Guotai Haitong Securities released a research report stating that steel industry demand is expected to gradually bottom out. On the supply side, even without considering supply policies, the industry has been operating at losses for an extended period, and market-based supply clearing has begun to emerge. The firm expects the steel industry fundamentals to gradually recover. If supply policies are implemented, industry supply contraction will accelerate, and the industry's upward progress will unfold more rapidly.

**Demand Rises Sequentially, Steel Mill Inventories Decline Sequentially**

Last week (referring to the week from August 25 to August 29, 2025), apparent consumption of five major steel products totaled 8.5777 million tons, up 47,800 tons sequentially. Among these, construction materials apparent consumption reached 2.9001 million tons, up 117,500 tons sequentially, while plate materials apparent consumption totaled 5.6776 million tons, down 69,700 tons sequentially.

Production of five major steel products reached 8.8461 million tons, up 65,500 tons sequentially. Total inventory stood at 14.6788 million tons, up 268,400 tons sequentially, maintaining low levels.

Last week, the blast furnace operating rate at 247 steel mills was 83.2%, down 0.16 percentage points sequentially. Blast furnace capacity utilization rate was 90.02%, down 0.23 percentage points sequentially. Electric furnace operating rate was 62.82%, unchanged sequentially, while electric furnace capacity utilization rate was 53.95%, down 0.09 percentage points sequentially.

As the transition from off-season to peak season progresses, the firm expects steel demand to gradually recover marginally, while inventories will gradually enter a destocking phase.

**Profit Margins Decline Sequentially**

Last week, imported iron ore inventory at 45 ports totaled 137.63 million tons, down 821,800 tons sequentially. Average simulated gross profit for rebar was 231.5 yuan per ton, down 12.2 yuan per ton sequentially, while average simulated gross profit for hot-rolled coil was 171.5 yuan per ton, down 30.2 yuan per ton sequentially. The profitability rate of 247 steel enterprises was 63.64%, down 1.3% sequentially.

Looking ahead, the firm expects iron ore to accelerate production while demand remains limited, potentially entering a loose cycle. Iron ore price upside elasticity is limited, steel cost constraints are expected to improve, and industry profit centers are expected to gradually recover.

**Demand Expected to Stabilize, Supply Maintains Contraction Expectations**

The continued real estate downturn has led to a decline in real estate-related demand proportion. The firm expects the negative drag from real estate on steel demand to weaken, while steel demand from infrastructure and manufacturing sectors is expected to grow steadily. Regarding exports, steel exports from January to July maintained year-over-year growth. Overall, the firm expects steel demand to gradually stabilize.

On the supply side, the industry has been operating at losses since Q3 2022, with over 30% of steel enterprises still losing money. Market-based supply clearing has begun to emerge, and the industry is gradually emerging from the bottom. On July 18, Ministry of Industry and Information Technology Chief Engineer Xie Shaofeng stated at a State Council Information Office press conference that "work plans for stabilizing growth in ten key industries including steel, non-ferrous metals, petrochemicals, and building materials will be released soon, and the Ministry will promote key industries to adjust structures, optimize supply, and eliminate backward capacity."

The firm expects that if supply policies are implemented, industry supply contraction will accelerate, and the industry's upward progress will unfold more rapidly.

**Maintaining "Overweight" Rating**

In the long term, increased industry concentration and promoting high-quality development are inevitable trends for the steel industry's future development. Steel enterprises with product structure and cost advantages will fully benefit. Under the backdrop of stricter environmental protection, ultra-low emission transformation, and carbon neutrality, leading companies' competitive advantages and profitability will become more prominent.

Key recommendations include: 1) Baoshan Iron & Steel Co., Ltd., which leads in technology and product structure, Hualing Iron & Steel Co., Ltd. and Shougang Co., Ltd., which continue to upgrade product structures, and low-cost and flexible steel enterprises Fangda Special Steel Technology Co., Ltd. and Xinyu Iron & Steel Co., Ltd.; 2) Low-valuation, high-dividend specialty steel leaders with competitive advantages including CITIC Metal Co., Ltd. and Yongxing Special Steel Technology Co., Ltd.; high-barrier material companies Jiuli Hi-tech Metals Co., Ltd., Shanglou New Materials Co., Ltd., and Platinum New Materials Co., Ltd.; superalloy leaders Tunan Co., Ltd., Fushun Special Steel Co., Ltd., and Zhongzhou Special Materials Technology Co., Ltd.; 3) Under the demand recovery trend, the firm favors upstream resource products with long-term structural advantages, recommending HBIS Resources Co., Ltd., Dazhong Mining Co., Ltd., Anning Iron & Titanium Co., Ltd., Inner Mongolia Yili Energy Co., Ltd., Yongxing Special Materials Technology Co., Ltd., and Baotou Iron & Steel Co., Ltd.

**Risk Warning**: Supply-side contraction may be less than expected, and demand may decline significantly.