1. Sudden change in the supply and demand pattern of the steel market: A 10% production cut in Xinjiang triggers price expectations

On March 25, 2025, several enterprises including Xinjiang Bayi Steel and Kunlun Steel announced that they would reduce their daily crude steel output by 10% starting from March 24, directly reversing the sentiment in the steel market. According to data from the National Bureau of Statistics, Xinjiang's crude steel output in 2024 is expected to be 12.9 million tons. If the output is reduced by 10% across the board, the annual output will drop to 11.61 million tons, hitting a new low since 2019. This policy signal, combined with the following factors, reshapes the supply and demand situation of steel:

Demand recovery: On March 25th, the prices of steel and building materials in the steel market "remained stable with a slight adjustment". The inventory reduction in popular cities such as Hangzhou accelerated (the inventory of rebar decreased by 10.3% compared to the peak), indicating a rise in the operating rate of construction sites and a gradual recovery in downstream procurement.

Supply-side contraction: Except for the production cut in Xinjiang, the sixth round of coke price increase and reduction in steel mills across the country has been fully implemented. After the pressure on the cost side has eased, steel enterprises' willingness to reduce production has strengthened. Huabao Futures predicts that more regions may follow suit and control production in the future.

Futures market linkage: The futures of rebar (rebar futures) fluctuated and consolidated on the day. Although it did not break through the previous high point, the open interest of funds increased by 12%, reflecting the market's strengthened expectation of "price support from production cuts".

Second, steel stocks diverge: Undervalued leading stocks may face a revaluation of their value

Under the expectation of stabilizing steel prices, the A-share steel sector presents structural opportunities:

Regional leading companies benefit from the production cut dividend:

Bayi Steel (600581) : As a direct beneficiary of Xinjiang's production cut policy, the increase and decrease in coke costs at the cost side, coupled with capacity contraction, is expected to restore its gross profit margin. On March 24th, the stock price remained unchanged, but the flow of funds indicated that the net outflow of main force funds slowed down, and there might be room for a short-term rebound.

Chongqing Iron & Steel (601005) : On March 24th, its share price was 1.37 yuan, at a low level in the steel sector. However, institutions predict that its net profit in 2025 will increase by 30% year-on-year. If the supply and demand in the industry improve, its valuation may be the first to recover.

Special Steel and High-end Manufacturing Enterprises Break Through:

Baosteel Co., LTD. (600019) : Benefiting from the recovery of the manufacturing industry, the penetration rate of its special steel products in new energy vehicles and photovoltaic equipment has increased. Institutions predict that the net profit in 2025 will be 8.986 billion yuan, representing a year-on-year growth of 15%.

Valin Steel (000932) : The production capacity of medium and heavy plates and hot-rolled coil accounts for over 70%. On March 25th, the price of profiles rebounded (for instance, the transaction volume of Tangshan 10-channel dropped by 20 yuan per ton and then rebounded), which may drive the recovery of its orders.

Iii. Risks and Strategies: Be Vigilant against Demand falsification and cost rebound

Short-term risk:

Demand falls short of expectations: If the growth rate of infrastructure investment slows down, the pace of steel inventory reduction may once again stagnate, suppressing price elasticity.

Fluctuations in raw material prices: The prices of iron ore (Newman powder 62.5%, down 3.82% weekly) and coke still have room for decline, which may compress the profits of steel enterprises.

Investment advice:

On the left side, position low-valued targets: Pay attention to Chongqing Iron & Steel (PE 8 times) and Shougang Co., LTD. (PB 0.9 times), and play against policy benefits and valuation recovery.

On the right side, high-elasticity stocks that follow the upward trend: Baosteel Co., LTD. (technically breaking through the 60-day moving average) and Valin Steel (weekly MACD golden cross) are worth short-term attention.

Iv. Industry Transformation: From "Capacity Cycle" to "Pattern Optimization"

A research report by CICC points out that the profitability of the steel industry is unlikely to see a significant improvement in 2025. However, the acceleration of mergers and acquisitions (such as the promotion of Ansteel's integration with Benxi Steel) and the new market value management policy (optimizing the valuation of state-owned enterprises) will give rise to structural opportunities. The production cut in Xinjiang may become the "first shot" in the national capacity regulation. Regional leaders with high integration potential (such as Bayi Steel) and special steel enterprises with high technical barriers (such as Fushun Special Steel) are expected to stand out.

Conclusion: The bottoming out of steel prices and the production cuts by steel mills have resonated, providing a temporary window for the recovery of steel stocks. Investors need to combine policy guidance with the fundamentals of enterprises, seek a balance between "low valuation + high elasticity", and at the same time be vigilant about marginal changes in the demand side.