Resource Stock Review - May 8

Recently, steel mill profits have weakened, steel prices have weakened, steel production has begun to decline, blast furnaces in many places have announced production cuts, and demand for iron ore peaked and fell.

At present, the price of iron ore has dropped to close to that of domestic ore. The conflict between iron ore supply and demand is evident. At the same time, iron ore prices are also facing gradual effects of policy control. In the future, we should always pay attention to the impact of policy-side news on iron ore prices.

Supply side: Mainstream mine shipments have returned to a high level, and Brazil and non-mainstream sectors have maintained a steady growth trend; the volume arriving in Hong Kong is currently reflected due to the impact of the previous cyclone.

On the demand side, demand for iron ore peaked and fell, profits from steel mills were compressed again, some steel mills planned to increase maintenance, and short-term iron ore demand would continue to decline; in the medium term, the crude steel equalization policy will lead to a significant drop in iron ore demand, and long-term demand is also pessimistic.

In terms of inventory, steel mill inventories maintained a low inventory structure, and steel mill inventories hit a new low. Port inventories remained in a state of removal during the holiday period, and losses in long and short process steel mills were significantly lower than before the holiday season; losses in both long and short process steel mills were weak, making it difficult to maintain a high level of iron ore demand. As late arrivals recovered and demand continued to decline, port inventories were expected to gradually shift into the storage cycle.

Shanshen Iron Ore (3047.HK) closed at HK$15.8, up 3.27%

Cumulative return: 1 week: 0.96% January: -8.88% March: -6.67% June: 20.24% Since listing: 112.08%

On May 5, China Shenhua Energy Co., Ltd. (“China Shenhua”, SH: 601088 for short) held a 2022 performance briefing. According to the annual report, in 2022, China Shenhua achieved revenue of 344.533 billion yuan, an increase of 2.6% year on year; net profit to mother was 69.626 billion yuan, an increase of 39.17% year on year. According to a simple estimate, this is equivalent to China's Shenhua making a huge profit of about 190 million yuan a day in 2022.

According to the data, China Shenhua was founded in 2004 and is an A+H share flagship listed company under the National Energy Group. By the end of 2022, the company had assets of 621.7 billion yuan and a total market value of 523.5 billion yuan.

China Shenhua is one of the world's largest coal suppliers. It mainly operates in seven major sectors: coal (over 80% of revenue), electricity, new energy, coal chemicals, railways, ports, and shipping.