Market review this week:
CITIC steel index closed at 193921 points, up 4.09%, outperforming the Shanghai and Shenzhen 300 index by 5.15pct, ranking second in the list of gains and losses of CITIC primary sector.
Analysis of key areas:
The output of steel mills rebounded, and the turnover and apparent consumption remained weak. This week, the utilization rate of blast furnace capacity and steel production in China rebounded slightly. The utilization rate of ironmaking capacity of 247 steel mills in China increased to 85%, with a month on month increase of + 1.2pct and a year-on-year increase of – 2.0pct. The weekly output of five major varieties of steel in China increased to 9.876 million tons, with a month on month increase of + 2.6% and a year-on-year increase of – 6.6%. The output of steel mills has rebounded recently, mainly because the control measures have been eased step by step, the phenomenon of furnace stuffing has improved, and the supply has recovered slightly, but the supply intensity is still; In terms of inventory, the social inventory of large steel varieties increased to 16.901 million tons on Friday, with a month on month increase of + 0.2% and a year-on-year increase of – 10.2%. The social inventory ushered in the first adverse trend accumulation after going to the warehouse for four weeks. The inventory of steel mills of large steel varieties increased to 6.514 million tons on Friday, with a month on month increase of + 3.5% and a year-on-year increase of – 12.2%. Affected by this, the total inventory of steel materials increased by 1.1% this week, indicating that the demand is still weak; The apparent consumption of steel after the summary of output and total inventory data fell to 9.615 million tons this week, with a month on month ratio of – 3.1% and a year-on-year ratio of – 21.7%. According to the lunar calendar, the weekly consumption of rebar fell by 31.1% year-on-year, indicating that the physical demand related to infrastructure real estate is still weak, which is also related to the postposition of demand caused by recent epidemic factors; The average daily trading volume of building materials fell to 173000 tons this week, with a month on month ratio of – 2.7%. The spot trading sentiment was lower than that in the same period of previous years; This week, the spot price of iron ore and coke and the finished product price are running at a high level. The spot gross profit of mainstream steel is still in the low profit range. The gross profit of raw materials lags behind for three weeks, and the profit of electric furnace falls again due to the strong price of scrap steel, electricity and auxiliary materials. The capacity utilization rate of electric furnace may continue to decline. We believe that it is unlikely to introduce the policy of continuing to reduce crude steel production in 2022. The background of crude steel reduction in 2021 is “dual control of supply and demand”. Under the guidance of the current “stable 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; 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 may gradually improve;
The core beneficiary sector of steady growth, focusing on the opportunities of elastic targets. In the near future, the national Standing Committee once again set the tone for steady growth, and the statements such as “stick to the goal and put steady growth in a more prominent position” clearly give the policy guidance. Under the background that the central bank said to strengthen the implementation of prudent monetary policy, accelerating the promotion of infrastructure construction and the easing and overweight of real estate related policies are also the general trend. More than half of the demand of the steel industry is strongly related to infrastructure and real estate investment, which is one of the core beneficiary sectors of steady growth; The recent acceleration of the issuance of special bonds and the relaxation of local real estate sales policies have given clear signals of steady growth. The real estate, infrastructure and other sectors continue to strengthen, the growth potential of steel demand behind the high increase of relevant investment is huge, and the situation of simultaneous rise of steel volume and price is expected to reappear. At present, the weak reality of the steel and iron industry has lasted for more than months, the negative impact on the valuation of the sector may have been fully valued by the market, and the valuation of the sector is expected to continue to repair upward; As the production restriction in the first quarter was concentrated in the northern region, it focused on the output release of steel enterprises in the South and central and western regions with regional advantages, as well as the strong performance elasticity of steel enterprises with high proportion of long material production capacity;
The growth of stainless steel processing targets is outstanding, and the high growth of pipe materials or infrastructure is expected. In addition to the ordinary steel sector, the current stainless steel processing target still has significant comparative advantages. The business model of setting production by sales and high growth characteristics have become the basis for driving the stable and upward profit, and the technical barrier characteristics of 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 trend of infrastructure investment. Investment strategy. The weak reality of short-term steel mills continues, while the expectation of steady growth is strengthened again, the situation of infrastructure investment and real estate industry is improving, and the improvement of demand may drive the continuous recovery of industry profits. The allocation value of steel sector in valuation depression is prominent. It is suggested to pay attention to the industry leader Baoshan Iron & Steel Co.Ltd(600019) , the long material elastic target with high dividend rate Fangda Special Steel Technology Co.Ltd(600507) , and Xinyu Iron & Steel Co.Ltd(600782) , Xinjiang Ba Yi Iron & Steel Co.Ltd(600581) ; Continue to recommend Zhejiang Yongjin Metal Technology Co.Ltd(603995) , which has the characteristics of both technical barriers and high growth; 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
