The Zhitong Finance app learned that CITIC Construction Investment released a research report saying that it is unlikely that China's crude steel consumption will decline sharply in the future. On the one hand, China is still in the process of urbanization and industrialization, and stock demand is high; on the other hand, as steel is a basic material, demand still has potential as application scenarios expand. The promotion of prefabricated steel structures, the upgrading and expansion of the manufacturing industry, the implementation of the “Belt and Road” project, and the rapid development of the new energy sector all support that China's steel consumption may remain at the peak of the peak arc for a long time. Focusing on the short term, 2024 will be a year where strong fiscal effects will be unleashed, and 1 trillion special treasury bonds and special refinancing bonds will effectively ease the impact of capital problems on physical demand for infrastructure. It is estimated that in 2024, the profit of steel mills is expected to be fully released under the double favorable driving of improved demand and falling costs. The average gross profit per ton of rebar and hot-rolled coil steel is 260 yuan/300 yuan, up 179 yuan from the previous year.

▍ The main views of CITIC Construction Investment are as follows:

The rise of new manufacturing forces supports steel consumption.

The demand impact brought about by the downturn in the real estate cycle in 2023 is still spreading and fermenting, but thanks to rising demand in manufacturing industries such as shipbuilding, automobiles, new energy, and high-tech industries, combined with export volumes, aggregate demand has remained resilient. Judging from the steel development experience of countries with the same economic structure, it is expected that China's crude steel consumption will decline sharply in the future. On the one hand, China is still in the process of urbanization and industrialization, and stock demand is high; on the other hand, as a basic material, demand for steel still has potential as application scenarios expand. The promotion of prefabricated steel structures, the upgrading and expansion of the manufacturing industry, the implementation of the “Belt and Road” project, and the rapid development of the new energy sector all support that China's steel consumption may remain at the peak of the peak arc for a long time.

Focusing on the short term, 2024 will be a year where strong fiscal effects will be released, and 1 trillion special treasury bonds and special refinancing bonds will effectively ease the impact of capital problems on physical demand for infrastructure. The manufacturing industry will continue to improve under the boom cycle of new energy, shipbuilding and offshore, and automotive steel industries. Judging from land transactions, the commencement of new real estate construction in 2023 may still not be optimistic, but with urban village renovation and the low base effect, the real estate impact is nearing its end. Domestic steel consumption is expected to bottom out and pick up in 2024.

Strengthen production capacity management and accelerate the low-carbon green transformation.

In 2023, the ability to independently regulate supply was insufficient, and the industry was mired in a “prisoner dilemma”. On the one hand, the cash accumulated by the “good year” enabled steel mills to bear short-term losses; on the other hand, production preservation and protection indicators gave steel mills strong production intentions, leading to insufficient supply elasticity in 2023 and deterioration in industry profitability. 2024 will be a year of policy optimization. New opportunities for capacity management may be introduced in due course, and supply will dynamically adapt to demand.

As global climate issues become more and more prominent, low carbon steel and zero carbon steel are becoming hot topics of interest in the industry. The transition to clean steelmaking is a new trend in the future, reflecting the industry's mission and responsibility for global sustainable development.

Supply easing and policy controls are driving down iron premiums.

On the cost side, coal and coke prices moved centrally in 2023, and steel mills reaped cost-side dividends. Although coal coke prices rebounded at the end of the year, along with the release of advanced coal production capacity and the increase in renewable energy installed capacity, China's coal and energy supply is sufficient. It is expected that coal coke prices may be stable, moderate, and weak in 2024. Iron ore may be booming in 2024, but the increase in supply exceeds demand, and the iron premium will decrease with supply easing and policy regulation.

It is expected that in 2024, the profit of steel mills will be fully released under the double favorable driving of improved demand and falling costs. The average gross profit per ton of rebar and hot-rolled coil steel is 260 yuan/300 yuan, up 179 yuan from the previous year.

Investment evaluation and suggestions: Improving quality and efficiency in the future is the main direction of development of the steel industry, and material upgrading is the focus of the industry.

For Pu Steel, this is a time of recovery. In the rotation of major asset classes, equity assets had the best yield performance at the beginning of the recovery (higher liquidity, higher economy, lower inflation). Currently, the steel sector is at the bottom of both profit and valuation, and there is great flexibility in upward recovery, so it is expected to obtain excess profits from opportunistic allocation.

In terms of new special steel materials, special steel is different from ordinary steel, and policies strongly support the industry. China's high-end special steel materials include “import substitution” and external “global share increase”. Currently, the proportion of high-end special steel in China is about 4%, which is still quite different from developed countries such as Japan and Europe. China's middle and high-end manufacturing industry is developing rapidly, and demand for middle and high-end special steel enterprises is expected to rise. Judging from the valuations of special steel companies in developed countries, it is mostly at a level of 15-25 times, and the rapid development stage of special steel in Japan, Europe, and the US has passed. China's high-end special steel is still In a period of growth, they should enjoy a certain valuation premium. Combined with the thermal power boiler transformation cycle, demand for energy-type special steels is strong.

Risk warning

In 2023, under the complex and severe market situation, the steel industry also faced many difficult challenges, and operations were divided among enterprises. Strong supply and demand in the steel market are weak. Steel prices fell rapidly after rising in the first quarter, fell to a low in the first half of the year at the end of May, and rebounded slightly in June. The overall low level of steel prices fluctuated, and the profitability of the industry was generally weak. In recent years, there have been constant risk incidents on the supply side of raw materials. Vale dam collapse, Australian coal import bans, heavy rain in Brazil, hurricanes in Australia, and the energy crisis caused by the Russian-Ukrainian geopolitical conflict. As various risk events continue to ferment, raw material prices have continued to rise, and steel mills have been squeezed to the extreme, and profits of steel mills have been squeezed to the limit under both demand and cost.