The steel industry's output reduction is expected to increase again. Under the background of steady growth, the market once believed that the probability of output reduction and output growth of the steel industry in 2022 was low, which was not conducive to the improvement of the relationship between supply and demand of the steel industry and the investment in steel stocks. However, since the middle and late February, many leaders of the China Iron and steel industry association system have expressed their positions one after another, which has significantly increased the expectation of pressure production in the iron and steel industry. Therefore, if the pressure output finally becomes the policy goal of the steel industry in 2022, it will mean: (1) it is expected to reverse the market's expectation of the steel industry in 2022; (2) China's crude steel production may peak in 2020.
Steel production will help reduce iron ore prices. Almost all iron ore is used in the iron and steel industry. About 60% - 70% of the global demand for iron ore comes from China. Therefore, China's iron and steel production directly affects the supply and demand relationship of iron ore. Since February 11th, the official account of the NDRC has issued six information on iron ore, and has interviewed iron ore traders and some port enterprises, and has studied the Dalian commodity exchange. However, this has not changed the output and real demand of iron ore. The iron ore price has recovered significantly after the callback. China's measures to improve the supply-demand relationship of iron ore also depend on steel production, which has been effectively verified last year.
The feasible path of steel production is to reduce the export volume. In 2021, China's steel export increased by 25% to 66.9 million tons (accounting for about 6.5% of steel output), which was achieved against the background of China's output falling by 3%, which mainly reflected the strong foreign demand. We expect that if the output is reduced in 2022, the more likely path is to reduce the export volume while ensuring China's supply. According to the data on February 24, 2022, the hot coil prices of major economies are significantly higher than those of China, and the price difference is generally higher than the average in 2021 and 2020 and the average in the last 15 years. This shows that the overall demand situation abroad this year is stronger than that in China.
If China reduces steel production, the corresponding gap will push up overseas steel prices.
Referring to the effective time of last year's output reduction policy, the effect of this year's steady growth policy is also worth looking forward to. The policy of reducing crude steel output was first put forward at the national industrial informatization work conference on December 28, 2020. However, the national steel output did not start to increase negatively year-on-year in a single month until July 2021, and began to increase negatively year-on-year in October 2021. Finally, it decreased by 3% in the whole year. This shows that there is a certain time lag from the proposal of the policy to the appearance of the effect, so the strength and effect of the steady growth policy at the beginning of this year in the second half of the year is very worthy of expectation.
Valuation quantile: according to the closing price on March 2, 2022, the Pb of ordinary steel sector is currently 1.00, which is at the 18% quantile since 2013, with 150% space compared with the highest value in June 2015; The ratio of Pb in general steel sector to Pb in Shanghai and Shenzhen stock markets is currently 0.51, which is 33% since 2013, with 61% space compared with the highest value in August 2017, indicating that the absolute and relative valuation of general steel is still in a low position.
Investment suggestion: the probability of reducing production increases, and the beta opportunity reappears. The recent steel production reduction is expected to increase again, and the industry is expected to usher in beta opportunities again. At present, the valuation of ordinary steel sector is at the low level since 2013, and there is still much room to rise compared with the historical high. Combined with the company's elasticity and medium and long-term profitability, it is recommended to pay attention to Maanshan Iron & Steel Company Limited(600808) , Hunan Valin Steel Co.Ltd(000932) , Xinyu Iron & Steel Co.Ltd(600782) , Baoshan Iron & Steel Co.Ltd(600019) , Xinjiang Ba Yi Iron & Steel Co.Ltd(600581) .
Risk tips: (1) the pressure on production is less than expected; (2) Steady growth did not drive steel demand as expected; (3) The rapid rise of steel price leads to the risk of government regulation.
