Recently, with the property market and stock market both welcoming significant favorable policies, the steel sector, which is closely related to the real estate market, has also continued to surge.

From September 24th to October 9th, the Shanghai Composite Index recorded a cumulative increase of nearly 18%, while the steel sector led the rebound with a 21% increase.

In the spot market, steel prices have risen sharply. Public data shows that steel prices in places like Tangshan and Hangzhou have all increased, with the price of rebar steel increasing by double digits from September 24th to October 9th.

According to a report by the China Federation of Logistics and Purchasing's Iron and Steel Logistics Professional Committee, the PMI of the domestic steel industry in September 2024 was 49%, an increase of 8.6 percentage points month-on-month, ending the continuous three-month downward trend, with a significant increase, indicating a bottoming out and recovery in the steel industry.

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Many people in the steel industry have said that in late September, the optimization of domestic real estate policies is expected to lead to a recovery in the second-hand housing market, which will have a certain supporting effect on the overall real estate market, and will inevitably help stabilize steel demand.

Macro policies continue to be favorable,

The expectation of the steel industry's recovery is approaching

After a long period of "bottom grinding", steel prices have put pressure on the profits of steel companies. However, at the end of September, the overall market sentiment has significantly warmed up.

On September 26th, the Political Bureau of the CPC Central Committee held a meeting, which emphasized the need to promote the real estate market to stop falling and stabilize, to strictly control the increase in commercial housing construction, optimize the existing stock, and improve quality, to increase the loan distribution for "white list" projects, and to support the revitalization of idle land. It is necessary to respond to the concerns of the people, adjust housing purchase restrictions, reduce the interest rates of existing housing loans, and urgently improve policies on land, finance, and finance to promote the construction of a new model of real estate development.

These arrangements have led steel companies and steel traders to have better expectations for future real estate steel use. Pan Yixin, the person in charge of a steel company in central China, said frankly: "After all, steel is a bulk commodity, with a long upstream and downstream chain, and the industry is affected by every move, as the basic economic situation improves, the demand for the steel industry will also recover."In late September, a report released by the Iron and Steel Logistics Professional Committee of the China Federation of Logistics and Purchasing showed that the steel market demand has improved significantly, steel production has rebounded, the decline in raw material prices has slowed, and steel prices have fluctuated and recovered. The report predicts that in October, market demand will continue to rise, steel production will maintain an upward trend, and both raw material and steel prices may increase.

Before the steel sector market heated up, it also experienced a period of market downturn. Since the beginning of 2024, affected by the continuous low prosperity of the steel industry, the operating pressure on steel companies has further intensified, and there has been a divergence in profit performance and operational levels.

According to statistics from Mysteel, 36 listed steel companies announced their performance for the first half of 2024, with a total operating income of 1016.063 billion yuan and a total net profit of 2.944 billion yuan.

In terms of operating income, Baosteel Corporation (600019.SH) and Valin Steel (000932.SZ) had revenues exceeding 75 billion yuan. In terms of net profit, 22 companies achieved profitability, with Baosteel Corporation leading with a net profit of 4.545 billion yuan, CITIC Special Steel (000708.SZ) ranking second with 2.725 billion yuan, and Valin Steel ranking third with 1.331 billion yuan.

The reporter, after organizing the semi-annual reports of listed steel companies, found that some steel companies rely on the advantages of high-end product differentiation and obvious cost control to achieve profitability; some steel companies, on the other hand, participate in mining or layout high-quality non-steel industries, and diversified business profits make up for the loss gap in the main steel business.

Taking Baosteel Corporation as an example, in the first half of the year, the company fully promoted benchmarking and cost reduction work, focusing on efficiency improvement, economic furnace materials, energy consumption, and strict cost control, and continued to promote cost reduction and other potential exploration work. In the first half of the year, it achieved a cost reduction of 4.55 billion yuan, exceeding the target progress, which strongly supported the company's operating performance.

Pan Yixin said: "In the first half of this year, real estate and infrastructure affected the downstream demand of the steel industry, but there are still top steel companies that can achieve profitability. What this reflects is the internal management capabilities of the company, especially the company's ability to reduce costs and increase efficiency, as well as adjust the product structure to adapt to market competition."

