The Zhitong Finance App learned that Guotai Junan released a research report saying that speeding up industrial concentration and promoting high-quality development is an inevitable trend in the future development of the steel industry. Steel companies with leading and product structure advantages will fully benefit, while the industry's low inventories, especially construction steel stocks, are at historically low levels. As demand recovers, the industry is expected to enter an inventory replenishment cycle, which in turn drives prices. The time for leading positions in the steel industry is just right. 1) Focus on recommending enterprises with continuous product structure upgrades, while also recommending enterprises benefiting from the recovery of infrastructure and water investment expectations; 2) Recommend new special steel materials companies with a high level of industry prosperity, special steel leaders with competitive advantages; enterprises with strong demand for domestic boiler pipes and overseas oil and gas pipelines; new materials companies; 3) Under the trend of demand recovery, they are optimistic about upstream resource products with long-term pattern advantages.

Guotai Junan's main views are as follows:

Steel demand has become less sensitive to fluctuations in the real estate industry. At the same time, as support policies for the real estate industry continue to be introduced and disseminated, the decline in new construction on the real estate side is expected to narrow further in 2024, and the negative drag of real estate on the steel industry will decline markedly. From a global perspective, the cycle of overseas interest rate hikes is basically over and interest rate cuts can be expected, which will further open up room for steady growth in domestic monetary policy. Domestic treasury bonds support infrastructure demand, manufacturing upgrades, and global competitive advantages in the automotive, home appliance, shipbuilding and other industries. Overall demand is progressing steadily. Demand in the steel industry is expected to exceed market expectations and achieve positive growth in 2024.

The industry's capacity cycle is over, and short-term supply depends on profit. In 2016-2018, the industry's supply-side reforms removed production capacity, and the industry's capacity expansion cycle ended. After carbon neutralization in 2021, the industry's production equalization policy led to a ceiling in the upward supply. When production does not break through the ceiling, the elasticity of supply depends on the state of profitability. Against the backdrop of weak demand and strong raw materials in 2023, the industry's profit ratio continued to decline. There were maintenance and production cuts. The profit side of the industry bottomed out, and supply contracted marginally. Looking ahead to 2024, as the overseas economy enters a recession cycle, energy and raw material prices on the cost side are expected to return, supply will more match demand, and the profit side will bottom out and rise.

The rise of leaders is an important characteristic of the steel industry entering a new cycle. As the demand structure changes, the demand for board is rising steadily, and the demand for high-end panels such as automobiles, home appliances, shipbuilding, offshore, and energy is strong. The added value and profit of a single ton of product brought about significant increases in the added value and profit of a single ton of product brought about by active adjustment of product structure, accumulation and weak development, R&D drive, and continuous capital expenditure and equipment investment, gradually closing the gap with the average gross profit gap with the industry. At a time when the industry is facing marginal losses for most steel companies, leading companies still maintain a high level of profit by relying on price and cost advantages brought about by product differences and management, and the rise and fragmentation of industry leaders is emerging.

Risk warning: The recovery in steel demand fell short of expectations, and steel production increased more than expected.