This week (2022 / 03 / 18-03 / 24), the inventory removal rate slowed down, mainly due to the limited delivery of steel mills under the influence of the epidemic, resulting in the continuous rise of factories and warehouses. In terms of the supply and demand structure of the steel market, although the supply side is in the rising channel in the peak season, the policy side control and the high cost of raw materials have limited the rising space of the supply side this year; The callback on the demand side this week was also mainly affected by the repeated epidemic scattered situation, the suspension of local projects and the poor transmission of materials to the downstream. It is expected that the impact of the epidemic will improve with the flexible regulation of policies and the transition to downstream transmission. At that time, while the rising characteristics of the peak season on the demand side are obvious, the inventory removal rate is also expected to show a super seasonal rise. It is expected that the fundamentals and profit center of the steel market will perform well in the peak season, and the industry configuration pattern will gradually shift from slow rise on the left to rapid rise on the right. The current configuration value of the industry is relatively prominent.
The supply side recovers gradually, with limited growth in peak season. This week, the supply side became stronger in a narrow range: the output of five varieties was 9.548 million tons, up 2.07% month on month and down 9.37% year-on-year; Thread output was 3.01 million tons, up 1.45% month on month and down 14.39% year-on-year. This week, the recovery of hot rolling output is more prominent, recovering the depression where the output fell last week. After the Winter Olympic and Paralympic Games, production has resumed in most areas, among which the utilization rate of blast furnace capacity of Shanxi steel plant has reached a high level. The utilization rate of blast furnace capacity in Tangshan increased by 5.6% to 57.74% month on month. Some blast furnaces resumed production on the 13th-15th, and the marginal operating rate warmed up. It is expected that the national average daily hot metal production will rise to more than 2.2 million tons. Under the disturbance of the epidemic, traffic control has occurred in many regions across the country, the flow and transmission of resources between regions are not smooth, and the arrival volume of scrap steel has weakened month on month. Among them, some steel mills in medium and high-risk areas of Hebei Province have stopped collecting scrap steel, and the market is at a standstill. The average profit of 40 independent EAF steel mills in China is – 166 yuan / ton. The decline of production enthusiasm of short process steelmaking enterprises and the decrease of raw material arrival have a great impact on the output in the short term. In mid March, steel production is also in the rising channel of the peak season. However, due to the control of the policy side and the high cost of raw materials this year, the rising space of the supply side is limited. It is expected that in the short term, the steel output will fluctuate and become stronger, while the seasonal output growth in the medium term will be weaker than that in the same period of previous years.
The market chain transmission is affected by the epidemic, and the configuration value in peak season is more prominent. Compared with the previous week, the total demand for the five end varieties decreased by 3.808 million tons, which was slightly lower than that of the previous week, and the total demand for the five end varieties decreased by 3.86 million tons, which was slightly lower than that of the previous week; On Friday, the total inventory of varieties was 234434 million tons, a decrease of 0.31% over last week, including 2.04% for social warehouse and 4.84% for factory warehouse; The total inventory of thread was 127681 million tons, with a decrease of 0.57% compared with last week, including 2.3% for social warehouse and 5.29% for factory warehouse. The narrow correction on the demand side this week was mainly affected by the repeated epidemic in some areas and the obstruction of the transmission of steel to the downstream. Among them, most of the steel mills in Guangdong Province were blocked by logistics, and some medium and high-risk areas could not even deliver and deliver normally. Most steel mills also took the initiative to suspend distribution to deal with the deterioration of the epidemic. With the recurrence of the recent epidemic, only key projects in some cities are under normal construction, and the proportion of regional construction sites closed is about 47%. The inventory removal rate slowed down this week, mainly due to the limited delivery of steel mills under the influence of the epidemic, resulting in the continuous rise of factories and warehouses. It is expected that the impact will improve with the flexible regulation of policies and the transition to downstream transmission. It is expected that while the demand side performance of steel will rise at that time, the inventory removal rate will also show a super seasonal rise. The fundamentals and profit center of the steel market will perform better in the peak season, and the industrial allocation pattern will gradually shift from slow rise on the left to rapid rise on the right. The industrial allocation value is more prominent.
Risk factors: the possibility of repeated outbreaks in local areas; The supply reduction of cyclical industries is less than expected; Demand is weaker than expected; Global liquidity tightened more than expected.
Investment suggestion: it is suggested to focus on two directions: first, ordinary steel, which is currently at an undervalued value, especially the companies with expected output increase this year, focus on Baoshan Iron & Steel Co.Ltd(600019) , Nanjing Iron & Steel Co.Ltd(600282) , Xinyu Iron & Steel Co.Ltd(600782) , etc. 2、 Special steel material sector with growth value, focusing on Zhejiang Jiuli Hi-Tech Metals Co.Ltd(002318) etc.
