Most of the steel sector belongs to the smelting and processing industry. Although the resource attributes are lower than the upstream extractive industry, some companies are currently in an undervalued area, and there are opportunities for future restoration.
The Zhitong Finance App learned that Guosheng Securities released a research report indicating that black prices have gradually rebounded recently, sales volume of building materials increased rapidly after the Qingming Festival, and inventories fell rapidly. It is likely that during the debt conversion process, local contraction and central expansion will begin to enter a bridging state. Meanwhile, early industrial speculation amplified short-term inventory fluctuations. At this stage, the output gap in the upstream resource goods industry is even more obvious. Most of the steel sector belongs to the smelting and processing industry. Although the resource attributes are lower than the upstream extractive industry, some companies are currently in an undervalued area, and there are opportunities for future restoration.
Guosheng Securities's main views are as follows:
The Bureau of Statistics released relevant data on the steel industry for March 2023. Combined with the previous customs import and export data, the summary is as follows:
Crude steel production in March 2024 was 88.27 million tons, down 7.8% year on year; average daily output was 2.847 million tons, up 1.7% month on month; in January-March, crude steel production was 25.55 million tons, down 1.9% year on year; in January-March, China's pig iron production was 213.39 million tons, down 2.9% year on year; in March, China's steel output was 123.37 million tons, up 0.1% year on year; in January-March, China's steel output was 336.03 million tons, up 4.4% year on year.
In March, China exported 9.89 million tons of steel, up 18.3% year on year; in January-March, China exported 25.8 million tons of steel, up 28.5% year on year; in March, China imported 620,000 tons of steel, down 17.1% year on year; in January-March, China imported 10.72 million tons of iron ore, the same year on year; in January-March, China imported 310.13 million tons of iron ore, up 5.5% year on year.
Crude steel production has declined, and steel mills have limited efforts to resume production
According to Wind data, the average daily crude steel output in March 2024 was 2,847 million tons, with an average daily average of only a slight increase from January to February, falling short of the average daily crude steel output of 3.088 million tons in March last year; since entering April, steel mill profits have gradually recovered, and the steel mill profit ratio has recovered above 38%, but at the same time, downstream demand recovery is still slow. The apparent consumption of the five major types of steel is not as high as of the same period last year. As of April 12, the average daily iron and water production of 247 steel mills was 2.248,000 tons. +0.6%, YoY -8.9%, The weekly output of the five major steel varieties was 8.562 million tons, -1.0% month-on-month and -12.9% year-on-year; as subsequent improvements in profits of steel mills continue, steel production may continue to increase.
Net exports continue to increase, and policies are favorable to improving fundamentals
Net steel exports from January to March 2024 were 24.05 million tons, an increase of 32.4% over the previous year, and overseas demand is expected to continue the high trend. Real estate data for January-March was weak. Sales, new construction, and investment were -19.4%, -27.8%, and -9.5% year on year; infrastructure investment in January-March (excluding electricity) increased 6.5% year on year, 0.2 pct faster than in January-February; investment in manufacturing increased by 9.9%, 0.5 pct faster than in January-February; value added for industries above the January-March scale increased 4.5% year on year.
According to the National Development and Reform Commission, in 2024, the National Development and Reform Commission, the Ministry of Industry and Information Technology, the Ministry of Ecology and Environment, the Ministry of Emergency Management, and the National Bureau of Statistics, together with relevant parties, will continue to carry out national crude steel production regulation and optimization to promote the high-quality development of the steel industry. It is expected that favorable supply-side policies will continue in the future.
According to the Securities Times, Liu Sushe, deputy director of the National Development and Reform Commission, said on March 21 that the next step will be to coordinate the use of policy tools such as investment within the central budget, ultra-long-term special treasury bonds, and local government special bonds to speed up the issuance of investment plans within the central budget and speed up the review of local government special debt projects. It is expected that macroeconomic and real estate policies will be further promoted in the near future. Medium- to long-term demand for steel is expected to improve markedly, and fundamentals will improve in the long term.
Investment advice:
We continue to recommend Valin Steel (000932.SZ), Nangang Steel (600282.SH), and Baosteel (600019.SH), which have benefited from Pu Steel's profit recovery; Jiuli Special Materials (002318.SZ), which has benefited from the oil and gas boom cycle; the emerging cast pipe (000778.SZ) that has benefited from pipeline network transformation and Pugang's profitable elasticity; Changbao (002478.SZ) shares (002478.SZ), which have benefited from the recovery in demand and the nickel-plated steel shell business, it is recommended to follow 603995.SH Wujin Stainless (603878.SH) is benefiting from the trend of new construction of coal and electricity and import substitution.
Risk warning: Domestic production control policies fall short of expectations, downstream demand falls short of expectations, and raw material prices have risen sharply.