Matters:
On April 19, 2022, Meng Wei, deputy director of the Political Research Office of the national development and Reform Commission and spokesman of the national development and Reform Commission, said at the press conference of the national development and Reform Commission in April that in order to maintain the continuity and stability of policies and consolidate the results of crude steel output reduction, the national development and Reform Commission, the Ministry of industry and information technology, the Ministry of ecological environment and the National Bureau of statistics will continue to reduce the national crude steel output in 2022, Guide iron and steel enterprises to abandon the extensive development mode of winning by quantity and promote the high-quality development of the iron and steel industry.
Guoxin metal’s view: 1) the national development and Reform Commission has made clear its position on crude steel output, adhered to “one general principle and highlighted two priorities”, and ensured the year-on-year decline of national crude steel output in 2022. The pressure drop of crude steel output will help the industry maintain a stable operation and restrain the price of iron ore. Under the pattern of top supply, the profit of black industrial chain is expected to tilt to the steel mill end again. 2) The steady growth policy continued to work, and steel consumption is expected to improve. In terms of real estate, in order to prevent the risk of hard landing, the local real estate market regulation policies tend to be liberalized, and the policies are still increasing, which helps to improve market sentiment. The growth rate of infrastructure investment is also expected to stabilize with the steady growth policy, so as to drive steel consumption and play the role of counter cyclical regulation. 3) Resumption of trading in 2014, the steel sector achieved excess returns under the expectation of weak fundamentals and strong expectations. 4) Investment suggestion: the steel sector in the second quarter is expected to usher in the dual direction policy force of supply and demand, steady growth, underpinning steel consumption, continuous relaxation of real estate policy, year-on-year decline in supply and improvement of industrial exports. From historical experience, the steel sector, as a pro cyclical target, has achieved a high winning rate of excess return in the wide credit stage. At present, the improvement of demand margin is expected to form a strong support for steel prices, and the controlled crude steel output is conducive to the maintenance of industry profits. In addition, the leading steel plant has achieved outstanding results in reducing cost and increasing efficiency in recent years, the profitability toughness has been repeatedly verified, and maintained a high proportion of cash dividends. Therefore, from the current time point, we believe that there is a large space for valuation repair of industry leaders, and we recommend paying attention to Hunan Valin Steel Co.Ltd(000932) , Baoshan Iron & Steel Co.Ltd(600019) , Xinyu Iron & Steel Co.Ltd(600782) , Sansteel Minguang Co.Ltd.Fujian(002110) .
Comments:
The reduction of crude steel output continues, which is beneficial to the profit distribution at the steel end
On April 19, Meng Wei, deputy director of the Political Research Office of the national development and Reform Commission and spokesman of the national development and Reform Commission, said at the April press conference of the national development and Reform Commission that in order to maintain the continuity and stability of policies and consolidate the results of crude steel output reduction, the national development and Reform Commission, the Ministry of industry and information technology, the Ministry of ecological environment and the National Bureau of statistics will continue to reduce the national crude steel output in 2022, Guide iron and steel enterprises to abandon the extensive development mode of winning by quantity and promote the high-quality development of the iron and steel industry.
In the process of reducing crude steel output, we will adhere to “one general principle and highlight two key points”. One general principle is to firmly grasp the general tone of “stability first” and “seeking progress in stability”. While maintaining the continuity and stability of the supply side structural reform policy of the iron and steel industry, we should adhere to the principles of marketization and rule of law, give play to the role of market mechanism, stimulate the enthusiasm of enterprises, and strictly implement the relevant laws and regulations on environmental protection, energy consumption, safety, land use, etc. To highlight the two key points is to insist on distinguishing the situation, maintain the pressure, avoid “one size fits all”, highlight the reduction of crude steel production in key areas such as Beijing Tianjin Hebei and its surrounding areas, the Yangtze River Delta and Fenwei plain, and highlight the reduction of crude steel production with poor environmental protection performance, high energy consumption and relatively backward process equipment. The goal is to ensure the year-on-year decline of national crude steel production in 2022.
The production of heating industry in the first quarter is affected by factors such as the Olympic Games and the winter games. Since late March, the market has high expectations for the resumption of steel production, boosting the price of raw materials. However, at present, the actual pace of resumption of production is relatively slow. Affected by the epidemic, temporary traffic control in many places, the transportation of raw materials and finished timber are affected, and some steel mills have stopped production or stewed furnace, inhibiting the growth of supply. From the perspective of the whole year, the pressure drop of crude steel output will help the industry maintain a stable operation and restrain the price of iron ore. Under the pattern of top supply, the profit of black industrial chain is expected to tilt to the steel mill end again
The steady growth policy continues to work, and the steel consumption is expected to improve
The recent performance of steel consumption is weak, but the improvement expectation is strong. Due to the weak real estate demand and the disturbance of the epidemic situation, the inventory removal speed of “gold, silver and four” is much weaker than that in the same period of previous years. As of April 14, the social inventory and in plant inventory of the five major steel products were 16.49 million tons and 6.85 million tons respectively. The absolute level of inventory was 1.61 million tons lower than that in the same period last year, but the weekly inventory reduction rate was 1.29 million tons lower than that in the same period last year.
