Favorable demand side: the "steady growth" policy drives the expected marginal improvement of steel demand: Although the new construction area of real estate decreased by 12% year-on-year from January to February 2022, it is not appropriate to be overly pessimistic about the annual steel demand based on the following three reasons: (1) under the "steady growth" policy, the government work report further puts forward that "China's gross domestic product (GDP) is expected to grow by about 5.5% in 2022", It is expected that the investment in real estate and infrastructure (the investment accounted for 34% of GDP in 2017) will continue to improve; (2) Real estate steel is closely related to the new construction, construction and completed area of houses. With the loose margin of real estate policy, the financing environment of real estate enterprises is improved, and the data base related to real estate in the second half of 2021 is low, it is expected that the performance of real estate steel will gradually pick up; (3) Steel for infrastructure construction: from January to February, the proportion of local government special bonds reached 26.63%, much higher than the average level of the past three years (13.04%). The advance of special bonds helps to form the physical workload as soon as possible. In conclusion, we believe that the year-on-year decline in steel demand in 2022 is expected to be about 10 million tons.
Favorable export side: the price difference of steel at home and abroad is at a high level, and the steel export advantage is significant: according to the prediction of the world iron and Steel Association, the overseas steel demand in 2022 will be 911 million tons, with a year-on-year increase of 4.71%. Due to the influence of European geopolitical factors, the overseas steel output may decrease, resulting in a gap between supply and demand. Taking the hot coil price in the European Union as an example, the price rose to US $1555 / ton on April 1, more than 88% higher than the hot coil price in China, It shows that China's steel has obvious export advantages, and the year-on-year increase of export is expected to reach 10 million tons.
Good supply side: the price of iron ore rose to more than US $150 / ton, and the output reduction expectation of the steel industry increased again. In April 2022, iron ore returned to the historical high of US $154 / ton. In the medium and short term, China's measures to improve the relationship between iron ore supply and demand also depend on reducing steel output. Since February, the national development and Reform Commission has successively interviewed iron ore traders and some port enterprises. At present, the reduction expectation of industrial output is increased again. It is expected that the crude steel output in 2022 will be flat year-on-year, and the target with high performance elasticity is expected to benefit.
The improvement of supply and demand pattern in the iron and steel industry is expected to increase, and the valuation of the sector is at a low level, with large room for upward growth: as of April 8, 2022, the Pb of ordinary steel sector is 0.97, which is at the 16% quantile since 2013, 155% space compared with the highest value in June 2015 and 44.78% higher than the lowest point in July 2013; The ratio of Pb in Pu steel sector to Pb in Shanghai and Shenzhen stock markets is 0.54, which is 39% since 2013, with 51% space compared with the highest value in August 2017. Under the background of "carbon neutralization and carbon peak", the dual control of production capacity and output in the iron and steel industry will become the norm, and the industry merger and reorganization will continue to promote. We believe that the decline space of Pb in the general steel sector is limited, the rise space is large, and the safety margin is high.
Investment suggestion: under the expectation of "steady growth", the improvement of supply and demand in the iron and steel industry is expected to increase. At present, the valuation of ordinary steel sector is at the low level since 2013, with a high margin of safety and still large upward space. Combined with the company's performance elasticity and medium and long-term profitability, it is recommended to pay attention to Maanshan Iron & Steel Company Limited(600808) , Hunan Valin Steel Co.Ltd(000932) , Xinjiang Ba Yi Iron & Steel Co.Ltd(600581) , Xinyu Iron & Steel Co.Ltd(600782) , Baoshan Iron & Steel Co.Ltd(600019) ; At the same time, pay attention to the investment opportunities of water conservancy and underground pipe network, and it is suggested to pay attention to Xinxing Ductile Iron Pipes Co.Ltd(000778) , Tianjin You Fa Steel Pipe Group Stock Co.Ltd(601686) .
Risk analysis: crude steel production limit is less than expected; The price of raw materials rose sharply; The rise in steel prices triggered the risk of government regulation.
