Cinda Securities(SH:601059) Zhi Tong Cai Jing·2025-12-12 03:47Core Viewpoint - The steel sector is positioned for a strong recovery due to favorable conditions such as PPI at a cyclical low, ample market liquidity, and an improved risk premium, indicating significant medium to long-term investment opportunities in quality steel companies [1] Supply Side - The steel industry is experiencing a dual decline in supply and demand, with structural optimization and marginal profit improvement [2] - Total supply is contracting with a weak growth trend in capital expenditure, expected to enter negative growth by 2025 due to multiple factors including "anti-involution" policies and a downturn in the real estate sector [2] - From January to October, China's crude steel production reached 820 million tons, a year-on-year decrease of 3.9%, with a notable decline in monthly production [2] - There is a significant structural differentiation in production, with high-end manufacturing steel products like cold-rolled sheets and seamless pipes showing growth, while construction steel rebar production has declined by approximately 1.2% [2] Demand Side - Domestic demand continues to shrink, with a 6.4% year-on-year decline in crude steel demand for January to October 2025, totaling 710 million tons [3] - Traditional steel demand from real estate and infrastructure remains weak, with new construction areas and ongoing construction areas in real estate dropping significantly [3] - Despite high net financing from local government special bonds, the impact on steel consumption has weakened, making exports a crucial support for the steel industry [3] - Steel exports reached 97.74 million tons from January to October, a 6.4% increase year-on-year, with expectations to exceed 110 million tons for the year, effectively offsetting domestic demand decline [3] Profitability - The profit distribution pattern in the coal-coke-steel supply chain has led to a noticeable improvement in the steel industry's profitability [4] - The industry is gradually recovering from low levels since 2022, with gross profit margins rising to 6.4% in Q3 2025, at the 45th percentile level since 2012 [4] - From January to October 2025, profits for large-scale industrial enterprises in the black metal smelting and rolling processing industry reached 105.3 billion yuan, showing significant growth compared to the same period in 2024 [4] Policy and Price Dynamics - The steel industry is a key focus of "anti-involution" policies, which aim to guide steel prices to a reasonable range, essential for achieving positive PPI [5] - Steel prices significantly influence the PPI, with the steel sector accounting for approximately 5.9% of PPI, and its price fluctuations typically exceeding those of most industries [5] - As of November 11, 2025, the steel price index is around 3,500 yuan/ton, reflecting a return to historical low levels, with current prices at 3,415 yuan/ton indicating weak industry conditions [5] Future Outlook - The steel PPI is expected to turn positive by the second quarter of 2026, supported by seasonal trends and anticipated price recoveries in Q4 2025 [6] - The transition of PPI from negative to positive is a critical indicator of industrial economic recovery and presents an important investment window [7] - Historical data shows that prior PPI recovery phases have led to significant increases in steel sector valuations, particularly for small to mid-cap companies with strong growth potential [7] Investment Recommendations - Focus on regional leading companies with advanced equipment and environmental standards such as Hualing Steel, Shougang, and Shandong Steel [8] - Consider companies with excellent growth potential and restructuring capabilities like Baosteel and Nanjing Steel [8] - Target high-quality special steel enterprises benefiting from the new energy cycle [8] - Invest in upstream raw material suppliers with competitive advantages [8]