Guojin Securities: Geopolitical disturbances amplify China's long-process steel cost advantage, steel profit repair medium-term foundation is expected to gradually form.

Guo Jin Securities released a research report stating that steel demand is transitioning from being mainly driven by real estate pricing to a new stage characterized by building at a low base, release of manufacturing cycles, and reassessment of export exposure. The significant escalation of natural gas and gas-electricity costs due to the US-Iran geopolitical conflict has shifted the cost curve of overseas production capabilities with a high proportion of EAF and DRI-EAF. China's steel industry is mainly based on blast furnace- converter, with costs anchored more to coal, coke, and iron ore; under external pressure from gas-electricity, the marginal cost is relatively stable. Looking at the supply-demand balance, it is expected that the supply-demand balance will shift from loose to balanced between 2026-2028, with supply control, investment cycles, and export substitution becoming the three main drivers for balancing optimization. The mid-term foundation of steel profits recovery will gradually take shape.