Guosheng Securities: Steel's weak profit trend continues and is expected to improve month-on-month in the fourth quarter

The Zhitong Finance App learned that Guosheng Securities released a research report saying that focusing on the implementation of “stepping up domestic demand and optimizing supply” on the policy side is expected to drive phased improvements in fundamentals. The scale of credit union finance added in September has both exceeded expectations. Government debt issuance is the main support. Improvements in finance-related supporting financing are driving the improvement of medium- and long-term corporate loans, supporting the transition economy, and will also have a positive effect on future ferrous metal profit improvements. Earnings data from listed companies for the first three quarters showed that profits from steel mills declined year on year, and the pattern of industry segmentation continued. The bank expects financial execution to gradually accelerate in the fourth quarter, thereby underpinning demand. If supply contraction policies such as “reverse internal circulation” and carbon dual control in the later stages of the industry are strictly implemented, the current sluggish profit situation of steel companies will be reversed, and the sector will also have excess profits.

Guosheng Securities's main views are as follows:

Industry profit

This year's total policy is the same as last year, but it focuses more on structural transformation. However, the reform will have the effect of a certain fiscal contraction; the actual level of fiscal easing will be lower than in 2025. While steel prices weakened in the first three quarters, costs rose. Total industry profit was 24.34 billion yuan, down 73.3% year on year. The industry's gross profit per ton of steel was 33.6 yuan, down 96.9 yuan year on year. The share of steel companies in upstream and downstream profit distribution fell to about 7% in the first half of the year, far lower than the average value of 21% since 2011-2025.

Status of the three-quarter report

The revenue of listed steel companies in the first three quarters of 2026 fell 2.1% year on year, and costs fell 0.7%. The main reason for the greater decline in revenue was that domestic demand weakened in the second and third quarters. At the same time, production capacity utilization remained high, bargaining power in the middle smelting process was impaired, and the cost side continued to increase. The sample steel companies achieved net profit of 1.17 billion yuan, a year-on-year decrease of 93.8%. The net profit margin on sales was 0.2%, down 1.4 pcts year on year. Financial reports show that the industry's comprehensive period expense ratio remained flat year on year, debt service indicators improved slightly, balance ratio increased slightly year on year, and inventory turnover days increased.

Increased differentiation

Special steel's revenue increased by 3.8% in the first three quarters of 2026, steel pipe and general steel fell 5.6% and 0.6% respectively, and the gross sales margins of special steel, steel pipe and general steel decreased by 1.1 pct, 2.9 pct, 1.4 pct to 7.1%, 5.9%, and 5.0% year-on-year, respectively. The main differences in profit changes in each sector stemmed from differences in the characteristics of downstream demand. Downstream demand for special steels increased steadily, and the price sensitivity of high-end special steels supported profit resilience. Steel pipes were used in a large number of oil and gas industries. Oil valves were closed due to geopolitical conflicts, and demand for oil and gas pipelines in the Middle East fell at a stage., Pu Steel's profit It declined due to weak domestic demand in the second and third quarters and implementation of production restriction policies falling short of expectations. Demand for construction steel corresponding to long materials has continued to decline since 2021, while manufacturing and export demand corresponding to plate has gradually rebounded, becoming the main part contributing to the increase in steel demand. Whether in terms of absolute value or fluctuation in gross margin net margin, plate has stronger profit resilience.

Risk warning: Overseas economies have experienced severe turmoil, surrounding geographical conflicts have intensified, domestic fiscal expenditure falls short of expectations, and implementation of production restrictions is not effective