Market review this week:
CITIC steel index closed at 191316 points, down 6.01%, underperforming the CSI 300 index by 1.79pct, ranking 26th in the list of gains and losses of CITIC primary sector.
Analysis of key areas:
Output expansion is imminent, and the demand in peak season remains to be verified. Affected by the tightening of production restrictions in Tangshan, Handan and other places, the national blast furnace operating rate and weekly steel production fell slightly this week. At present, it is unlikely to continue to reduce crude steel production in 2022. On the one hand, the background of crude steel reduction in 2021 is “double control of supply and demand”. The policy tightening for real estate in the second half of the year is accompanied by the simultaneous decline of steel production, The overall steel price shows a weak operation trend. Under the guidance of the current “stable growth” policy, the contraction effect of the policy of reducing crude steel output and the result that may boost the strength of steel price are not conducive to the steady-state operation of downstream infrastructure and other steel industries; On the other hand, the current iron ore price is still in the low position of the fluctuation range in the past two years, and the profit of steel enterprises has also improved significantly compared with the beginning of 2021. Under this background, it is not necessary to continue to reduce. Even if the crude steel output in the later stage is limited to some extent, the low operating rate from January to February also provides more room for increasing production in the first half of the year, The gap between the demand of sawmills and the expected increase in output in the peak season of May is still strong, and the supply intensity of sawmills is still strong after the expansion of raw materials in the peak season of March to May; In terms of inventory, with the gradual recovery of the demand side and the maintenance of low output, the social inventory decreases seasonally, but compared with previous years, the downward inflection point moves about two weeks later, while the steel plant continues to adhere to the low inventory strategy. In the process of winter storage at the beginning of the year, the inventory of the steel plant is about 30% lower than that of the same period last year, and its inventory change state is similar to that in 2019, peaking faster than that of social inventory, The recent low level of steel inventory is partly due to the high year-on-year desirable price of storage materials in the early winter of this year, and the enthusiasm of traders for reserves is restrained. On the other hand, the steel price was in the stage of continuous decline before this year, and the downturn on the demand side also makes the market more pessimistic about future demand and weak speculative demand; The current low inventory has a certain support for the steel price, but it is not driven by demand in essence, and the boosting effect is limited; According to the lunar calendar, the apparent consumption of large varieties on Friday is still weak, with obvious drag on the long end. Although the weekly growth rate of rebar consumption has improved month on month, the consumption is still significantly lower than that in the same period last year. This state may be due to the weak real estate investment and start-up demand, as well as the low utilization rate of cement clinker capacity; The average daily trading volume of building materials slowed down this week, and the trading volume once fell below 150000 tons in the middle of the week, and the trading demand, including speculative demand, showed signs of slowing down; Affected by the stronger price of iron ore and coke than finished products, the spot gross profit of steel fell to around 100 yuan / ton, and the gross profit of raw materials generally rebounded to above 500 yuan / ton three weeks later. On the whole, the profit level of the steel plant is still in the middle position, and the steel plant still has the power to expand production.
Under the expectation of steady growth, the steel sector still has long-term allocation value. With the gradual realization of the expectation of steady growth, the cyclical sector has an overall upward repair trend, and the valuation of the steel sector is still relatively low. Among them, the leading stocks with undervalued value and high dividend yield have allocation value; Recently, the loose orientation of real estate policies in some regions helps to improve the medium and long-term land acquisition and construction expectation of real estate enterprises, and then improve the demand change direction of downstream long materials. There is generally a time lag of more than half a year from sales to construction. The rise of demand expectation is expected to drive the profit of long materials related standards in the second half of the year, and high elastic standards can be focused on; In the long run, the overall capacity of the iron and steel industry is controlled or become an access barrier. With the recovery of the demand side brought by later low-carbon smelting, short process transformation and steady growth, the industry valuation still has room for upward repair.
The processing target is still the first choice, and the high growth of pipe or infrastructure is expected. In the context of cyclical fluctuations in the industry, the target of stainless steel processing is still the key recommendation at present. The characteristics of setting production by sales and high growth have become the key factors driving the stable and upward profitability, and the characteristics of technical barriers in the processing track can also effectively support the valuation premium; In addition, projects related to urban pipe network reconstruction may become an important part of infrastructure projects, and the related targets of water supply and drainage and gas pipelines are also expected to benefit from the high growth of infrastructure investment.
Investment strategy. The short-term expansion of steel mills is imminent, and the industry is facing a tug of war between the intensity of output increase and the intensity of demand. The demand in peak season remains to be verified. With the gradual realization of the expectation of steady growth, the cycle sector has an overall upward repair trend, and the valuation of the steel sector is still relatively low, among which the leading stocks with undervalued value and high dividend yield have allocation value; Stick to the processing track, be optimistic about the subject matter with both technical barriers and high growth characteristics, or usher in the simultaneous rise of valuation and profit. It is suggested to pay attention to: Zhejiang Yongjin Metal Technology Co.Ltd(603995) , Zhejiang Jiuli Hi-Tech Metals Co.Ltd(002318) . In addition, Fangda Special Steel Technology Co.Ltd(600507) , the long-term material subject with high dividend yield, and Xinxing Ductile Iron Pipes Co.Ltd(000778) which has significantly benefited from the transformation of urban pipe network also deserve long-term attention.
Risk tip: China’s output regulation policy exceeded expectations, downstream demand was less than expected, and raw material prices rose more than expected
