Hong Kong Stock Concept Tracking | Steel supply-side reforms are expected to resume, and can the industry's difficult situation be reversed?

The Zhitong Finance App learned that the steel concept sector, which had been dormant for a long time, suddenly rose on the afternoon of July 2. In particular, Chongqing Iron & Steel (01053) saw a sharp rise in intraday violence by more than 130%. By the close, Chongqing Iron and Steel shares surged 91.11%, China Iron and Titanium (00893) rose 20.97%, Angang Steel (00347) rose 12.73%, China Oriental Group (00581) rose 11.45%, and Maanshan Iron and Steel (00323) rose 3.59%. Concept stocks related to the A-share market also surged higher at the same time.

According to the news, the 6th meeting of the Central Committee on Finance and Economics was held on July 1. The conference emphasized the need to further promote the construction of a unified national market, focus on key difficulties, control low price and disorderly competition among enterprises according to law and regulations, guide enterprises to improve product quality, and push for an orderly exit from backward production capacity.

The market interpretation is that steel supply-side reforms are expected to increase.

At the same time, Tangshan's increased environmental protection efforts to reduce production restrictions have also attracted great attention from the market. News of the emission reduction and production limit measures in the Tangshan market from July 4 to 15 is circulating in the market. According to Mysteel's full-process follow-up survey of steel companies in Tangshan, currently about half of the steel mills said they have received notifications, and most of the remaining steel mills also indicated that there is a possibility that they have indeed. According to Mysteel sintering data on June 25, 12 steel companies in Tangshan (accounting for 60% of production capacity) produce 270,000 tons of sintering per day, with a capacity utilization rate of 83%; if the production limit policy is implemented according to the plan, the capacity utilization rate may drop to 70%, and the daily sintering mine production may decrease by 30,000 tons.

The industry mentioned that the current demand for steel is facing multiple challenges such as the continued downturn in the real estate industry, limited momentum from infrastructure investment, and increased pressure on Chinese steel exports from overseas markets. There is indeed a possibility that the supply side will regulate production to ease the conflict between supply and demand in the market. If the government introduces relevant policies, it will further strengthen supply contraction on the basis of the market's spontaneous removal of production capacity. However, its specific impact still requires attention to the formal implementation of the policy and the intensity of implementation.

However, after a series of cold winters, the steel industry showed signs of recovery in the first half of 2025. According to data from the National Bureau of Statistics, from January to May 2025, the ferrous metal smelting and rolling processing industry achieved operating income of 3136.45 billion yuan, a year-on-year decrease of 7.0%; operating costs of 2985.77 billion yuan, a year-on-year decrease of 8.7%; and total profit of 31.69 billion yuan, changing from loss to profit year-on-year.

Huachuang Securities previously pointed out that since this year, prices of major raw fuels have continued to fall, and the cost side of steel mills has declined quite significantly, providing a certain guarantee for steel profits. As a result, the profit level of steel mills has been restored. Currently, however, demand support is relatively weak, and profit recovery mainly comes from cost-side concessions. In the future, if crude steel regulation work is substantially implemented, industry supply is expected to begin to decline. On the one hand, it is expected that raw fuel prices will be further suppressed, and on the other hand, improving the supply-demand relationship to support steel prices, which in turn will bring about greater flexibility in steel profits.

Cinda Securities believes that in the future, the steel industry pattern is expected to stabilize and improve. Currently, some companies are already in an undervalued region, and there are still structural investment opportunities at this stage. In particular, excellent special steel companies with high gross margin levels and leading steel companies with strong cost control and scale effects have opportunities for valuation repair in the future.

Zhao Liangbi, chief analyst of the communications industry at China Galaxy Securities, said that the steel sector is expected to start new changes and new cycles at the structural level. Among them, the performance of the special steel sector is expected to improve marginally, and the transformation of the traditional sector with AI will also usher in new opportunities. In recent years, the prosperity of the steel industry has continued to be low, and the valuation of relevant individual stocks has fallen back to a relatively low level. With the gradual improvement of the industry's supply and demand pattern, the profitability and valuation of leading steel companies are expected to recover.

Hong Kong stocks with steel-related concepts:

Angang Steel Co., Ltd. (00347): According to a report by Angang Steel Daily, recently, a R&D team led by Angang Steel Co., Ltd. and composed of various organizations within the United Nations took the lead in independently developing and producing the “Inconel 625 nickel-based alloy+X65 pipeline steel” bimetal composite pipe for deep-sea oil and gas transportation in China. According to reports, the “Inconel 625 nickel-based alloy+X65 pipeline steel” bimetal composite pipe has achieved both high performance and low cost, making China's deep-sea bimetal composite pipeline material technology rank among the world's pioneers.

Maanshan Iron & Steel Co., Ltd. (00323): Maanshan Iron & Steel Co., Ltd. announced results for the first quarter of 2025, with operating income of about 19.425 billion yuan, a year-on-year decrease of 4.74%; net loss attributable to shareholders of listed companies was about 144 million yuan, a year-on-year narrowing of 53.67%; and a basic loss of 0.02 yuan per share. According to the announcement, the year-on-year reduction in losses was mainly due to the reduction in raw fuel prices greater than the decline in steel prices during the current period, as well as the company's internal cost reduction. During the reporting period, the group insisted on reducing costs from all factors, improving quality throughout the process, and dealing with uncertainty in the external environment with certainty in management improvements. The results were obvious. The Group produced a total of 4.57 million tons of pig iron, 5.15 million tons of crude steel, and 4.9 million tons of commercial billets, up 1.68%, 4.99% and 5.18%, respectively, over the previous year.

Chongqing Iron & Steel Co., Ltd. (01053): Chongqing Iron & Steel Co., Ltd. released its report for the first quarter of 2025, with operating income of 6.614 billion yuan (RMB, same below), a year-on-year decrease of 14.51%; net loss to mother was 117 million yuan, a year-on-year decrease of 64.82%; and a basic loss of 0.01 yuan per share. According to the announcement, losses were drastically reduced year-on-year in the first quarter of 2025, mainly due to the fact that in the current period, the company strengthened account settlement and lean operations, continued to improve process production efficiency, and vigorously promoted cost reduction. At the same time, it kept a close eye on both markets, adjusted purchasing and sales strategies to cope with downward market pressure, and achieved a total profit of 5.13 million yuan in March.

China Oriental Group (00581): China Oriental Group announced that for the three months ending March 31, 2025, the sales volume of steel products produced by the Group itself was about 1.8 million tons, with a gross profit of about 100-150 yuan per ton, and operating profit of about 199 million yuan after net financial costs.