Market review this week:
CITIC steel index closed at 174983 points, down 8.62%, underperforming the CSI 300 index by 4.43pct, ranking 29th among the 30 CITIC primary sectors.
Analysis of key areas:
The output of steel mills increased little, and the apparent consumption improved significantly. This week, the utilization rate of blast furnace capacity and steel production in China did not change much. The utilization rate of iron making capacity of 247 steel mills in China was 86.4%, with a month on month ratio of -0.1pct and a year-on-year ratio of -2.4pct. The weekly output of five major steel varieties in China was 9.944 million tons, with a month on month ratio of +0.6% and a year-on-year ratio of -6.3%. This week, the material blockage caused by the epidemic in some areas of Hebei and Shanxi remained. With the profits falling again, the recovery rate of steel supply slowed down significantly; In terms of inventory, the weekly social inventory of large varieties of steel on Friday was 16.185 million tons, with a month on month ratio of – 1.9% and a year-on-year ratio of – 6%. The social warehouse once again ushered in an obvious destocking. The weekly inventory of large varieties of steel on Friday was 6.844 million tons, with a month on month ratio of – 0.1% and a year-on-year ratio of + 0.9%. The factory and warehouse remained high due to prolonged transportation cycle, weak demand and other factors; The apparent consumption of steel after the summary of output and total inventory data was 10.26 million tons this week, with a month on month increase of + 3.1% and a year-on-year decrease of – 11.1%. According to the caliber of the lunar calendar, the decline range of weekly consumption of screw thread steel narrowed to 17.7% year-on-year. On Friday, the apparent consumption of large varieties of steel rebounded to the high value after the lunar year, and there are signs of improvement in demand; This week, the average daily trading volume of building materials rose to 173000 tons, a month on month increase of + 4.2%, and the mood of spot trading recovered simultaneously; This week, coke prices continued to rise, iron ore prices fell, steel prices rose and fell, the spot gross profit of mainstream steel and raw materials lagged behind for three weeks, and the gross profit fell again. The profit of electric furnace operated at a low level year-on-year due to the strong price of scrap steel, electricity and auxiliary materials. It is expected that the increase in output of steel mills in May will be limited, and the demand after the impact of the epidemic is expected to gradually pick up under the policy;
The output reduction policy was issued, and the profit expectation of steel mills was upward. This week, 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”, It also puts forward “stick to highlighting the key points, distinguish the situation, keep the pressure, avoid” one size fits all “, focus on reducing the crude steel output in key areas of air pollution prevention and control such as Beijing Tianjin Hebei and its surrounding areas, the Yangtze River Delta and Fenwei plain, and focus on reducing the crude steel output with poor environmental protection performance, high energy consumption and relatively backward level of technological equipment”. As the national crude steel output in the first quarter has decreased by 27.66 million tons year-on-year due to factors such as limited production in the heating season, the annual target can be achieved by horizontal control of crude steel output in subsequent months, which has little impact on the current production rhythm of steel mills, but the upward space of output in the future is limited. On the one hand, the output of steel mills beyond the two key reduction standards mentioned in the above policy may increase in the national output. On the other hand, the establishment of the annual crude steel output ceiling further limits the upward space at the raw material end and contributes to the further improvement of the profit per ton of steel; We continue to pay attention to the output release and performance elasticity of steel enterprises in the South and central and western regions with regional advantages;
The valuation advantages of stainless steel processing targets appear, and the high increase in infrastructure investment drives the improvement of pipe demand. At present, the valuation advantages of stainless steel processing targets appear. 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 tracks 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 short-term supply and demand situation of the industry has gradually improved. After the policy of reducing crude steel output is issued, the profit expectation of steel mills is expected to rise further. Under the guidance of superposition and steady growth, the situation of infrastructure investment and real estate industry continues to improve, and the allocation value of steel sector in valuation depression is prominent. It is suggested to pay attention to Hunan Valin Steel Co.Ltd(000932) and Xinyu Iron & Steel Co.Ltd(600782) , long material elasticity target with high dividend rate Fangda Special Steel Technology Co.Ltd(600507) , and industry leader Baoshan Iron & Steel Co.Ltd(600019) ; 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.
