Market review this week:
CITIC steel index closed at 186304 points, up 2.63%, outperforming the Shanghai and Shenzhen 300 index by 0.2pct, ranking 11th in the list of gains and losses of CITIC primary sector.
Analysis of key areas:
The output of steel mills fell for a short time, and the post demand was gradually released under the background of the epidemic. This week, the utilization rate of blast furnace capacity and steel production in China fell slightly as scheduled. The utilization rate of ironmaking capacity of 247 steel mills in China fell to 83.8%, with a month on month ratio of – 1.7pct and a year-on-year ratio of – 3.2pct. The weekly output of China’s five major varieties of steel fell to 9.626 million tons, with a month on month ratio of – 0.9% and a year-on-year ratio of – 8.4%. Recently, the output of steel mills fell for a short time, mainly because with the tightening of epidemic prevention and control, steel mills in Tangshan, Hebei and Shandong were passively stuffy due to insufficient supply of materials, At the same time, the rising cost of electric furnace suppresses the output of short process. It is expected that with the easing of control measures, the supply may recover slightly, but the intensity is still lower than that in previous years; In terms of inventory, the social inventory of large steel varieties fell seasonally to 16.862 million tons on Friday, with a month on month decrease of – 1.3% and a year-on-year decrease of – 14.4%. The weekly decline of social inventory picked up slightly. The inventory of steel mills of large steel varieties fell to 6.292 million tons on Friday, with a month on month decrease of – 1.3% and a year-on-year decrease of – 23.7%. Affected by this, the total inventory of steel went to the warehouse by 1.3% this week, indicating that the supply and demand situation has improved; The apparent consumption of steel after the summary of output and total inventory data increased to 9.704 million tons this week, with a month on month increase of + 2.3% and a year-on-year decrease of – 18.2%. According to the caliber of the lunar calendar, the weekly consumption of thread steel decreased by 31.5% year-on-year. This state may be due to the weak demand related to real estate and the postposition of demand caused by recent epidemic factors; This week, the average daily trading volume of building materials rebounded to 177000 tons, a month on month increase of + 17.6%. The trading volume once rose above 200000 tons in the middle of the week, and the mood of spot trading improved; This week, the spot price of iron ore and coke and finished products continued to strengthen against the trend, the spot gross profit of mainstream steel was still in the low profit range, the gross profit of raw materials lagged behind for three weeks, the profit of electric furnace was in the low profit state due to the strong price of scrap steel, electricity and auxiliary materials, and the capacity utilization rate of electric furnace may continue to fall. We believe that it is unlikely to introduce the policy of continuing to reduce crude steel production in 2022. On the one hand, the background of crude steel reduction in 2021 is “dual control of supply and demand”. Under the guidance of the current “steady growth” policy, the contraction effect of the policy of reducing crude steel production and the result that it may boost the strength of steel prices 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. The profitability of steel enterprises has improved significantly in the past year, and the necessity of continuing to reduce is not strong. Even if the output of crude steel in the later stage is limited, the lower output from January to February also provides space for increasing production; It is expected that while the output of steel mills will pick up slightly in April, the demand for postposition affected by the epidemic is also expected to gradually pick up under the policy warm wind, and the supply and demand situation or margin will improve;
Reconfirmation at the end of the policy, weak reality or full valuation. This week, the national Standing Committee once again set the tone to stabilize growth, and the end of the policy has been revealed. “Stick to the goal and put steady growth in a more prominent position” and “policies to stabilize the economy come out early and quickly, and do not come up with measures detrimental to stabilizing market expectations” to further strengthen market confidence. Combined with the statements of “actively introducing policies beneficial to the market and carefully introducing contractive policies” at the meeting of the financial committee in mid March, We believe that the end of the policy has been reconfirmed. For the steel sector, the weak reality has lasted for more than a month, and the negative impact on the valuation of the sector may have been fully priced by the market. With the passage of time, the demand reversal brought by the main line of steady growth is expected to make the expected difference of the sector, and there is a large room for industrial valuation to be repaired; In particular, the recent loose adjustment of housing loans and development loans in many places is expected to promote the real estate industry into a virtuous circle. At the same time, it is expected to release more loose signals. Combined with the further development of infrastructure investment, the growth potential of downstream long timber demand is huge. Pay attention to the possibility of the turning point of long timber demand in April, and focus on high elasticity targets;
The processing target is still the first choice, and the high growth of pipe or infrastructure is expected. In the context of weak demand for ordinary steel, the target of stainless steel processing still has significant comparative advantages. The business model of setting production by sales and high growth characteristics have become the basis for driving stable and upward profits, and the characteristics of technical barriers of 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 trend of short-term steel plant production increase continues, while the industry supply and demand situation improves marginally, and the demand in peak season remains to be verified. With the re strengthening of the expectation of stable growth in the near future, the allocation value of the steel sector in the valuation depression is prominent, among which the leading stocks with undervalued value and high dividend rate deserve special attention. It is suggested to pay attention to the long-term material target with high dividend rate Fangda Special Steel Technology Co.Ltd(600507) , and the industry leader Baoshan Iron & Steel Co.Ltd(600019) ; 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, Xinxing Ductile Iron Pipes Co.Ltd(000778) which has significantly benefited from the transformation of urban pipe network also deserves 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
