A recent research report indicates that steel demand is expected to gradually bottom out. On the supply side, even without considering supply-side policies, the industry has been experiencing losses for an extended period, and market-driven supply clearing has begun to emerge. The steel industry fundamentals are expected to gradually recover. Should supply-side policies be implemented, industry supply contraction would accelerate, leading to faster sector recovery. An "overweight" rating is maintained for the industry.
From a long-term perspective, industrial concentration enhancement and promoting high-quality development represent inevitable trends for the future steel industry. Steel companies with product structure and cost advantages will fully benefit. Under the backdrop of stricter environmental regulations, ultra-low emission retrofits, and carbon neutrality, leading companies' competitive advantages and profitability will become more prominent.
**Demand Declined Sequentially, Inventory Rose Week-over-Week**
Last week (referring to the week of October 6-10, 2025), apparent consumption of five major steel product categories totaled 7.5143 million tons, down 1.5339 million tons week-over-week. Construction materials apparent consumption reached 2.2262 million tons, down 1.0846 million tons week-over-week, while plate materials apparent consumption was 5.2881 million tons, down 0.4493 million tons week-over-week.
Production of the five major steel product categories totaled 8.6331 million tons, down 0.0376 million tons week-over-week. Total inventory reached 16.0072 million tons, up 1.2786 million tons week-over-week, maintaining low levels.
Last week, blast furnace operating rates at 247 steel mills stood at 84.27%, down 0.02 percentage points week-over-week. Blast furnace capacity utilization reached 90.55%, down 0.1 percentage points week-over-week. Electric furnace operating rates were 60.26%, down 1.28 percentage points week-over-week, while electric furnace capacity utilization was 52.03%, down 0.89 percentage points week-over-week.
Last week, affected by the National Day holiday, demand declined marginally and inventory rose week-over-week. However, the market remains in the traditional peak season, and steel demand is expected to gradually recover, with inventory expected to resume its declining trend.
**Profitability Declined Week-over-Week**
Last week, imported iron ore inventory at 45 major ports totaled 140.25 million tons, up 0.2422 million tons week-over-week. Simulated average gross profit for rebar was 167.1 yuan per ton, up 24.3 yuan per ton week-over-week, while hot-rolled coil simulated average gross profit was 112.1 yuan per ton, up 29.3 yuan per ton week-over-week. The profitability rate of 247 steel enterprises was 56.28%, down 0.43% week-over-week.
Looking ahead, iron ore is expected to accelerate production while demand is unlikely to see significant improvement. Iron ore may gradually enter a loose cycle, with limited upside elasticity in iron ore prices. Steel cost constraints are expected to gradually improve, and the industry's profit center is expected to gradually recover.
**Demand Expected to Stabilize, Supply Maintains Contraction Expectations**
With real estate sector decline, steel demand from real estate continues to decrease as a proportion. The negative drag from real estate on steel demand has significantly weakened. Steel demand from infrastructure and manufacturing is expected to grow steadily. Regarding exports, steel export volumes maintained year-over-year growth from January to August. Overall, steel demand is expected to gradually stabilize.
From the supply side, over 40% of steel enterprises are currently losing money, and market-driven supply clearing has begun to emerge. From a policy perspective, the recently released "Steel Industry Stable Growth Work Plan (2025-2026)" proposes to "continue implementing production reduction policies, following the principle of supporting advanced enterprises and forcing out backward and inefficient capacity to implement annual production control tasks, promoting dynamic supply-demand balance."
Supply-side contraction expectations are maintained, and steel industry fundamentals are expected to gradually recover.
**Key Recommendations**
1) Technology and product structure leaders: Baosteel with leading product structure, Hualing Steel, Shougang Co., low-cost and elastic steel companies Fangda Special Steel, and Xinyu Steel;
2) Low-valuation, high-dividend special steel leaders with competitive advantages: CITIC Special Steel, Yongjin Co.; high-barrier material companies Jiuli Hi-tech, Xianglou New Materials, Boke New Materials; superalloy leaders Tunan Co., Fushun Special Steel;
3) Under demand recovery trends, upstream resource companies with long-term structural advantages are favored: HBIS Resources, Dazhong Mining, Anning Co., Ordos, Yongxing Materials, and Baotou Steel.
**Risk Warning:** Supply-side contraction falling short of expectations, significant demand decline.