Zhi Tong Cai Jing·2025-11-03 02:28Core Viewpoint - The steel industry is rated "overweight" by Guotai Junan, with expectations for a stable demand recovery and supply reduction leading to sustained profits in 2026, following a turning point in 2025 [1] Group 1: Demand Outlook - The demand for steel is expected to stabilize and recover, as the negative impact of the real estate sector on steel demand diminishes, while manufacturing sectors such as automotive, home appliances, shipbuilding, and energy show steady growth [1][2] - The proportion of steel demand from the real estate sector has been declining since 2021, while fixed asset investment in manufacturing has been increasing, indicating a significant shift in the demand structure [1] Group 2: Supply Expectations - There is an expectation of continued supply contraction, with the industry facing three years of losses since 2021, leading to cash flow issues for some smaller steel companies [2] - Policies aimed at reducing overcapacity and promoting low emissions are expected to reshape the competitive landscape, favoring leading companies with environmental and low-carbon advantages [2] Group 3: Leading Companies and Cost Improvements - Leading steel companies are adjusting their product structures and investing in R&D, resulting in significant improvements in product value and profitability, thereby widening the margin over industry averages [3] - As capital expenditures decrease, the profitability of leading companies is expected to shift towards shareholder returns through dividends and buybacks [3] - The cost side is improving as iron ore enters a more relaxed supply cycle, alleviating cost pressures on steel production [3]