The Zhitong Finance App learned that Guotai Junan released a research report stating that it will maintain the “increase in holdings” rating of the steel sector. Currently, the sector is at the bottom of demand, at the top of costs, and at the worst fundamental stage of supply upward elasticity. Looking ahead, as the epidemic hits a phased inflection point, suppressed demand will make up for itself. Judging from the real estate cycle, the policy base is bringing about fundamental changes, which are expected to gradually stabilize in the second half of the year, while the cost side is likely to show a high level of decline, and industry gross profit will usher in re-expansion. Guotai Junan suggests focusing on sector opportunities with high dividends, undervaluation, low allocation, and low expectations. We recommend low-cost, well-managed Pu Steel (600507.SH), Sangang Minguang (002110.SZ), Baosteel (600019.SH), Valing Steel (000932.SZ), Shougang (000959.SZ), Ma Steel Co., Ltd. (), Ma Steel Co., Ltd. (), etc.; benefit from manufacturing upgrading and import substitution, recommend leading Special Steel Yongjin Co., Ltd. (), CITIC Special Steel (000708.SZ), Jiuli Special Materials (002318). 600808.SH 600782.SH 603995.SH SZ); Fushun Special Steel (600399.SH) and Broad Special Materials (688186.SH) await an inflection point in performance.

In addition, in terms of new materials, benefiting from the increase in the share of electric furnace steel, Cathay Pacific Junan recommended Fangda Carbon (600516.SH), the leading graphite electrode; benefiting from the development of liquid flow batteries, recommended Vanadium Titanium (000629.SZ); maintaining a high lithium carbonate price and recommending Yongxing Materials (002756.SZ), a leader in rare earth mining, Baogang Co., Ltd. (600010.SH), a leader in carbon-based iron powder, recommended Yuean New Material (), the leader of carbon-based iron powder powder; recommended Yuean New Material for underground pipelines and pipeline construction, which ushered in a period of opportunity. Xinxing cast pipe (688786.SH 000778.SZ), Jinzhou Pipeline (002443.SZ), Youfa Group (601686.SH).

The pandemic affected the recovery in demand during the peak season. Last week, the social bank of the five major steel varieties rose by 38,800 tons, the factory warehouse rose by 221,900 tons, and the total inventory rose by 267,700 tons.The apparent consumption of five major varieties of steel last week was 961.48 tons, a drop of 312,500 tons. The epidemic did not abate significantly last week. Downstream construction and transportation continued to be affected by the epidemic, and the recovery in steel demand during the traditional peak season fell short of expectations. However, Guotai Junan believes that demand on the real estate side and the automobile side of steel is currently at the bottom to recover, and demand on the infrastructure side is also awaiting an accelerated recovery. At the same time, compounded by the high boom in steel export demand, Guotai Junan believes that there is no need to be pessimistic about steel demand. As the national epidemic hits an inflection point, steel demand may show a pulsed recovery trend.

Weekly production of five major varieties of steel last week was 9.875,500 tons, an increase of 249,700 tons over the previous week, and a year-on-year decrease of 6.60% over the same period last year.Last week, the operating rate of blast furnaces in 247 steel mills nationwide was 79.27%, up 1.82 percentage points from the previous week; the operating rate of electric furnaces nationwide was 60.90%, down 1.28 percentage points from the previous week. According to data from the National Bureau of Statistics, in January-February, the country's crude steel production was 157.96 million tons, down 10% from the previous year; the average daily crude steel production in the country was 2,6773 million tons, down 9.7% from the previous year. In the short term, Tangshan and other places were gradually unblocked, and steel supply picked up somewhat. However, in the medium to long term, Guotai Junan believes that the industry's requirement to strictly ban new production capacity will continue, that there is limited room for growth in steel production, and that the logic of the industry's long-term boom has not changed.

Last week, the profit from simulated production of threads and hot coils was 442 and 202 yuan/ton respectively.Looking at the cost side, iron ore supply will decline slightly after the short-term Australian and Brazilian shipping impetus ends at the end of the season. At the same time, due to the impact of the epidemic, domestic mineral production will also decrease slightly, compounded by expectations that steel mills will resume production. Guotai Junan believes that short-term iron ore prices may still be strong. However, looking at the whole year, the supply of the four major mines and non-mainstream iron ore is expected to increase by about 40 million tons. Guotai Junan expects the iron ore price center to return to a reasonable range in the later stages; in terms of coke and coking, the supply guarantee policy continues, and Cathay Pacific Junan believes that the worst situation on the supply side is over. Overall, Guotai Junan expects that the pressure on steel mills on the cost side of steel mills will gradually improve in the later stages, and steel mill profits will gradually pick up.