) with continuous upgrade of product structure, Fangda Special Steel Technology (600507.SH) and Xinyu Iron & Steel (600782.SH) as low-cost and flexible steel companies. 2) CITIC Pacific Special Steel Group (000708.SZ) and Yongjin Technology Group (603995.SH) with low valuation, high dividend, and competitive advantages in special steel sector; Zhejiang JIULI Hi-tech Metals (002318.SZ), Suzhou Xianglou New Material (301160.SZ), and POCO Holding (300811.SZ) in high barrier material companies; Jiangsu Toland Alloy (300855.SZ) and Fushun Special Steel (600399.SH) in the high-temperature alloy sector. 3) Under the trend of demand recovery, optimistic about upstream resource products with long-term structural advantages, recommend Hbis Resources (000923.SZ), Dazhong Mining (001203.SZ), Sichuan Anning Iron And Titanium (002978.SZ), Inner Mongolia ERDOS Resources (600295.SH), Yongxing Special Materials Technology (002756.SZ), and Inner Mongolia BaoTou Steel Union (600010.SH). Risk Warning Supply contraction is less than expected, and demand significantly decreases.