The Zhitong Finance app learned that Guotai Junan Securities released a research report saying that speeding up industrial concentration and promoting high-quality development is an inevitable trend in the future development of the steel industry, and that leading steel companies with an advantage in product structure will fully benefit. Considering the weak supply in the steel industry in the fourth quarter, low steel inventories, and no pessimistic expectations about demand, industry profits are still expected to gradually recover. As real estate support policies continue to be introduced and disseminated, it is expected that the decline in new real estate starts in 2024 will narrow further, and the negative drag of real estate on the steel industry will decline markedly.

1) Focus on recommending Hualing Steel (000932.SZ), whose product structure continues to be upgraded; Baosteel Co., Ltd. (600019.SH), Shougang (000959.SZ) with leading technology and product structures; low-cost steel companies Fangda Steel (600507.SH) and New Steel Co., Ltd. (); and, at the same time, recommend emerging casting pipes (000778.SZ), Jinzhou Pipeline (002443.SZ), and Youfa Group (601686SH); 600782.SH

2) Recommend new special steel materials companies with a high level of prosperity in the industry, CITIC Special Steel (000708.SZ), Yongjin Co., Ltd. (603995.SH), Changbao Co., Ltd. (002478.SZ), Jiuli Special Materials (002318.SZ), Shengde Xintai (300881.SZ), and high-temperature alloy leader Tunan Co., Ltd. (300855.SZ);

3) Under the trend of demand recovery, we are optimistic about upstream resource products with long-term pattern advantages, and recommend Hegang Resources (000923.SZ), Dazhong Mining (001203.SZ), Anning Co., Ltd. (002978.SZ), etc.

Apparent consumption rebounded month-on-month, and inventories continued to decline.

Last Friday, social warehouses and factories of major types of steel were 897.17 and 4.1281 million tons, down 25.87 million and 111,000 tons from the previous month; the total inventory was 1,3099,800 tons, down 268,800 tons from the previous month. The apparent consumption of the five major types of steel was 9.3683 million tons, an increase of 105,000 tons over the previous month. Among them, thread and wire consumption was 2,6689 and 1.043 million tons, down 7.24 and 212,000 tons from month on month; consumption of hot rolling, cold rolling, and medium and heavy plate was 326.89, 84.59, and 1,5413 million tons, up 14.93, 0.65, and 42,800 tons from month on month. Apparent consumption of steel has rebounded marginally, and inventories have maintained a downward trend. The short-term industry is in the traditional low season, and demand may remain weak. However, looking ahead to 2024, Guotai Junan Securities expects a steady recovery in demand.

Looking at the real estate side, after two years of declining real estate, Guotai Junan Securities expects the share of real estate demand to fall below 20%, and the sensitivity of steel demand to real estate fluctuations has declined. At the same time, as real estate support policies continue to be introduced and disseminated, it is expected that the decline in new real estate starts in 2024 will narrow further, and the negative drag of real estate on the steel industry will decline markedly. From a global perspective, the cycle of overseas interest rate hikes is basically over and interest rate cuts can be expected, which will open up room for steady growth in domestic monetary policy. Domestic treasury bonds support infrastructure demand, manufacturing upgrades, and global competitive advantages in the automotive, home appliance, shipbuilding and other industries. Overall demand is progressing steadily. Demand in the steel industry is expected to exceed market expectations and achieve positive growth in 2024.

Last Friday, the total output of major steel varieties was 9.0995 million tons, up 1.66% month on month and down 1.06% year on year.

The operating rate of blast furnaces in 247 steel mills was 80.12%, up 0.45 percentage points from month on month; the capacity utilization rate of blast furnaces in 247 steel mills nationwide was 87.96%, down 0.05 percentage points; the national electric furnace operating rate was 63.46%, up 0.64 percentage points from the previous month; and the capacity utilization rate of electric furnaces was 59.74%, up 2.29 percentage points from the previous month. From January to October 2023, the country's crude steel production was 875 million tons, up 1.4% year on year. If factors such as production restrictions during the heating season and steel mill losses and production cuts are also taken into account in the fourth quarter, Guotai Junan Securities expects that steel production will not be very elastic.

Last week, simulated production profits for thread and hot coils were 173.5 yuan/ton and -26.50 yuan/ton, respectively, down 57.60 yuan/ton and 7.60 yuan/ton from the previous month.

From the cost side, mineral prices and coking coal prices are still high. The imported iron ore inventory is 11,091 million tons, up 822,000 tons from the previous month. According to Mysteel data, the profit margin of 247 steel companies last week was 39.39%, up 10.39 percentage points from the previous week. Considering the weak supply in the steel industry in the fourth quarter, low steel inventories, and no pessimistic expectations about demand, Guotai Junan Securities believes that industry profits are still expected to gradually recover.