Steel demand is anticipated to gradually bottom out, according to a research report by Guotai Haitong Securities Co., Ltd. Even without considering supply-side policies, prolonged industry losses have already triggered market-driven supply adjustments, suggesting a potential recovery in the sector's fundamentals. Should supply policies be implemented, the contraction in supply could accelerate, hastening the industry's upward trajectory. The firm maintains an "overweight" rating on the sector.

In the long term, increasing industry concentration and promoting high-quality development are inevitable trends for the steel sector. Companies with superior product structures and cost advantages are poised to benefit significantly. Stricter environmental regulations, ultra-low emission upgrades, and carbon neutrality initiatives will further highlight the competitive strengths and profitability of leading firms.

Key insights from Guotai Haitong include:

**Demand Rises Sequentially, Inventory Declines** Last week (October 27–31, 2025), apparent consumption of five major steel products reached 9.1642 million tons, up 237,100 tons sequentially. Construction steel consumption rose by 160,300 tons to 3.3127 million tons, while flat steel consumption increased by 76,800 tons to 5.8515 million tons. Production of the five major steel products totaled 8.7529 million tons, up 99,700 tons sequentially. Total inventory fell by 411,300 tons to 15.1374 million tons, remaining at low levels.

Among 247 steel mills, blast furnace utilization rates dipped by 2.96 percentage points to 81.75%, while capacity utilization declined by 1.33 percentage points to 88.61%. Electric furnace utilization remained flat at 60.9%, with capacity utilization edging up 0.18 percentage points to 52.45%. Post-holiday demand recovery has resumed inventory drawdowns.

**Profitability Declines Sequentially** Iron ore inventories at 45 ports rose by 1.18 million tons to 145.42 million tons. Simulated average gross margins for rebar fell by RMB 21.4/ton to RMB 104.7/ton, while hot-rolled coil margins improved by RMB 28.6/ton to RMB 44.7/ton. The profitability rate among 247 steel mills dropped by 2.6 percentage points to 45.02%.

Looking ahead, accelerated iron ore production growth and limited demand upside may push the market into a looser cycle, capping price upside. This could gradually ease cost pressures on steelmakers, supporting a recovery in profit margins.

**Demand Stabilization Expected, Supply Contraction Likely** Persistent weakness in real estate has reduced its share of steel demand, though the drag is expected to ease. Steel demand from infrastructure and manufacturing is projected to grow steadily. Exports maintained year-on-year growth in the first nine months. Overall, steel demand is likely to stabilize gradually.

On the supply side, the industry has been in losses since Q3 2022, with nearly 40% of firms still unprofitable, prompting market-driven capacity exits. Recent policy guidelines, including the *Steel Industry Steady Growth Work Plan (2025–2026)*, emphasize production cuts to phase out inefficient capacity and balance supply-demand dynamics. The firm maintains expectations of supply contraction, supporting a gradual recovery in sector fundamentals.

**Risks:** Slower-than-expected supply contraction; sharp demand decline.