Why Prices Led the Decline

At midday on 31 July, Hong Kong–listed steel names tumbled: Maanshan Iron & Steel sank 7.26%, Angang Steel fell more than 6%, while Chongqing Iron & Steel and China Oriental Group also dropped, making the sector the weakest cyclical cohort of the day. Futures echoed the weakness—rebar contract 2510 closed at RMB 3,315/t, down 0.96% with both volume and open interest lower. Physical sales were equally sluggish: nationwide weekly construction-steel demand slid by almost 190 kt, magnifying the supply-demand malaise. Fast-money investors voted with their feet, signalling not only concern over further price erosion but also doubts about the durability of the industry’s profit rebound.

（image source：7.31 uSMART HK APP）

The Truth Behind the Profit Recovery

According to the China Iron & Steel Association, major producers booked RMB 2.999 trn in revenue in H1 2025, down 5.79% y/y; yet stricter self-discipline on output and cheaper raw materials lifted total profit to RMB 59.2 bn, up 63.26%, pushing the average profit margin back to 1.97%.

Beneath the glossy headline lies thin quality: profit growth relied heavily on cutting blast-furnace utilisation and locking in low-cost ore and coal, while China’s monthly crude-steel output has fallen y/y for two straight months—June’s drop widened to 9.2%—and exports slipped 8.5%. Weak property demand and soft overseas orders continue to erode steel’s pricing power. With little demand upside, earnings will stay hostage to price swings; once iron-ore costs rebound or restocking ends, the recovery could evaporate quickly.

Persistent Pressures and Investment Strategy

Valuations remain depressed: more than 300 A-shares now trade below book value, with steel joining property and construction at the top of the list—many leaders change hands at just 0.5–0.8 times PB. This already prices in the sector’s low margins, capital intensity, and property sensitivity, offering a margin of safety at the cycle’s trough.

Yet a trough is not a turning point. If property and infrastructure spending disappoint in H2 and “anti-overcapacity” output cuts advance slowly, both prices and profits could fall again. For investors, steel stocks suit tactical, policy-driven swings: watch for catalysts such as environmental output curbs, export-rebate tweaks, or sudden raw-material price drops, rather than relying on superficially strong y/y earnings growth.