Weekly comments on the steel industry
The policy of steady growth is strong, and the demand is supported.
On March 5, Premier Li Keqiang, on behalf of the State Council, made a report on the work of the government of the National People's Congress. We sort out the report from the perspective of industry and believe that the total demand has increased and the structure has made a breakthrough. The report determines that the economic growth target in 2022 is about 5.5%. In order to ensure the smooth completion of the target, it emphasizes that "the policy force should be properly advanced, and the reserve policy tools should be used in time to ensure the smooth operation of the economy". In terms of monetary policy, it is proposed to "expand the scale of new loans" and "reduce the actual loan interest rate". It is expected that the tone of wide credit and wide currency may run through the whole year. In terms of fiscal policy, this year's deficit rate is 2.8%, but the actual deficit rate is expected to be 3.8% higher than last year. General public financial expenditure increased by 8.4% year-on-year, which is also significantly expanded compared with last year. The report points out that "the scale of expenditure is more than 2 trillion yuan larger than last year, and the available financial resources are significantly increased". At the same time, it is also planned to reduce taxes by about 2.5 trillion yuan this year, an increase of about 1.5 trillion yuan over last year. Considering that this year's economic growth target is still not low, superimposed with the expansion of fiscal expenditure and the multiplier effect, we believe that the total demand is expected to expand further this year. The report emphasizes the need to "enhance the core competitiveness of the manufacturing industry", "strengthen the supply guarantee of raw materials and key parts", and strive to cultivate "specialized and special new enterprises". Under the background of the sudden change of the current international situation and the wanton waving of sanctions by western countries such as Europe and the United States, we believe that we should plan ahead and strengthen the security and stability of the industrial chain and supply chain is the leading direction of the policy, The import substitution trend of special steel new materials will be strengthened. In fact, the guiding opinions on promoting the high-quality development of the iron and steel industry issued by the Ministry of industry and information technology at the beginning of this year also proposed to strive to break through about 5 kinds of key new iron and steel materials every year; The report also proposes to "continue to support the consumption of new energy vehicles, encourage local governments to carry out green smart appliances to the countryside and trade in old ones for new ones", "promote the planning and construction of large-scale wind and solar power bases and their supporting regulatory power sources", and it is expected that the demand for electrical steel closely related to new energy vehicles, wind and solar power generation and other industries will remain high; In terms of expanding effective investment, the report proposes to "accelerate the renewal and transformation of urban gas pipelines and other pipe networks... Promote the construction of underground comprehensive pipe gallery". Pipe making enterprises such as stainless steel pipes, seamless steel pipes and oil and gas pipelines welcome the policy east wind, and their performance is expected to take advantage of the trend.
International steel prices continued to rise, and the overflow of overseas gap raised China's profit center.
Recently, the international steel price has continued to rise. According to Argus, on March 4, the European hot rolling factory was 104525 euros / ton, with a weekly increase of 95 euros / ton. The FOB quotation of Turkey's hot rolling export was 1025 US dollars, with a weekly increase of 85 US dollars. The conflict between Russia and Ukraine caused supply shortage and energy shortage, which is speeding up the international steel price. As we pointed out in our report last week, Russia and Ukraine are important steel producers and exporters in the world. According to the statistics of the World Steel Association, the crude steel output of Russia and Ukraine in 2021 was 66 million tons and 21.4 million tons respectively, accounting for 7.2% and 2.3% of the crude steel output of overseas regions (except China), while the CIS exported 40.6 million tons of steel to the region in 2020, Accounting for 17.2% of the global steel trade volume (same caliber ratio), its main export destination is Europe. At present, steel mills in this region are suffering from serious energy shortage and rising power costs. Due to EU sanctions, Russia has stopped transmitting natural gas to Germany through Yamal pipeline, resulting in a sharp rise in electricity prices (European natural gas power generation accounts for 19%), The electricity price of Germany traded on the European energy exchange will rise to 421.92 euros / megawatt hour in the coming month, which is 2.2 times that before the conflict between Russia and Ukraine. Based on 460 kwh of electricity consumption per ton of steel for electric furnace, the power cost per ton of steel for short process in Europe will be as high as 194.08 euros, converted into 1357 yuan, several times that of Chinese steel enterprises, Such high costs will exacerbate the losses of European steel mills and lead to shutdown, further expanding the overseas supply gap. At present, the gap shows signs of spillover to China. According to metalexpert, EU customers are looking for alternatives supplied by Russia, and China is expected to return to the European market. On March 4, the FOB quotation of China's hot rolling export was US $854, equivalent to 5405 yuan. Compared with the overseas market, there is still a large gap, while the price of domestic trade in Shanghai is 5190 yuan, 215 yuan cheaper than that of export, which is in a global price depression. If the situation between Russia and Ukraine continues to be tense, there is a great possibility that the domestic trade market will continue to rise in the future, thanks to China's strong energy security measures, It is expected that the rising space of the cost side of the steel plant is limited, and the profit center is expected to move up.
