CGS 2026 Steel Sector Outlook: Policy Catalysts and Earnings Recovery in Sync

Stock News12-01

China Galaxy Securities (CGS) released a research report indicating that China's steel industry returned to profitability year-on-year in 2025Q1-Q3, with marked improvement in profitability. On the demand side, while the property sector entered an adjustment phase, emerging steel-intensive sectors like new infrastructure and new energy supported robust demand for plates and specialty steel, driving steady industry consolidation. Anti-overcapacity policies deepened, facilitating orderly capacity exits.

Long-term, the steel industry emphasizes stable growth, green transformation, smart manufacturing, and technological innovation. High-quality specialty steel and high-end alloy steel for equipment manufacturing remain scarce, with leading players benefiting from technological and capital advantages. The current phase presents an optimal allocation window, backed by policy support and anticipated earnings recovery.

Key observations by CGS: 1. **2025 Review**: Signs of marginal recovery emerged. - The steel sector ranked 8th in year-to-date performance, delivering notable alpha, with strong Q3 momentum and sustained high holdings in carbon steel. - 2025Q1-Q3 revenue rose 6.4% YoY to RMB1.43 trillion, with net profit of RMB21.85 billion (vs. loss YoY). Q3 revenue edged up 0.1% YoY to RMB480.12 billion (-0.6% QoQ), turning profitable at RMB8.72 billion. - Anti-overcapacity policies progressed, with stricter environmental/energy efficiency standards and resumed capacity replacements accelerating industry consolidation.

2. **2026 Outlook**: CGS holds a bullish stance, diverging from consensus, citing: - **Policy Tailwinds**: The 2024 "Steel Sector Energy Conservation & Carbon Reduction Action Plan" targets ≥30% capacity meeting top-tier efficiency standards by 2025-end, phasing out subpar capacity. Tighter regulations and follow-up policies will sharpen structural optimization. - **Earnings Momentum**: The 2025Q1-Q3 turnaround, Q3 raw material margin expansion, normalized gross margins, and improved working capital turnover, coupled with the 2025-2026 "Steel Sector Steady Growth Plan" (targeting ~4% annual value-added growth), underpin recovery certainty.

**Risks**: Potential shortfalls in production curbs; sluggish downstream demand recovery.

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

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