STEEL stocks are back in vogue, as China’s push for clean air and new infrastructure offsets worries about a supply glut.

Bolstered by prices near a seven-year high, heavyweights Baoshan Iron & Steel Co. and Angang Steel Co. are among Goldman Sachs Group Inc.’s favorite basic materials stocks, the bank said in a note earlier last month.

Both posted solid growth in earnings, and are likely to see the uplift continue on strong steel demand through the rest of the year, according to Bloomberg Intelligence analyst Yi Zhu.

With China planning tougher capacity cuts over the winter to reduce air pollution, steel futures last month surged to the highest level since 2011. The government, meanwhile, has also pledged to speed up infrastructure spending in the face of an escalating trade conflict with the United States, which will boost demand for steel.

“We are optimistic on steel demand,” said Sandra Huang, a Hong Kong-based analyst with UOB Kay Hian Holdings Ltd. “The infrastructure sector will receive notable support in the second half to offset a weakening in the property sector.”

Valuations will recover further because of supply cuts, said Huang, who has had an overweight rating on the sector since the beginning of the year.

Baosteel, China’s biggest mill, and No. 3 producer Angang have rebounded from their early July lows, outperforming broader gauges of stocks. Goldman sees 70 percent upside for Baosteel and 50 percent for Angang’s Hong Kong-listed shares.

News on China’s supply cuts has come thick and fast. Constraints this winter may be extended to more cities in the north, while the government’s blue-sky protection plan would expand curbs through 2020, affecting about 7 percent of national output, according to Morgan Stanley.

(SD-Agencies)