Weekly comments on the steel industry
With the steady start of foreign trade and high overseas inflation, China's "vacancy filling effect" may continue.
Customs data show that in the first two months of this year, China's total import and export value was 6.2 trillion yuan, a year-on-year increase of 13.3%, of which the total export value was 3.47 trillion yuan, a year-on-year increase of 13.6%. It still maintained a double-digit growth under the high base of last year, indicating that China's foreign trade has strong resilience. China's China and one belt, one road, and other countries along the way have total import and export 1 trillion and 920 billion yuan, up by 18.3% over the same period, increasing by 5pct, and China's cooperation with the countries along the route has been further consolidated. The import and export with "RCEP" trading partners reached 1.85 trillion yuan, a year-on-year increase of 9.5%. At the beginning of this year, RCEP officially came into force, and tariffs between China and member states have been significantly reduced. In the future, with the gradual implementation of the zero tariff policy for 90% of goods, the growth of intra regional trade volume will accelerate. From January to February, China's exports of mechanical and electrical products amounted to 2.02 trillion yuan, accounting for 58.3% of the total exports, with a year-on-year increase of 9.9%. Among them, the export amount of general mechanical equipment, automation equipment and parts, integrated circuits, automobiles (including chassis), medical instruments and devices increased by 11%, 7.2%, 24.8%, 99% and 3.6% respectively year-on-year, which continued to pull the demand for steel. The export volume of high-tech products was 997.3 billion yuan, with a year-on-year increase of 12.1%, accounting for 28.7% of the total export volume. With the accelerated transformation and upgrading of China's manufacturing industry and increased investment in high-tech industries, the export share of high value-added products will continue to increase, thus driving the demand for high-end special steel. In the future, major overseas economies are gradually relaxing epidemic control, and consumer demand will pick up; The intensification of geopolitical policy conflicts and sanctions against Russia have led to the surge in international grain and oil prices, and the sharp rise in living and production costs in Europe and the United States. In February, the US CPI rose to 7.9% year-on-year, a new high in nearly 40 years. Under the background of high overseas inflation, the output gap may further expand, and the "filling effect" of China's supply may continue; In terms of policy orientation, during the two sessions this year, the government work report proposed to "take multiple measures to stabilize foreign trade" and take a number of measures to "help foreign trade enterprises stabilize orders and production". Overall, although the external environment under the conflict between Russia and Ukraine is full of uncertainty, the core factors supporting foreign trade to maintain a high outlook still exist.
From January to February, the export volume of steel decreased and the price increased, and the structure was further optimized.
From January to February, China's steel export volume decreased and increased, with the export volume of 8.23 million tons, a year-on-year decrease of 18.8%; The export amount was 75.75 billion yuan, a year-on-year increase of 31.3%, the export unit price increased by 61.6% year-on-year, and the unit price of imported steel only increased by 31.5% in the same period, reflecting the further optimization of China's steel export structure and the significant increase of product added value. At present, the disturbance of the Russian Ukrainian conflict to the industrial chain is gradually emerging, and the international steel continues to rise. Among them, the EU market is facing a double impact. It is reported that the EU will ban the import of steel from Russia. Considering the basic shutdown of Ukrainian steel mills and the interruption of logistics and transportation, about 21% of EU steel imports need to find substitutes in the future. Soaring energy prices and tight supply of raw materials have led to a sharp increase in the production costs of European steel mills, and many factories in Italy and Spain have stopped production.
With the expansion of capacity gap and rising costs, local steel mills continued to push up prices. According to kallanish, ArcelorMittal raised its latest hot rolling quotation to 1300 euros / ton (US $1431 / ton) on March 10, up 150 euros from last week. Supply continues to be tight, and European traders are seeking to liberalize import safeguards. There is market news that they may consider canceling anti-dumping measures against Chinese hot sectors. It is understood that the export orders of Chinese steel mills have increased significantly in March, among which hot rolling is the most prominent. The outflow of resources overseas may aggravate the tight supply situation in China, and then push up the price of Chinese steel. This week, the price difference between domestic and foreign trade of hot rolling has reached 445 yuan / ton. If there is no policy disturbance, the price difference will promote the export volume and price of steel in the future.
The absolute return of the sector is guaranteed and the relative valuation has advantages.
The market volatility increased this week. Around the conflict between Russia and Ukraine, the game among political subjects became increasingly fierce. The sanctions against Russia by western countries such as Europe and the United States were extended to many fields. The high uncertainty of the external environment significantly reduced the risk appetite of investors. The global equity market generally fell. The US Dow Jones industrial index fell by about 2%, the Nikkei 225 fell by more than 3%, and the A-share Shanghai stock index fell by 4%. Infected by market pessimism, this week's steel index (wind) fell 26.72 points, or 0.9%, to close at 294975. On the one hand, we believe that the market may overestimate the Risk Spillover of the conflict between Russia and Ukraine. At present, China has been deeply integrated into the global industrial chain and supply chain, complementing each other with major economies, and full decoupling may be difficult to occur. As Premier Li Keqiang explained in response to reporters' questions at this year's two sessions, China and the United States "since the two sides have opened the door to each other, they should not close or decouple". In fact, since the Sino US trade dispute in 2018, the trade volume between the two countries has increased instead of decreasing. The import and export trade volume between the two countries was US $633.5 billion in 2018 and US $755.6 billion in 2021, an increase of 19.3%; On the other hand, from the performance of stocks in the sector in recent years, the dividend distribution has increased, and the total dividend has increased year by year. According to wind data, the total cash dividend of steel sector in 2021 (NATURAL year) has increased by 119% year-on-year, the absolute income of the sector is guaranteed, and the cash inflow during the holding period is stable. Based on the current situation of the industry, we suggest paying attention to three main lines: (1) leading enterprises of sheet metal under the overflow of overseas sheet metal output gap and supply substitution; (2) Electrical steel leading enterprises benefiting from the high business cycle of emerging industries such as new energy vehicles and wind power generation; (3) This year's government work report proposes to speed up the renewal and transformation of various pipe networks such as gas pipelines and the construction of underground comprehensive pipe corridors. It is expected that the investment in pipe networks will continue to increase during the 14th Five Year Plan period, and pay attention to relevant pipe making enterprises; (4) Focus on potential high dividend companies.
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. duringthe period of and , the general secretary must pay attention to the construction of and , 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.