Ore prices rose against the wind, and the "cornerstone plan" proposal was just at the right time.
This week, the ore price rose by US $18.95 to US $152.4. In the repeated calls of the regulators, the ore price was close to the mid year high again, exceeding the market expectation. The resumption of production expectation and the rise of steel price are the core logic of capital taking advantage of the situation to push up. However, it should be noted that the real iron ore fundamentals are still poor, the port inventory is still at an all-time high, the long-term association discount of some varieties by mainstream mines increased in March, the impact of the conflict between Russia and Ukraine on the supply of iron ore is limited, and the ore price rises against the wind, which may be "hit head-on" by the regulators in the future. According to he Wenbo, member of the National Committee of the Chinese people's Political Consultative Conference, Secretary of the Party committee and executive chairman of China Iron and Steel Association, in an interview with reporters a few days ago, he will submit the proposal on implementing the "cornerstone plan" to improve China's iron resource support capacity at the two sessions this year, so as to ensure supply from the "three major sources of iron resources" and clarify the "three nodes" of the guarantee goal. We believe that the proposal is timely. With the implementation of relevant policies and measures, the resource bottleneck restricting the development of the industry is expected to be solved in the future, the ore price will return to a reasonable level, and the profits of the industrial chain will be reconstructed. In the medium and long term, the logic of the iron and steel stock chief lies in the limited supply, the cornerstone plan, the improvement of industrial concentration and the prominent allocation value.
General steel investment suggestions:
With the increase of industrial concentration and the superposition of supply constraints, the iron and steel industry has changed from strong cycle to weak cycle, the profit center of the industry has moved upward and the dividend proportion has gradually increased. In the long run, the main driver of the demand side of the iron and steel industry will turn to manufacturing. It is suggested to focus on the following: ' Maanshan Iron & Steel Company Limited(600808) \\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\\ Hunan Valin Steel Co.Ltd(000932) , Zhejiang Yongjin Metal Technology Co.Ltd(603995) , etc. in addition, the general secretary gave instructions: "during the 14th Five Year Plan period, pipeline reconstruction and construction must be taken as an important infrastructure project, and the relevant targets may benefit in the future, It is suggested to pay attention to: Xinxing Ductile Iron Pipes Co.Ltd(000778) , Zhejiang Kingland Pipeline And Technologies Co.Ltd(002443) , Tianjin You Fa Steel Pipe Group Stock Co.Ltd(601686) , etc.
Investment suggestions for special steel new materials:
Special steel is different from ordinary steel and belongs to an industry strongly supported by policies. There is "import substitution" in China's medium and high-end special steel new materials and "global share increase" outside. At present, the proportion of medium and high-end special steel in China is about 4%, which is still quite different from that in Japan, Europe and other developed countries. China's medium and high-end manufacturing industry is developing rapidly, and the demand for medium and high-end special steel is expected to usher in rapid growth, The valuation of medium and high-end special steel enterprises is expected to be further improved. From the valuation of special steel companies in Japan, Hong Kong and the United States, they are mostly at a high level of 15-25 times. The rapid development stage of special steel in Japan, Europe and the United States has passed, while China's medium and high-end special steel is still in the growth stage and should enjoy a certain valuation premium. It is suggested to pay attention to: Citic Pacific Special Steel Group Co.Ltd(000708) , Zhejiang Jiuli Hi-Tech Metals Co.Ltd(002318) , Tiangong international, Yongxing Special Materials Technology Co.Ltd(002756) , Fushun Special Steel Co.Ltd(600399) , Gaona Aero Material Co.Ltd(300034) , Zhangjiagang Guangda Special Material Co.Ltd(688186) , etc.
Risk analysis: the demand for steel is less than expected, and the price of raw materials rises sharply.
