According to a research report by GTHT, steel demand is expected to bottom out gradually. On the supply side, even without considering policy interventions, prolonged industry losses have already triggered market-driven supply adjustments. The firm anticipates a gradual recovery in the steel industry's fundamentals. Should supply-side policies be implemented, the contraction in supply would accelerate, hastening the industry's upward trajectory. GTHT maintains an "Overweight" rating on the steel sector. Key points from the report are as follows:
**Demand and Inventory Decline Sequentially** Last week (December 8–12, 2025), apparent consumption of five major steel products totaled 8.397 million tons, down 2.83% sequentially and 4.76% year-on-year. Construction steel consumption fell by 172,000 tons to 2.826 million tons, while flat-rolled steel consumption dropped by 73,000 tons to 5.57 million tons. Production of the five major steel products declined by 227,000 tons to 8.062 million tons, while total inventories fell by 335,000 tons to 13.32 million tons, remaining at low levels.
Per Mysteel data, the blast furnace operating rate at 247 steel mills nationwide stood at 78.63%, down 1.53 percentage points (pp) week-on-week, with capacity utilization at 85.92%, down 1.16 pp. The electric-arc furnace operating rate rose 0.64 pp to 60.26%, though capacity utilization dipped 0.33 pp to 52.9%. Inventories continued to decline.
**Profitability Declines Sequentially** Iron ore inventories at 45 ports increased by 1.306 million tons to 154.314 million tons. The average simulated gross profit for rebar rose by 22.2 yuan/ton to 169.8 yuan/ton, while hot-rolled coil profits fell by 17.8 yuan/ton to -30.2 yuan/ton. The profitability rate among 247 steel mills dropped 0.43 pp to 35.93%.
With China's pig iron output declining, iron ore demand may slow. Meanwhile, the Simandou iron ore project is expected to boost supply, potentially adding 25 million tons of iron concentrate by 2026. Domestic mining investments in recent years will further increase supply.
**Demand Stabilization and Supply Contraction Expected** As steel demand from the property sector continues to shrink, its negative drag on overall demand has significantly weakened. Steel consumption from infrastructure and manufacturing is expected to grow steadily. On the supply side, about 65% of steel firms remain unprofitable, prompting market-driven adjustments.
The Ministry of Industry and Information Technology's *Steel Industry Steady Growth Plan (2025–2026)* emphasizes production cuts to phase out inefficient capacity and balance supply-demand dynamics. GTHT maintains its expectation of supply contraction, anticipating gradual improvement in steel fundamentals.
**Maintain "Overweight" Rating** Long-term industry consolidation and high-quality development remain inevitable trends. Firms with superior product structures and cost advantages will benefit most. Stricter environmental policies and carbon neutrality efforts will further highlight leading companies' competitive edges.
Key recommendations include: 1) **Baoshan Iron & Steel** (technology and product leadership), **Hunan Valin Steel**, **Shougang Group** (product upgrades), **Fangda Special Steel**, and **Xinyu Iron & Steel** (cost efficiency). 2) **CITIC Special Steel** and **Yongjin Metal Tech** (undervalued, high-dividend specialty steel leaders); **Jiuli Hi-Tech Metals**, **Xianglou New Materials**, **Pocono Advanced Materials** (high-barrier materials); **Tunan Advanced Materials** and **Fushun Special Steel** (high-temperature alloy leaders). 3) Upstream resource players like **HBIS Resources**, **Dazhong Mining**, **Anning Iron & Steel**, **Ordos**, **Yongxing Materials**, and **Baotou Steel** (long-term structural advantages).
**Risks**: Slower-than-expected supply contraction or sharp demand decline.
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