Guotai Haitong Securities released a research report maintaining an "Overweight" rating on the steel industry. The firm expects that if supply-side policies are implemented, industry supply contraction will accelerate, leading to faster upward momentum in the sector. From a long-term perspective, increased industrial concentration and promoting high-quality development represent inevitable trends for the future steel industry, with steel companies possessing advantages in product structure and costs positioned to benefit substantially. Under the backdrop of stricter environmental regulations, ultra-low emission retrofitting, and carbon neutrality goals, leading companies' competitive advantages and profitability will become more pronounced.

Main viewpoints from Guotai Haitong Securities:

**Demand Rises Sequentially, Steel Mill Inventory Declines**

During the previous week (referring to August 25-29, 2025), apparent consumption of five major steel products reached 8.5777 million tons, up 478,000 tons week-over-week. Construction materials apparent consumption totaled 2.9001 million tons, increasing 117,500 tons sequentially, while flat products apparent consumption reached 5.6776 million tons, declining 69,700 tons week-over-week.

Production of the five major steel products hit 8.8461 million tons, rising 655,000 tons sequentially. Total inventory reached 14.6788 million tons, up 268,400 tons week-over-week, maintaining low levels.

Last week, blast furnace operating rates at 247 steel mills stood at 83.2%, down 0.16 percentage points sequentially. Blast furnace capacity utilization reached 90.02%, declining 0.23 percentage points week-over-week. Electric arc furnace operating rates held at 62.82%, remaining flat, while electric arc furnace capacity utilization reached 53.95%, down 0.09 percentage points sequentially.

As the transition from low to peak season progresses, the firm expects steel demand to gradually recover marginally, while inventory is anticipated to enter a destocking phase.

**Profit Margins Decline Sequentially**

Iron ore inventory at 45 major ports totaled 137.63 million tons last week, decreasing 821,800 tons week-over-week. Average simulated gross profit for rebar reached 231.5 yuan per ton, down 12.2 yuan per ton sequentially, while hot-rolled coil average simulated gross profit stood at 171.5 yuan per ton, declining 30.2 yuan per ton week-over-week. The profitability rate among 247 steel enterprises reached 63.64%, down 1.3 percentage points sequentially.

Looking ahead, the firm expects iron ore production acceleration with limited demand improvements, potentially leading iron ore into a loose cycle with constrained upward price elasticity. This should improve cost constraints for the steel industry, with industry profit margins expected to gradually recover.

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

Continued real estate sector decline has reduced property-related demand proportions. The firm expects negative drag from real estate on steel demand to weaken, while infrastructure and manufacturing steel demand should maintain steady growth. Regarding exports, January-July steel exports continued year-over-year growth. Overall, steel demand is expected to gradually stabilize.

On the supply side, the industry has been loss-making since Q3 2022, with over 30% of steel enterprises still operating at losses. Market-based supply clearing has begun emerging, 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 "growth stabilization work plans for ten key industries including steel, non-ferrous metals, petrochemicals, and building materials will be released soon, with MIIT promoting key industries to focus on structural adjustment, supply optimization, and eliminating backward capacity."

The firm expects that if supply-side policies are implemented, industry supply contraction will accelerate, leading to faster sector recovery progress.

**Key Recommendations:**

1) Technology and product structure leaders: Baosteel Co., Ltd., along with Hualing Steel Co. and Shougang Co. for continued product structure upgrades, and low-cost, high-leverage steel companies Fangda Special Steel and Xinyu Steel Co.

2) Low-valuation, high-dividend specialty steel leaders with competitive advantages: CITIC Special Steel and Yongkin Metal, high-barrier material companies Jiuli Hi-tech Metals, Xianglou New Materials, and Platinum Technology, high-temperature alloy leaders Tunan Co., Fushun Special Steel, and Zhongzhou Special Materials.

3) Under demand recovery trends, the firm favors upstream resource companies with long-term structural advantages, recommending Hesteel Resources, Dzhong Mining, Anning Co., Ordos, Yongxing Materials, and Baotou Steel.

**Risk Warnings:** Supply-side contraction falling short of expectations, significant demand decline.