With the implementation of macro policies, the expectation of the steel industry's recovery is also getting closer. China Galaxy Securities Research Report believes that on September 27, the central bank announced a reduction in the reserve requirement ratio by 0.5 percentage points and a reduction in interest rates by 0.2 percentage points, taking active measures to support economic growth, which is helpful to boost market confidence. Capital flows into infrastructure, real estate, and other major downstream industries of the steel industry, thereby driving the steel demand to improve.

Avoiding the "price war" and adjusting the product structure to seek new opportunities.In August 2024, compared to the collective winter of general steel enterprises, special steel enterprises are obviously having a better time. Taking CITIC Special Steel (000708.SZ) as an example, in the first half of the year, CITIC Special Steel achieved a revenue of 57 billion yuan, with a net profit of 2.725 billion yuan; Nanjing Iron and Steel (600282.SH) achieved a net profit attributable to the parent company of 1.233 billion yuan in the first half of the year, a year-on-year increase of 24.7%.

In a research report, China Chengxin International pointed out: "In the first half of 2024, the overall financial performance of the steel industry further weakened, with a widening loss of net profit of sample enterprises and a decline in the level of cash generation from operations. However, enterprises with a high proportion of high-end products, resources, and location advantages have relatively smaller declines and better ability to resist cyclical fluctuations."

Mingsheng Securities' statistical data also confirmed this point. In the first half of 2024, the revenue of the general steel plate fell by 8.76%, while the corresponding decline for the special steel plate was 1.34%. The net profit attributable to the parent company of general steel fell by 170.42%, while that of special steel increased by 28.08%. Among them, the special steel plate was relatively better, with profits rising against the trend. In the second quarter of 2024, the revenue of the general steel plate fell by 9.99%, while the corresponding decline for the special steel plate was 5.40%. The net profit attributable to the parent company of general steel fell by 78.24%, while that of special steel increased by 20.42%. Looking at it on a quarter-over-quarter basis, the general steel plate turned a loss into a profit, and the net profit attributable to the parent company of the special steel plate increased by 19.92% quarter-over-quarter.

It is worth noting that in the first half of the year, as steel enterprises have adjusted their competitive strategies, the market for variety steel has increasingly become a source of profit through adjusting product structures, where the supply and demand of high-quality special steel crude steel production have basically remained balanced.

Taking Fushun Special Steel (600399.SH) as an example, in the first half of the year, to cope with adverse factors such as the pressure of delivering key products and the decline in demand for some scaled products, the company focused on the strategic positioning of "making special steel more special." It vigorously developed new products and new markets externally, increased the order volume of automotive steel replacement varieties, and achieved a certain improvement in profitability compared to the same period last year. In the first half of the year, Fushun Special Steel's net profit after deducting non-recurring gains was 222 million yuan, a year-on-year increase of 77.47%.

From a policy perspective, the state and associations also encourage special steel that relies on technological and product innovation.

On December 22, 2023, the Ministry of Industry and Information Technology issued the "Guidance Catalogue for the First Batch of Application Demonstration of Key New Materials," with "advanced steel materials" at the top.

The transformation and upgrading of the manufacturing industry and the accelerated development of high-end manufacturing have stimulated the market demand for high-end special steel products. Industries such as high-end manufacturing, ships, automobiles, energy, and aerospace will maintain a growth trend, and the medium and long-term demand prospects for the special steel industry are optimistic.

On August 30, the China Iron and Steel Industry Association held a symposium on strengthening industry self-discipline in the steel industry, emphasizing that fighting a "price war" is not an effective market competition. Steel enterprises should compete and win together, "and pour more resources into product innovation and service upgrading, moving from scale benefit competition to technological innovation competition."

Gao Yan, the person in charge of a high-end steel pipe enterprise, said: "In order to get out of the 'internal friction' predicament of the steel industry and get rid of the 'involution' quagmire, our company insists on not taking the path of fighting a 'price war.' On the one hand, we need to continue to adjust the product structure, and on the other hand, we need to aim at the overseas market, entering the foreign high-end market with high-quality variety steel. Overseas customers not only have good payment terms but also high product profits."