Core Viewpoint - The steel industry is experiencing improved profitability due to supply-side exit expectations and rising steel prices, with a notable increase in profit margins for steel mills in Q3 compared to Q2 [1]. Group 1: Profitability Analysis - Steel mill profitability increased from 59% in late June to 64% by the end of August, with an average profitability of 62% in Q3, up 4.5 percentage points from Q2 [1]. - The year-on-year profitability for Q3 is expected to show significant improvement due to a low base last year [1]. Group 2: Supply and Policy Outlook - Expectations for reduced steel production capacity are rising, with a focus on eliminating inefficient production [6]. - The "Steel Industry Stability and Growth Work Plan (2025-2026)" emphasizes production reduction policies to balance supply and demand, targeting the exit of outdated capacities [6]. Group 3: Cost Dynamics - The commencement of the West Simandou iron ore project is expected to ease iron ore supply, potentially benefiting the steel industry [7]. - Although steel prices may decrease with lower costs, improved supply-demand dynamics could allow profits to flow back to the steel sector and its downstream industries [7]. Group 4: Investment Opportunities - The steel sector is currently undervalued, with the CSI Steel Index price-to-book ratio at 1.11, within the 54.71% percentile over the past decade [8]. - The steel ETF (515210) has seen significant inflows, exceeding 10 billion since September, indicating strong investor interest in the sector [8].