Event: on April 19, 2022, the national development and Reform Commission said that in 2022, 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 to ensure the year-on-year decline of the national crude steel output in 2022.
The national development and Reform Commission stated for the first time that the crude steel output will decrease year-on-year in 2022, and the contraction expectation of the industry supply side will increase again: from January to March 2022, under the constraints of production restrictions such as staggered peak production in Beijing, Tianjin and Hebei, the Winter Olympic Games and the two sessions, China’s crude steel output was 243 million tons, and the daily average output was 2.7 million tons, a year-on-year decrease of 10.5%; If the crude steel output in 2022 is flat year on year, China’s crude steel output is expected to be 789 million tons from April to December, with a year-on-year increase of 3.63%, and the average daily output is 2.86 million tons, with a month on month increase of 5.77%. It is worth noting that the NDRC’s statement is the government’s first public statement this year that it wants to achieve no year-on-year growth in crude steel production, the contraction expectation of the industry supply side is strengthened again, and the targets with high performance flexibility are expected to benefit.
The reduction of crude steel may be concentrated in Beijing Tianjin Hebei, Yangtze River Delta Fenwei plain area and enterprises with poor environmental protection performance: the national development and Reform Commission also said “In the process of reducing crude steel output, we should adhere to distinguish the situation, maintain the pressure, avoid ‘one size fits all’, highlight the reduction of crude steel output in key areas of air pollution prevention and control such as Beijing Tianjin Hebei and surrounding areas, Yangtze River Delta and Fenwei plain, and highlight the reduction of crude steel output with poor environmental protection performance, high energy consumption and relatively backward process equipment level in key objects”. Although the crude steel output of many provinces in the above regions has fallen year-on-year in the first quarter, it is expected that it will still be an important target area for crude steel output reduction in the later period.
The policy of “steady growth” drives the expected marginal improvement of steel demand: according to the report “policy friendly, low valuation, firmly optimistic about medium-term investment opportunities in the steel sector” issued on April 13, although the new construction area of real estate decreased by 12% year-on-year from January to February 2022, under the policy of “steady growth”, we believe that we should not be too pessimistic about the annual steel demand. At present, the margin of real estate policy is loose, 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; 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.
The price difference of steel at home and abroad is at a high level, with significant advantages in steel export: according to the prediction of the world iron and Steel Association, the demand for overseas steel 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 output of overseas steel may be reduced, resulting in a gap between supply and demand. Taking the price of hot coil in the European Union as an example, the price on April 19 was 1485 US dollars / ton, an increase of 41% over the beginning of the year, more than 83% higher than the price of hot coil in China, It shows that China’s steel has obvious export advantages. According to the report “policy friendly, low valuation, firmly optimistic about medium-term investment opportunities in the steel sector” issued on April 13, the year-on-year increase in exports is expected to reach 10 million tons.
The supply and demand pattern of the iron and steel industry has improved, and the valuation of the sector is at a low level, which has a good attraction: as of April 19, 2022, the Pb of the ordinary steel sector is 0.98, which is at the 17% quantile since 2013, 155% space compared with the highest value in June 2015 and 46% 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 0.55, which is 43% since 2013, with 48% 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 general steel sector has a good attraction.
Investment suggestion: the national development and Reform Commission has made it clear that China’s crude steel output will decline year-on-year in 2022, and the supply and demand pattern of the industry will improve under the expectation of “steady growth”. At present, the valuation of ordinary steel sector is at the low level since 2013. We believe that ordinary steel sector has good attraction. Combined with the company’s performance elasticity and medium and long-term profitability, we suggest 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) .
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.