In terms of real estate, from January to March 2022, the completed investment in national real estate development increased by 0.7% year-on-year, the newly started area of houses decreased by 17.5% year-on-year, and the sales area of commercial houses decreased by 13.8% year-on-year. In the early stage, the financing of real estate enterprises was under pressure, and the new construction data continued to weaken, resulting in weak consumption of building materials at the real estate end. At present, the operation of the real estate industry is difficult and the data is down sharply. In order to prevent the risk of hard landing, the local real estate market regulation policies tend to be liberalized, and multi-dimensional easing plays a positive role in activating market transactions. Although it is difficult to reverse the demand performance of real estate end steel in the short term, the policy is still increasing, which helps to improve market sentiment.
In terms of infrastructure construction, from January to March 2022, the investment in infrastructure construction increased by 10.5% year-on-year, and the growth rate continued to increase. In 2022, steady growth has become the focus of macro policies, and many ministries and commissions have spoken intensively. At present, from the perspective of capital, the supply promotion capacity is sufficient. It is expected that with the accelerated implementation of major projects, the growth rate of infrastructure investment is expected to stabilize with the steady growth policy, so as to drive steel consumption and play a role of counter cyclical regulation.
Resume the steel sector in 2014
Real estate is the most important downstream sector affecting steel demand, and its policy changes have a significant impact on the steel industry.
In 2011, the European debt crisis intensified, China’s economy showed a downward trend, and the quarterly growth rate of GDP exceeded 10 By 2014, China’s economic growth continued to decline and entered a shift period of economic growth. During this period, the fiscal policy remained at a relatively positive level. In December 2011, the central bank carried out the first rate cut since 2009 and completed the first rate cut in three years in June 2012, which released the signal of monetary policy change to a certain extent. By the end of 2014, it had carried out three rate cuts and three rate cuts.
From the perspective of the real estate industry, since the second half of 2011, the growth rate of real estate development investment, the growth rate of new housing construction area and the growth rate of commercial housing sales area began to decline. In August 2011, the local purchase restriction policy was fine tuned. By February 2012, the growth rate of commercial housing sales area turned negative, and in April of the same year, the growth rate of new housing construction area turned negative. Under the relevant stimulus, the real estate market recovered. In 2013, the growth rate of commercial housing sales area increased significantly, the growth rate of new housing construction area became positive, and the real estate policy was tightened again. In 2014, the growth rate of sales and new construction turned negative again. In the second quarter of the same year, the local real estate policy took the lead in loosening. In May, the central five articles proposed to give priority to meeting the loan needs of residents’ families for purchasing self occupied ordinary commercial housing for the first time. Subsequently, the purchase restriction policies of cities were gradually liberalized, and then the notice on further improving housing financial services was issued in September.
The real estate policy changed from regulation to stimulation, and 930 proposed to increase financial support for the construction of affordable housing projects; Actively support the reasonable housing loan needs of resident families; Enhance the ability of financial institutions to provide individual housing loans; Continue to support the reasonable financing needs of real estate development enterprises. In February 2015, the growth rate of commercial housing sales area fell to – 16.3%; In March 2015, the growth rate of new housing construction area decreased to – 18.4%; In December 2015, the growth rate of investment in real estate development decreased to 1.0%.
From the perspective of steel price, the problem of excess supply in the steel industry caused by early capacity expansion is prominent. Under the downward demand, the steel price has experienced a long downward process.
In 2011, the highest price of rebar in Shanghai was 4970 yuan / ton, which fell to 2830 yuan / ton in November 2014. Since then, the steel price continued to decline and fell to 1690 yuan / ton by the end of 2015, until the supply side structural reform started and the industry pattern was reversed.
However, the valuation of the steel sector warmed up more than a year before the industry fundamentals, and achieved excess returns. We believe that there are three reasons: first, the improvement of market liquidity, second, the loosening of real estate policy, and third, the decline in iron ore price has brought the expectation of rising profits of the steel industry, which has been given great hope by the market.
Investment suggestion: the two-way policy force of supply and demand will help the valuation and repair of the sector. The steel sector in the second quarter is expected to usher in the two-way policy force of supply and demand, steady growth, underpinning steel consumption, continuous relaxation of real estate policies, year-on-year decline in supply and improvement of industrial exports. From historical experience, the steel sector, as a pro cyclical target, has achieved a high winning rate of excess return in the wide credit stage.
At present, the improvement of demand margin is expected to form a strong support for steel prices, and the controlled crude steel output is conducive to the maintenance of industry profits. In addition, the leading steel plant has achieved outstanding results in reducing cost and increasing efficiency in recent years, the profitability toughness has been repeatedly verified, and maintained a high proportion of cash dividends. Therefore, from the current time point, we believe that there is a large space for valuation repair of industry leaders, and we recommend paying attention to Hunan Valin Steel Co.Ltd(000932) , Baoshan Iron & Steel Co.Ltd(600019) , Xinyu Iron & Steel Co.Ltd(600782) , Sansteel Minguang Co.Ltd.Fujian(002110) .
Risk tips:
The demand side fell more than expected. The implementation of the horizontal control policy of crude steel output was less than expected. The price of raw and auxiliary materials rose sharply.
