Market review this week:
CITIC steel index closed at 172921 points, up 3.13%, outperforming the Shanghai and Shenzhen 300 index by 0.9pct, ranking 10th among the 30 CITIC primary sectors.
Analysis of key areas:
The output of steel fell, and the apparent consumption showed the characteristics of toughness. This week, the utilization rate of blast furnace capacity in China rebounded slightly, and the steel output fell. The utilization rate of blast furnace capacity of 247 steel mills in China was 88.7%, with a month on month ratio of + 0.4pct and a year-on-year ratio of - 2.5pct. The weekly output of China's five major varieties of steel was 9.926 million tons, with a month on month ratio of - 1.6% and a year-on-year ratio of - 9.6%. The recent decline in steel output was mainly due to the synchronous reduction of production of rebar long and short processes and the increase of maintenance or production control of steel mills under the background of low profits, Superimposed with the background of production control policy, the output growth of subsequent steel mills may be limited; In terms of inventory, the weekly social inventory of large varieties of steel on Friday was 15.25 million tons, with a month on month ratio of - 1.9% and a year-on-year ratio of + 5.0%. The inventory of steel mills this week was 6.992 million tons, with a month on month ratio of - 0.2% and a year-on-year ratio of + 19.1%. Driven by the overall improvement of transportation conditions in the Yangtze River Delta and Beijing Tianjin Hebei region, the delivery rhythm of steel mills with high inventory pressure accelerated, and the flow of inventory to traders caused the decline of social inventory to be lower than that of the previous week, but the total inventory still maintained a good stock removal trend; The apparent consumption of steel after the summary of output and total inventory data was 10.232 million tons this week, with a month on month ratio of - 1.9% and a year-on-year ratio of - 12.6%. The downturn on the demand side remained, mainly because there was no significant improvement in the rainy season and epidemic control in the South. At the same time, it should be seen that the effect of the off-season in the same period of previous years led to the decline of consumption, but although it continued to be depressed after this year, the year-on-year decline gradually narrowed and showed the characteristics of relative toughness; This week, the average daily trading volume of building materials rose to 157000 tons, a month on month increase of + 6.4%, and the spot trading sentiment improved slightly; This week, the price of iron ore rebounded from the bottom, the third round of increase and decrease of coke fell to the ground, the steel price operated weakly, the spot gross profit of mainstream steel rebounded, and the gross profit remained low after three weeks; Scrap prices fell slightly, but finished products fell deeper, and electric furnace profits fell again. According to the data of the Bureau of statistics this week, the output of steel mills increased significantly month on month in April, of which the average daily output of pig iron hit a record high in a single month, and the net export of steel fell by 40.9% year-on-year; According to the statistics of output and inventory data, the steel demand in April was - 15.8% year-on-year, compared with - 14.2% last month. The decline range was expanded, and the growth rate of main steel consuming industries in the downstream generally fell;
The output may be limited, and the improvement of supply and demand can be expected. With the recent notice issued by the national development and Reform Commission to verify and feed back the assessment base of crude steel output reduction in 2022, a clearer production reduction plan is expected to be issued, and the subsequent supply contraction is expected to be gradually strengthened. Although it is reasonable to calculate the limited impact of the output reduction policy based on the year-on-year decline of crude steel output from January to April, it should be seen that the crude steel output increased sharply in the first half of last year, while the output fell rapidly in the second half of last year, There is a certain "distortion" factor in the year-on-year growth of crude steel output this year, which can be proved by the record high daily average output of pig iron. With the gradual clarification of the reduction task, the supply side restriction will gradually become a reality; In terms of demand, policies related to steady growth have been promoted step by step. This week, the central bank sharply reduced the five-year LPR. Combined with the recent reduction of the lower limit of the first mortgage interest rate by the central bank, the follow-up real estate sales and financing needs of enterprises and residents are expected to gradually improve, and the improvement of supply and demand can be expected;
The growth of stainless steel processing targets is outstanding, and the high growth of pipe materials or infrastructure is expected. With the overall weakness of the iron and steel sector in the early stage, the valuation advantage of stainless steel processing target is obvious. The business model of setting production by sales and high growth characteristics have become the basis for driving stable and upward profits, and the technical barrier characteristics of the processing track 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 demand shows the characteristics of resilience. In the medium and long term, the superposition of policies to reduce crude steel output and the steady growth of policies have made the supply and demand situation of the industry better. Under the background of the high increase of infrastructure investment and the loosening of real estate policies, the second quarter may become the turning point of steel demand, the profit expectation of steel mills is expected to rise further, and the allocation value of steel sectors in valuation depressions is prominent. It is suggested to pay attention to Hunan Valin Steel Co.Ltd(000932) and Xinyu Iron & Steel Co.Ltd(600782) High dividend yield long timber elastic target Fangda Special Steel Technology Co.Ltd(600507) , 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) , Zhejiang Kingland Pipeline And Technologies Co.Ltd(002443) which have significantly benefited from urban pipe network transformation and water conservancy construction also deserve 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
