If the anti-involution policy can promote crude steel reduction, it may further help the steel industry to repair its profits.
Huatai Securities' latest research report indicates that the steel industry's prosperity reached its bottom in the third quarter of 2024, driven by the industry's self-initiated production cuts. If anti-involution policies can promote crude steel production cuts, it may further help the industry's profit recovery. From January to July 2025, the rise in the steel sector was mainly driven by speculation on anti-involution policies, and the policies have not yet entered the stage of substantial implementation. Anti-involution expectations have led to a significant increase in the prices of coking coal and iron ore, once again eroding steel profits, which may force steel mills to enter the implementation stage of anti-involution.
The institution specifically stated that the steel industry has undergone two rounds of supply-side optimization from 2016 to 2020 and in 2021. The former aimed to correct the severe oversupply in the steel industry, while the latter stemmed from the dual carbon policy and the suppression of rapidly rising iron ore prices. After the implementation of the policies, the industry's profits improved significantly, but the sustainability of prosperity showed differentiation. "The trend of demand and the consistency of policy implementation" are key to determining the sustainability of prosperity. From 2016 to 2020, the apparent demand for crude steel was in an upward cycle, and the policy consistency was strong, with the crude steel profit per ton remaining at a high level of 234-434 yuan for five years. In 2021, "dual carbon reduction" coincided with weakening apparent demand, and the production reduction policy lacked sustainability, resulting in a short-lived improvement in prosperity. The two rounds of supply-side policies have experienced different economic cycles, and the rich experience is beneficial to the formulation and implementation of anti-involution policies.
Entering 2025, the short-term urgency and long-term strategic nature of anti-involution have entered a stage of game. From the third quarter of 2024 to the first half of 2025, the industry's prosperity improved through self-initiated production cuts, reducing the short-term urgency of anti-involution. Future related policies will depend more on the government's strategic positioning of anti-involution in the steel industry. During the third quarter of 2024, nearly all of the 247 key steel companies were losing money, which subsequently triggered self-initiated production cuts in the industry, pushing the industry's prosperity into a recovery channel. If the anti-involution policy is implemented and triggers a reduction in crude steel production, it may further improve the industry's profits.
The main risks are: on the one hand, a decline in domestic demand or an increase in anti-dumping measures against steel products overseas, leading to export obstacles. On the other hand, the price of upstream raw materials rises due to supply disruptions, eroding steel profits.
