Guotai Haitong: Maintaining expectations for a contraction in the supply of steel, fundamental factors are expected to gradually improve.

Guotai Haitong released a research report stating that it maintains a "hold" rating on the steel industry and expects the supply side to continue to shrink, with the steel industry fundamentals expected to gradually improve. In the long run, the increase in industry concentration and the promotion of high-quality development are inevitable trends for the future of the steel industry. Steel companies with product structure and cost advantages will benefit fully; under the background of stricter environmental protection, ultra-low emission transformation, and carbon neutrality, the competitive advantages and profitability of leading companies will become more prominent. Key points of Guotai Haitong include: Demand decreased month-on-month, inventory decreased month-on-month Last week (referring to the week of December 15 to December 19, 2025) the apparent consumption of the top five varieties was 8.3528 million tons, a decrease of 0.53% month-on-month and 4.06% year-on-year; among them, the apparent consumption of construction materials was 2.895 million tons, an increase of 68,400 tons month-on-month; and the apparent consumption of plate material was 5.458 million tons, a decrease of 112,800 tons month-on-month. The output of the top five varieties of steel was 7.9797 million tons, a decrease of 1.02% month-on-month; total inventory was 12.9478 million tons, a decrease of 2.8% month-on-month, maintaining a low level. According to Mysteel data, last week the capacity utilization rate of blast furnaces in 247 steel mills across the country was 78.47%, a decrease of 0.16 percentage points from the previous week; the capacity utilization rate of blast furnaces in 247 steel mills across the country was 84.93%, a decrease of 1 percentage point from the previous week. Inventory continues to decline. Profit margin decreased month-on-month Last week, the iron ore inventory at 45 Chinese ports was 155.13 million tons, an increase of 810,000 tons month-on-month, reaching a new high since March 25, 2022. The average gross profit per ton of simulated rebar last week was 206 yuan/ton, an increase of 54 yuan/ton from the previous week, and the average gross profit per ton of simulated hot-rolled coil was 8 yuan/ton, an increase of 36 yuan/ton from the previous week; the profit margin of 247 steel companies last week was 35.93%, unchanged from the previous week. With the decrease in crude steel production in China, the demand for iron ore may slow down. In November 2025, China's crude steel production was 69.87 million tons, a decrease of 10.9% year-on-year; pig iron production was 62.34 million tons, a decrease of 8.7% year-on-year; and steel production was 115.91 million tons, a decrease of 2.6% year-on-year. From January to November 2025, China's crude steel production was 891.67 million tons, a decrease of 4.0% year-on-year; pig iron production was 774.05 million tons, a decrease of 2.3% year-on-year; and steel production was 133.277 million tons, an increase of 4.0% year-on-year. Demand is expected to stabilize, while supply is expected to continue shrinking Demand is expected to stabilize, while supply is expected to continue shrinking. With the downturn in real estate, the proportion of steel demand from the real estate sector continues to decline, and the negative drag effect of real estate on steel demand is expected to be significantly reduced; demand for steel used in infrastructure and manufacturing sectors is expected to grow steadily. From the supply side, about 65% of steel companies are still operating at a loss, and market-driven clearance has begun to appear. The expectation of supply side contraction is maintained, and the steel industry fundamentals are expected to gradually improve. Risk warning: Supply-side contraction is less than expected, and demand declines significantly.