The Zhitong Finance App learned that Guotai Junan released a research report saying that looking ahead to 2024, the decline in new real estate construction is expected to narrow further, and the negative drag of real estate on steel will drop significantly; at the same time, as real estate declines, the share of real estate demand is expected to fall below 20%, and the sensitivity of steel demand to real estate fluctuations will also decrease. Furthermore, domestic trillion-dollar treasury bonds support infrastructure needs, and overall demand is progressing steadily as manufacturing upgrades and the global competitive advantage of industries such as automobiles, home appliances, and shipbuilding have increased. The bank expects steel demand to exceed market expectations and achieve positive growth in 2024. Maintain the industry's “gain” rating.

Guotai Junan's views are as follows:

Demand has declined marginally. Last Friday, the large steel warehouse and factory warehouse were 993.31, 4.298,800 tons, up 32.73 and 311,000 tons from the previous month; the total inventory was 14.223,900 tons, up 296,200 tons from the previous month. The apparent consumption was 8.256,900 tons, a year-on-month decrease of 149,000 tons. Among them, the consumption of thread, hot rolling, and cold rolling was 217.55, 293.67, and 803,300 tons, down 1.08, 78,900 tons from month to month, and up 191,000 tons; consumption of wire and medium plates was 87.90 and 1.4626 million tons, down 4.39 and 34,500 tons from month to month. According to data from the National Bureau of Statistics, in December 2023, the cumulative year-on-year growth rate of new housing construction area in China was -20.4%, up 0.8 percentage points from month to month; the cumulative year-on-year growth rate of completed fixed asset investment in infrastructure (excluding electricity) and manufacturing was 5.9% and 6.5%, respectively, up 0.1 and 0.1 percentage points from month to month.

The decline on the real estate side narrowed further in December, and infrastructure and manufacturing rebounded steadily. Looking ahead to 2024, the bank expects the decline in new real estate construction to narrow further, and the negative drag of real estate on steel will drop significantly; at the same time, as real estate declines, the bank expects the share of real estate demand to fall below 20%, and the sensitivity of steel demand to fluctuations in real estate will also decrease. Furthermore, domestic trillion-dollar treasury bonds support infrastructure needs, and overall demand is progressing steadily as manufacturing upgrades and the global competitive advantage of industries such as automobiles, home appliances, and shipbuilding have increased. The bank expects steel demand to exceed market expectations and achieve positive growth in 2024.

The total output of large varieties last Friday was 8.5531 million tons, down 1.61% from month to month, up 0.49% year on year. The operating rate of blast furnaces in 247 steel mills was 76.23%, up 0.15 percentage points from month to month; the blast furnace capacity utilization rate of 247 steel mills nationwide was 82.98%, up 0.42 percentage points from month to month; the operating rate of electric furnaces nationwide was 60.26%, down 1.28 percentage points from month to month; the capacity utilization rate of electric furnaces was 58.66%, down 1.31 percentage points from month to month. The country's crude steel production for the full year of 2023 was 1,019 billion tons, the same as in 2022. Against the backdrop of the bank's anticipated limited capacity expansion, the upward flexibility of China's crude steel production in 2024 is limited.

Last week's simulated production profits for thread and hot rolls were -2.00 yuan/ton and 8.00 yuan/ton respectively, up 2.30 yuan/ton and 22.30 yuan/ton respectively from the previous week. From the cost side, mineral prices and coking coal prices are still high; imported iron ore stocks were 126.419 million tons, an increase of 207,900 tons over the previous month. According to Mysteel data, the profit margin of 247 steel companies last week was 26.41%, down 0.43 percentage points from last week. Looking ahead to 2024, as overseas economies enter a recession cycle, energy and raw material prices on the cost side are expected to return, supply will more match demand, and the profit side is expected to bottom up.

Maintain an “increase in holdings” rating.

Accelerating industrial concentration and promoting high-quality development is an inevitable trend in the future development of the steel industry. Leading steel companies and steel companies with an advantage in product structure will benefit fully.

1) Focus on recommending Valin Steel, which continues to upgrade its product structure, Baosteel Co., Ltd. (600019.SH), Shougang (000959.SZ), low-cost steel companies Fangda Special Steel (600507.SH) and New Steel Co., Ltd. (600782.SH), and also recommend emerging cast pipes (000778.SZ), Jinzhou Pipeline (002443.SZ), and Youfa Group (), which benefit from short-term infrastructure and expected recovery in water conservancy; 601686.SH

2) Recommended special steel new material companies with a high level of industry prosperity, CITIC Special Steel (000708.SZ), Yongjin (603995.SH), Changbao (000708.SZ), Jiuli Special Materials (002318.SZ), etc., which have strong demand for boiler tubes and oil well pipes, Tunan Co., Ltd. (002318.SZ); New materials Platinium (300811.SZ) and Xianglou New Materials (301160.SZ);

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

Risk warning: Supply-side policies have been relaxed beyond expectations, and demand recovery falls short of expectations.