Guolian Minsheng Securities: Outstanding advantages of leading steel companies, broad prospects for localization substitution in special steel sector.

Guolian Minsheng Securities released a research report stating that leading steel companies in the industry have prominent advantages in standardized production capacity, high-end products, and environmental friendliness. They are expected to become the focus of differentiated regulation policies, with steel enterprises specializing in medium and thick plates with high-end structures likely to achieve excess returns. The special steel sector is benefiting from developments in downstream industries such as lithium batteries, gas turbines, aerospace, nuclear fusion, and humanoid robots, with broad prospects for localization. Some special steel companies are continuing their transformation and research and development efforts, and their performance is expected to steadily grow. Key Points from Guolian Minsheng Securities: Review of the first half of 2026: Profit center on the rise, sector value awaiting reassessment After the Spring Festival in 2026, steel demand seasonally increased, with the profit proportion of steel companies rising from less than 40% at the beginning of the year to over 60% at its peak. After entering the off-season, steel profits slightly declined but remained above the level of the first quarter of 2026. The steel sector saw a continuous decline in prices since March, with differentiation in profit trends, and both general steel and special steel sectors experienced significant declines. Supply side: New heights in dual-carbon strategy, hierarchical management to support the strong and eliminate the weak The "15th Five-Year Plan" is a critical period for China to achieve carbon peak, with the steel industry as a major emitter of carbon emissions after the electricity industry. Expectations for tightening carbon markets are clear after 2027. For the first time, emission reductions are included in local government assessments, significantly enhancing implementation efforts. The first batch of hierarchical results for steel companies were announced this year, and subsequent differentiated regulation through classification management will support leading standardized enterprises, further driving differentiation and supporting efficient enterprises. Demand side: Differentiated demand structure, sectors with strengths and weaknesses In various manufacturing industries, sectors such as machine tools, excavators, commercial vehicles, and ships remain prosperous, with demand for medium and thick plates and cold-rolled products growing. New construction starts remain weak, with fewer infrastructure projects, leading to a decline in demand for construction-long products. Despite some disruptions in export licenses and challenges from the U.S.-Iran conflict and trade barriers, the export structure has shifted, with total exports remaining stable. Raw materials: Strong coke, weak ore, increased disruptions Due to safety accidents in coal mines, coking coal production has significantly decreased, making it difficult for mines to resume production, resulting in a tight supply of coking coal in the short term. There has been an increase in deliveries from Australia, Brazil, and non-mainstream mines, accelerating the release of new capacities. Meanwhile, molten iron production has likely peaked on the demand side, limiting raw material demand. The pattern of strong coke and weak ore continues, and after the recovery of coking coal supply, the pressure on steel mill profits from raw materials will improve significantly. Risk Warning: Steel demand in the manufacturing sector falls short of expectations; sharp decline in steel prices; significant fluctuations in raw material prices.