Guolian Minsheng Securities Company Limited has released a research report stating that leading ordinary steel enterprises demonstrate distinct advantages in areas such as standardized capacity utilization, high-end product development, and green initiatives. These companies are likely to benefit from differentiated regulatory policies, with steelmakers boasting a high proportion of medium and heavy plates and advanced structural products potentially achieving above-market returns. The special steel sector is poised to benefit from growth in downstream industries including lithium batteries, gas turbines, aerospace, nuclear fusion, and humanoid robotics, presenting broad prospects for import substitution. Ongoing transformation and R&D efforts at some special steel firms are expected to support stable earnings growth. Key points from Guolian Minsheng Securities Company Limited are as follows:
Review of H1 2026: Profit Recovery and Sector Revaluation Potential
Following the Spring Festival in 2026, seasonal demand for steel products rebounded. The proportion of profitable steel enterprises recovered from below 40% at the start of the year to over 60% at its peak, indicating a recovery in the profit center. Profits saw a slight retreat during the off-season but remained above Q1 2026 levels. However, the steel sector's market performance has been in a continuous correction since March, diverging from the profit trend, with both ordinary and special steel segments experiencing significant pullbacks.
Supply Side: Dual-Carbon Strategy Intensifies, Tiered Management Supports the Strong
The 15th Five-Year Plan period is a critical cycle for China to achieve its carbon peak. As the second-largest carbon emitter after the power industry, the steel sector faces clear expectations of a tightening carbon market post-2027. Concurrently, emission reduction targets have been incorporated into local government assessments for the first time, significantly enhancing enforcement. The release of the first batch of steel enterprise tiering results this year will be followed by differentiated regulation through classification management. Policy benefits will favor leading, compliant enterprises, further driving industry consolidation and supporting the strong while phasing out the weak.
Demand Side: Structural Divergence, Plate Strength Outpaces Long Products
Within manufacturing sub-sectors, industries such as machine tools, excavators, commercial vehicles, and shipbuilding remain robust, sustaining demand growth for medium/heavy plates and cold-rolled coils. New construction starts in the building sector remain weak, with few new infrastructure projects, leading to declining demand for construction-related long steel products. On the import-export front, disruptions from licensing have largely been absorbed. Amidst the US-Iran conflict and trade barriers, export structures are shifting, though total export volumes remain stable.
Raw Materials Side: Coking Coal Strength, Iron Ore Weakness, Volatility Increases
Coking coal production has dropped significantly due to mine safety incidents, with affected mines facing difficulties in short-term resumption, leading to tightening supply in the near term. Iron ore shipments from Australia, Brazil, and non-mainstream sources have increased, with new capacity accelerating its release. On the demand side, hot metal production has largely peaked, capping raw material demand. The pattern of strong coking coal and weak iron ore prices persists. Once coking coal supply recovers, the squeeze on steel mill profits from raw material costs is expected to improve notably.
Risk Factors to Consider
Potential shortfalls in steel demand from the manufacturing sector; significant declines in steel prices; and substantial volatility in raw material costs.