Zhongjin: Profits in the steel industry are at the bottom, and the sector's valuation and profits are gradually recovering, providing some support.

CICC released a research report stating that the valuation of the steel sector has returned to the bottom range and there is no need to be overly pessimistic. Due to the drag of raw material inflation and weak domestic demand, industry profits are at the bottom range. However, looking ahead, the bank believes that the easing of cost pressures and the implementation of anti-"involution" policies are expected to support the valuation and profit recovery of the sector gradually. It is recommended to focus on the ferrous metal sector Hunan Valin Steel (000932.SZ) and special steel sector TIANGONG INT'L (00826). The bank maintains its coverage of company profit forecasts, target prices, and ratings. Key Points from CICC: Industry Current Situation The European Parliament and the EU Council have reached a political agreement to protect the EU steel industry from the impact of global overcapacity. The new measures set an annual tax-free quota of 18.3 million tons (a reduction of 47%) and a 50% additional tariff on 30 categories of steel products imported into the EU. BHP Group stated in its operational review report that it has concluded negotiations on iron ore sales contracts with China Mineral Resources Group (CMRG). Demand continues to recover, inventories are steadily depleting, and supply and demand show marginal improvement This week, consumption of the top five varieties of steel reached 9.25 million tons, up 2.4% from the previous week, but still down 0.1% year-on-year. Demand has marginally improved, with the year-on-year decline narrowing gradually. Total inventories of the top five steel varieties reached 17.03 million tons, down 3.5% week-on-week. Inventories are steadily depleting, and attention should be paid to the rate of depletion going forward. Overall steel prices are on the rise, and profits show marginal improvement Recent steel prices have risen slightly, mainly due to stronger costs and marginal improvement in supply and demand. CICC calculates that blast furnace rebar gross profit is still in deficit, but the deficit has decreased by 69 yuan/ton, up 17% week-on-week and down 222% year-on-year. The profit margin of 247 steel mills using Mysteel's calculation is 49.8%, up 1.7 percentage points from the previous two weeks, showing slight improvement. With the anchor of long-term contract ore prices shifting downward and the gradual increase in the proportion of RMB settlement (reducing exchange rate risk), the pressure from high premium on raw materials will gradually ease. The advantage of price differences between domestic and foreign steel products is highlighted, and there is room for optimizing export structure in the future On April 24th, the price difference between rebar in China and the US, EU, Southeast Asia, and the Middle East was 473, 150, 20, and 243 US dollars per ton respectively, with week-on-week changes of -10, -10, +1, and -2 US dollars per ton, raising the comprehensive cost of steel to the port. With tighter import quotas in the EU and increasing global trade protection, the bank believes that China's steel exports will face the pressure of "total quantity while optimizing structure," presenting a "dumbbell-shaped" pattern: on one end relying on exporting steel billets to avoid barriers to finished product trading, and on the other end expanding exports of high value-added plate with technological and green advantages, while the export space for ordinary bulk steel products will be squeezed, highlighting the importance of R&D of high-end products and global industrial chain layout. Risks Geopolitical conflicts leading to a sharp increase in costs, seasonal demand falling short of expectations, and policy fluctuation risks.