The Zhitong Finance App learned that CICC released a research report saying that the steel economy has recently bottomed out due to weakening demand. The bank believes that 4Q26 is expected to achieve marginal improvement: on the one hand, the pressure on demand has been relatively fully reflected in profits and valuations; on the other hand, the easing of cost pressure is expected to drive the industry's profits to bottom up. The bank believes that along with the restoration of profits, industry leaders with alpha attributes are expected to take the lead in both valuation repair and profit improvement.
CICC's main views are as follows:
The bottom characteristics are obvious. The sector currently has a high risk-benefit ratio
The bank observed that the sector showed obvious bottom characteristics: 1) Profit bottom: The total profit of the industry in the first half of 2026 was only 31.77 billion yuan, a year-on-year decline of 25%. The profit per ton of steel was 64 yuan, which is close to the profit and loss line as a whole. The profit bottom has continued beyond the two cycles of 2008-2009 and 2015-2016. 2) Bottom of valuation: The P/B of Shenwan Steel fell back to 0.9x, at the 35% level in the past 10 years. The P/B of many general steel standards has fallen below 0.5 times. 3) Position base: The sector accounts for only 0.07% of the market value of public equity fund holdings, and the low allocation margin has increased to -0.42%. Pessimistic expectations have been relatively fully priced, and the sector has a high margin of safety.
The industry is at the bottom of the restructuring cycle, shifting from being scale-driven to value-driven
Demand continues to reduce and adjust the structure, steel used in the construction industry continues to decline, while the total amount and share of steel used in the manufacturing industry continues to rise; the supply logic gradually shifts from “profit-driven” to a gradual constraint of “capacity replacement+environmental protection+differentiated regulation”. The bank anticipates that production may continue to decline, and production capacity is expected to be cleared at an accelerated pace; the cost curve will gradually decline along with the decline in the furnace price center, while the cost advantage of low-carbon enterprises will gradually expand; industry mergers and integration ushered in the final window period, and concentration is expected to accelerate; the industry will shift from pursuing uniform competition of scale to all-round competition for product innovation, green smelting, smart manufacturing, and comprehensive service capabilities.
Focus on Alpha. The bank focuses on recommending three main lines
1) Thanks to the recovery of industry profits, Valin Steel, the core asset of the industry is currently undervalued; 2) Tiangong International-H, a leading high-end materials leader benefiting from an upgraded demand structure, and Baogang Co., Ltd., a resource leader benefiting from the low-carbon transition and rising rare earth boom.
risk
Geographical conflicts have led to sharp cost increases, demand falls short of expectations during peak season, policy fluctuations, and industry competition risks.