Core Viewpoint - The steel industry is expected to experience a turning point in 2025, with demand stabilizing and supply-side reductions contributing to recovery after a prolonged period of losses since 2021 [1] Supply Analysis - The expansion cycle of steel production capacity has ended, and the capacity utilization rate remains high, leading to a forecast of reduced steel output in the future. As of January to July 2025, China's crude steel production was 594 million tons, a year-on-year decrease of 3.10% [1] - The steel industry has been in a state of loss since the third quarter of 2022, prompting some production capacity to be reduced or halted. The market is beginning to clear, and a cyclical upward trend is anticipated as supply contracts [1] - If supply-side policies are implemented, the speed of supply contraction may accelerate, leading to a quicker industry recovery [1] Demand Analysis - Domestic demand for steel is primarily influenced by real estate, infrastructure, and manufacturing sectors. The ongoing decline in the real estate sector has significantly reduced its share of steel demand, but the negative impact is expected to diminish [2] - Demand from the infrastructure and manufacturing sectors is projected to grow steadily, while steel exports maintained a relatively fast year-on-year growth in the first seven months [2] - Overall, steel demand is expected to gradually stabilize [2] Price, Cost, and Profitability Analysis - Short-term steel prices are influenced by changes in domestic demand, while long-term prices depend on marginal supply and demand changes [3] - The cost structure of the steel industry is heavily reliant on raw materials, with iron ore and coking coal accounting for approximately 70% of total costs. China's dependence on imported iron ore necessitates close monitoring of international supply and demand [3] - The outlook suggests a loosening of the fundamentals for iron ore and coal, with expectations of declining prices for coking coal and iron ore, which will aid in the recovery of steel industry profits [3]

Investment Rating - The industry investment rating is Neutral, maintained [6]. Core Insights - The steel industry has experienced a significant increase in molten iron production, while the inventory of five major steel products has been reduced, indicating improved demand year-on-year. However, this is contradicted by declining steel prices and feedback from steel companies regarding average order quality [2][4]. - The report highlights the paradox of high molten iron production amidst declining demand, suggesting that understanding the production process and statistical measures is crucial to explain this discrepancy [4][8]. Summary by Sections Demand and Supply Dynamics - Demand has fluctuated due to holiday effects, with a notable decrease in apparent consumption of the five major steel products, down 10.75% year-on-year and 14.69% month-on-month. Average daily transaction volume for construction steel decreased to 102,700 tons, a drop of 960 tons per day compared to the previous week [4]. - Molten iron production continues to rise, with average daily production reaching 2.4564 million tons, an increase of 0.22 tons per day month-on-month. The production of five major steel products decreased by 0.89% year-on-year and 1.27% month-on-month [4][8]. - Total steel inventory has shifted to accumulation due to a significant drop in demand, increasing by 2.18% month-on-month. Long product inventory decreased by 18.07% year-on-year, while plate inventory decreased by 14.00% year-on-year [4][8]. Production Insights - The average daily molten iron production from 247 sample steel companies is 2.3336 million tons, a year-on-year increase of 4.2%. The weekly average apparent consumption of five major steel products is 10.82 million tons, nearly unchanged year-on-year [4][8]. - The report notes that the marginal substitution of molten iron for scrap steel has become more pronounced due to a significant drop in metallurgical coke prices, leading to increased molten iron input by steel companies [8]. Market Trends - The report indicates that steel billet exports have significantly increased due to domestic steel price declines and limited overseas import restrictions, with exports reaching 2.56 million tons in the first three months, a year-on-year increase of 200 million tons [8]. - The supply of non-mainstream steel products has increased by 10.6% to match crude steel growth, despite challenges in achieving a 10% demand growth rate for these products [8]. Investment Opportunities - The report suggests focusing on undervalued quality state-owned enterprises such as Baosteel and Nanjing Steel, as well as companies with strong shareholder returns like CITIC Special Steel. It also highlights the potential of mergers and acquisitions in the sector [24].

Investment Rating - The steel industry is rated as "Positive" [2] Core Viewpoints - The steel supply is expected to see structural improvements, and the sector remains in a comfortable bottom configuration for investment [2][4] - Despite facing supply-demand contradictions, the overall steel demand is anticipated to remain stable or slightly increase due to supportive factors such as real estate stabilization, steady infrastructure investment, and sustained manufacturing development [4] - The report highlights that the steel industry is likely to maintain a balanced supply-demand situation, benefiting from high-end steel products and companies with strong cost control and scale effects [4] Supply Summary - As of March 14, the average daily pig iron output was 2.3059 million tons, a week-on-week increase of 0.08 thousand tons and a year-on-year increase of 83.4 thousand tons [16] - The capacity utilization rate for blast furnaces was 86.6%, up by 0.03 percentage points week-on-week [16] - The total output of five major steel products reached 7.445 million tons, an increase of 141.7 thousand tons week-on-week, or 1.94% [16][17] Demand Summary - The consumption of five major steel products was 8.839 million tons, an increase of 307.7 thousand tons week-on-week, or 3.61% [22][23] - The transaction volume of construction steel by mainstream traders was 110 thousand tons, up by 9.16% week-on-week [22] Inventory Summary - Social inventory of five major steel products was 13.199 million tons, a decrease of 196.3 thousand tons week-on-week, or 1.47% [29][30] - Factory inventory of five major steel products was 5.097 million tons, down by 110.4 thousand tons week-on-week, or 2.12% [29][31] Price & Profit Summary - The comprehensive index for ordinary steel was 3,575.9 yuan/ton, a week-on-week increase of 10.48 yuan/ton, or 0.29% [38] - The comprehensive index for special steel was 6,714.1 yuan/ton, a week-on-week decrease of 22.09 yuan/ton, or 0.33% [38] - The profit for rebar produced in blast furnaces was -165.11 yuan/ton, a decrease of 14.3 yuan/ton week-on-week [44] - The profit for rebar produced in electric arc furnaces was -247.86 yuan/ton, a decrease of 6.2 yuan/ton week-on-week [44]