According to the Zhitong Finance APP, CICC released a research report stating that looking ahead to the steel industry in 2025, domestic manufacturing is expected to maintain high prosperity, infrastructure physical workload may marginally improve, but there is still uncertainty in overseas demand due to trade policy disruptions, and steel mills are under significant operational pressure, making it difficult for supply to see substantial contraction. The structural improvement of domestic demand is unlikely to prevent the decline in steel prices. In 2024, the Ministry of Industry and Information Technology has suspended the implementation of steel production capacity replacement. In 2025, steel supply is unlikely to see any increase, while the optimization of existing capacity driven by policy may further accelerate, presenting structural opportunities.

CICC's main points are as follows:

Supply and demand are unlikely to see substantial improvement, and the black sector may seek a 'new balance' at the lower end.

Looking ahead to 2025, CICC expects that domestic manufacturing is likely to maintain high prosperity, infrastructure physical workload may marginally improve, but overseas demand still faces uncertainties due to trade policy disruptions, and steel mills are under significant operational pressure, making it difficult for supply to see substantial contraction. The structural improvement of domestic demand is unlikely to prevent the decline in steel prices. Under neutral assumptions, the expectation is that rebar/hot rolled/cold rolled sheet price centers will decline to 3250/3375/4200 yuan in 2025.

With the continuous release of new low-cost iron ore production capacity and the gradual increase in imported Mongolia coal, furnace material prices are expected to enter a downward channel, which may lessen the erosion of production profits in steelmaking. Under the 'new balance' of the black sector, production profits may see gentle recovery. Under neutral expectations, the estimated gross profit centers for rebar/hot rolled/cold rolled sheet in 2025 are 111/65/370 yuan (year-on-year +173/274/279 yuan, with the median gross profit per ton for the past ten years at 282/154/581 yuan).

A profound transformation in supply is expected, and the clearing of production capacity is expected to accelerate.

In 2024, the Ministry of Industry and Information Technology has suspended the implementation of steel capacity replacement. In 2025, there will be little increase in steel supply, while the optimization of existing capacity driven by policy is expected to accelerate further, creating structural opportunities. On one hand, green low-carbon initiatives have become the main line of industry development, and the new version of industry standards is expected to be officially released. The ultra-low emission transformation of steel companies in key areas is basically complete, carbon emission trading has fulfilled its obligations for the first time, and differentiated production cuts are imperative, which is expected to optimize the industry's supply. On the other hand, the pace of supportive policies for mergers and reorganizations is accelerating. The bottom cycle creates favorable valuation conditions for mergers and consolidations, and the increased concentration in the industry is expected to reduce vicious competition, accelerating the clearing of ineffective capacity with low profitability. Leading steel companies are expected to improve profitability and increase market share in segmented markets due to their strong pricing power, resulting in a rise in the mid-term ROE central tendency.

In 2025, the supply and demand pattern and profitability of the steel industry are unlikely to see significant improvement, but structural market changes brought about by sector expectations and wagering still hold promise, with four main lines of focus:

1) The new market cap management policy has been released, and undervalued high-quality cash flow assets are expected to experience a recovery in profits and a reassessment of their value, with a strong recommendation for Hunan Valin Steel (000932.SZ) and Baoshan Iron & Steel (600019.SH); 2) The growth-stabilizing "expectation wave" continues to evolve, and highly elastic symbols are expected to benefit fully, with recommendations to pay attention to Maanshan Iron & Steel (600808.SH); 3) The manufacturing industry's prosperity is recovering, which is bullish for the special steel leaders with high growth certainty, with a strong recommendation for tiangong int'l (00826); 4) The acceleration of industry mergers and integrations is underway, and targets with high integration potential are expected to achieve excess returns, with recommendations to pay attention to HBIS Company Limited (000709.SZ) and Maanshan Iron & Steel.

Risk factors: The recovery of the construction industry's prosperity is below expectations; there is uncertainty regarding steel exports.