Market review this week:
CITIC steel index closed at 168675 points, down 3.60%, underperforming the CSI 300 index of -3.68pct, ranking 23rd in the list of 30 CITIC primary sectors.
Analysis of key areas:
The supply growth of steel mills slowed down, and the apparent consumption improved slightly. Last week, the national blast furnace capacity utilization rate and steel output growth slowed significantly. The ironmaking capacity utilization rate of 247 steel mills in China was 86.6%, with a month on month ratio of + 0.2pct and a year-on-year ratio of – 3.4pct. The weekly output of China’s five major varieties of steel was 9.93 million tons, with a month on month ratio of – 0.1% and a year-on-year ratio of – 8.0%. Poor logistics and falling profits continued to depress the supply intensity of steel mills; In terms of inventory, last Friday, the weekly social inventory of large varieties of steel was 15.729 million tons, with a month on month ratio of – 2.8% and a year-on-year ratio of – 3.1%. The social warehouse welcomed to go to the warehouse again. The inventory of steel mills was 6.882 million tons, with a month on month ratio of + 0.6% and a year-on-year ratio of + 6.8%. Factors such as prolonged transportation cycle and weak demand continued to accumulate; The apparent consumption of steel after the summary of output and total inventory data was 10.348 million tons, with a month on month increase of + 0.9% and a year-on-year decrease of – 14.6%. According to the lunar calendar, the weekly consumption of rebar fell by 30.6% year-on-year, indicating that the physical demand related to infrastructure real estate is still weak; Last week, the average daily trading volume of building materials rose to 177000 tons, a slight increase of 2.5% month on month, and the spot trading sentiment is still lower than that in the same period of previous years; At the beginning of the week, the spot price of iron ore and the finished product price fell synchronously, and then stabilized and rebounded. The spot gross profit of mainstream steel was still in the low profit range, the raw material lagged behind for three weeks, the gross profit continued to decline, and the profit of electric furnace operated at a low level; It is expected that the increase in production of steel mills will be limited in May, and the demand for postposition affected by the epidemic is expected to gradually pick up under the policy warm wind.
The policy is set to maintain steady growth, and demand is expected to continue to recover. At the Politburo meeting last week, it was proposed that “we should strengthen macro policy regulation, stabilize the economy, strive to achieve the expected objectives of economic and social development throughout the year, and maintain the economic operation within a reasonable range”, superimposed with “the central financial and Economic Commission set the tone to comprehensively strengthen infrastructure”, and the demand side is expected to continue to recover under the influence of the recovery of infrastructure investment and the rush to work after the epidemic; During the year, the supply of crude steel continued to be limited, the profit per ton of steel is expected to gradually recover, and the long-term fundamentals of the industry are highly uncertain; 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 steel industry is expected to be in a position of increasing and decreasing the value of the steel industry, which is expected to be a significant inflection point under the policy of increasing and decreasing the value of the steel industry, 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 control policy exceeded expectations, downstream demand was less than expected, and raw material prices rose more than expected.
