Inventory declined month-on-month, signaling the onset of peak-season demand. This week, transaction data across the tracked regions showed an overall rebound: Beijing’s sales volume fell 6.0% month-on-month, while Wuhan’s rose 11.1% month-on-month. On the inventory front, social steel inventories stood at 15.2 million tonnes, down 1.0% from the previous month—consistent with the typical post-holiday pattern of a 3–4-week build-up followed by a peak in late February and subsequent decline. This month-on-month drop in inventory sends a positive signal, indicating that peak-season demand has begun to pick up. With the peak season now underway, operating rates have continued to rise this week: nationwide blast-furnace utilization reached 75.1%, up 0.4 percentage points month-on-month; in Tangshan, blast-furnace utilization climbed to 83.7%, an increase of 0.9 percentage points from the prior month.
Given that recent environmental production restrictions are likely to exert some downward pressure on supply, we expect the steel industry’s capacity utilization rate to rise gradually going forward. This week, steel prices remained robust and posted substantial gains, while mill gross margins continued to rebound—particularly for long products, where margins surged to elevated levels (RMB 670–740 per ton for construction steel and RMB 690–1,100 per ton for flat products). We believe that, with the official onset of the peak demand season in late February and early March, coupled with the impact of environmental production curbs and the crackdown on substandard “strip steel” around the time of the Two Sessions, the supply-demand gap is likely to widen further, making the upcoming peak season a promising period for steel prices.
Environmental protection measures are being stepped up ahead of the Two Sessions, which is expected to push steel prices higher. Recently, environmental inspection teams have launched a new round of inspections in the Beijing–Tianjin–Hebei region, with stricter production restrictions set to take effect around the time of the Two Sessions. Hebei Province has activated an emergency response, leading to the complete shutdown of several steel mills in the Wuan area. Given that the Beijing–Tianjin–Hebei region accounts for 30% of China’s total steel capacity, any production curbs in this region would have a significant impact. Based on past experience, if such restrictions were fully enforced, they could reduce daily output by roughly 200,000 tonnes. With the peak season now upon us, these factors are likely to provide further upward pressure on steel prices.
Leading steelmaker Baosteel resumes trading, providing a catalyst for the broader steel sector. We remain optimistic about the industry’s recovery in sentiment driven by capacity reduction, and expect the steel sector to benefit over the next two to three months from three key catalysts: seasonal price hikes during the peak season (due to environmental restrictions and production cuts), supportive policy measures, and strong earnings performance. Meanwhile, Baowu Steel Group’s absorption-based share-swap merger is set to resume trading on Monday; given that the steel sector has risen 7.42% during the suspension period, with individual steel stocks gaining 10%–15% on average, we are bullish on Baowu’s post-resumption performance—and view this as another significant catalyst for the sector. In terms of specific stocks, we continue to recommend leading plate producers such as Baosteel, Angang, Xinxing, and HBIS, transformation-oriented names like Nangang and Shougang, as well as companies tied to the “medium-frequency furnace” issue and their related exposure: construction steel players including Fangda, Maanshan Iron & Steel, Liuzhou Iron & Steel, Daye Special Steel, and Sansteel, among others.