Event: the 2022 government work report mentioned “promoting the energy revolution, ensuring energy supply, based on resource endowment, adhering to the principle of building first and then breaking down, overall planning, and promoting low-carbon energy transformation; continuously improving the ecological environment and promoting green and low-carbon development; this year, we will strive to stabilize the macro-economic market and keep the economic operation within a reasonable range”.
The “double control” of energy consumption has changed to the “double control” of total carbon emission and intensity, and the supply of steel and electrolytic aluminum has been curbed: the government work report proposes to orderly promote carbon peak and carbon neutralization, resolutely curb the blind development of high energy consumption, high emission and low-level projects, and promote the “double control” of energy consumption to the “double control” of total carbon emission and intensity. Steel and nonferrous metals are high energy consuming industries. Taking 2018 data as an example, China’s steel industry accounts for 18.4% of carbon emissions, and electrolytic aluminum industry accounts for 4.18%. In terms of iron and steel, since the middle and late February of 2022, many leaders of the iron and Steel Industry Association have expressed their positions one after another, and the output reduction of the industry is expected to increase; In terms of electrolytic aluminum, the short-term overseas production capacity is greatly disturbed by energy prices and geopolitics, and the medium and long-term red line of China’s production capacity inhibits the release of industry supply.
To ensure energy supply, we should base on resource endowment and insist on establishing first and then breaking down: the government work report puts forward that “promote energy revolution and ensure energy supply” and “work this year should adhere to the principle of stability and strive for progress while maintaining stability”, which shows that China will base on its own resource endowment dominated by coal, insist on establishing first and then breaking down, and realize reduction and substitution in an orderly manner. At present, there is still room for growth in China’s social power consumption, and the proportion of coal in energy consumption has decreased slowly. According to the data of the National Bureau of statistics, coal for energy consumption accounts for 69% of coal demand in 2021. According to the requirements of orderly reduction and substitution, we expect that there is still room for growth in coal demand. Combined with the historical development law of carbon peak in the United States, Germany and Japan, China’s coal consumption is expected to remain high until the carbon peak (2030).
Moderately advance infrastructure investment and enhance the expectation of “stable growth”: the government work report puts forward “moderately advance infrastructure investment and deepen the reform of investment approval system”, which shows that the reform policy of optimizing the approval mechanism this year will be accelerated to ensure that the physical work volume can be implemented as soon as possible. Premier Li Keqiang said that this year, it is planned to arrange about 3.65 trillion yuan of special bonds of local governments to invest, strengthen performance orientation, adhere to “funds follow projects”, reasonably expand the scope of use, support the follow-up financing of projects under construction, and start a number of construction projects such as qualified major projects, new infrastructure and the transformation of old public facilities.
Traditional infrastructure construction focuses on water conservancy projects and urban pipe network construction, which is conducive to the growth of pipeline demand: the government work report proposes to “build key water conservancy projects, comprehensive three-dimensional transportation network, important energy bases and facilities, accelerate the renewal and transformation of urban gas pipelines and other pipe networks, improve flood control and drainage facilities, and continue to promote the construction of underground comprehensive pipe corridors”, which is conducive to the growth of pipeline industry demand, As of March 4, 2022, the price and processing fee of nodular cast pipe are at an all-time high level.
The new infrastructure focuses on the construction of wind power base, which is beneficial to the growth of demand for copper, aluminum and non-ferrous metals: in addition to traditional infrastructure projects, the special debt will also promote the development of “new infrastructure” projects, including the planning and construction of large wind power base and its supporting regulatory power supply, and improve the consumption capacity of power grid for renewable energy power generation, which will further drive the development of copper The demand for aluminum and other non-ferrous metals has increased, and the overseas copper and aluminum inventory is at a historical low. As of March 4, 2022, the copper and aluminum price is close to the highest level in 2021, and the nickel price has reached a new high since 2012.
Investment suggestion: according to the report “increased probability of steel production pressure and reappearance of beta opportunities in the industry” issued on March 4, since the middle and late February, many leaders of the iron and Steel Industry Association have stated that the expectation of industrial production reduction has increased, and the steady growth is expected that the construction of water conservancy and underground pipe network will drive the growth of pipeline demand. It is suggested to pay attention to Maanshan Iron & Steel Company Limited(600808) , Hunan Valin Steel Co.Ltd(000932) , Xinxing Ductile Iron Pipes Co.Ltd(000778) Tianjin You Fa Steel Pipe Group Stock Co.Ltd(601686) ； Recently, the price and profit of electrolytic aluminum are rising, close to the highest level of last year. It is suggested to pay attention to the following subjects: Henan Shenhuo Coal&Power Co.Ltd(000933) , Yunnan Aluminium Co.Ltd(000807) ; Under the background of high coal demand, the price center moves upward. It is suggested to pay attention to Jizhong Energy Resources Co.Ltd(000937) , Jinneng Holding Shanxi Coal Industry Co.Ltd(601001) , Shanxi Coal International Energy Group Co.Ltd(600546) , Shan Xi Hua Yang Group New Energy Co.Ltd(600348) .
Risk analysis: (1) macroeconomic uncertainty risk; (2) Risks of policy regulation; (3) The policy risk of relaxing the approval of new coal production capacity; (4) The output growth of iron and steel and nonferrous metals industries exceeded expectations; (5) The risk of poor management of the company.
