According to Zhongjiang Securities research report, emerging economies represented by India are rapidly rising and are expected to take on the prosperity of industrialization and become the new demand margin for resource products. The long-term share of blast furnace-basic oxygen furnace is expected to increase, further boosting the demand elasticity of ore and coke. Under the rigid constraint of resource endowment, the growth ability of domestic supply of mines and coke in India may be significantly inferior to demand, exacerbating the shortage of global mines and coke. The era of resources, the resources of the era. In summary, with the rise of industrial demand in developing countries represented by India, the demand for coking coal, iron ore and other resources with constrained supply is expected to reshape the long-term supply and demand pattern.

India: Start of Industrialization, a New Demand Margin for Resource Products.

Reviewing the development history of the steel industry in the past century, the development of the industry is closely related to the global industrialization process. At the beginning of the 21st century, China's macroeconomic demand took off, and the terminal of the construction and manufacturing industry was dazzling. Effectively supporting China to take over the global prosperity of industrialization from Japan and South Korea. After more than 20 years of rapid industrialization and development, the domestic manufacturing industry has gradually matured and become the dominant force in the demand for bulk resources such as steel, coal, copper, aluminum, etc. At the same time, with the rapid rise of emerging economies represented by India, it is expected that they will undertake the prosperity of industrialization and become a new demand margin for resource products. In the short term, India has adopted active fiscal policies to effectively stimulate potential demand. While the economy grows rapidly, the deficit and inflation are maintained at a reasonable level. In the medium term, India is committed to improving infrastructure supporting, improving administrative efficiency, and gradually enhancing investment attractiveness. In the long term, India's demographic dividend advantages are highlighted, and if used properly, it is expected to seize a share in the international competition for low- to mid-end manufacturing. With the start of India's industrialization, India's crude steel supply and demand in 2030 are expected to be 0.255 billion tons, with a CAGR of approximately 8.9%.

Demand: The proportion of blast furnace-basic oxygen furnace is increased, and the demand elasticity of ore and coke is boosted.

Under the broad growth prospects of India's steel industry, upstream resources with more rigid supply benefit significantly. Among the three main steelmaking processes, blast furnace-basic oxygen furnace, direct reduced iron, and short process, the long-term share of blast furnace-basic oxygen furnace is expected to increase, further boosting the demand elasticity of ore and coke: it is estimated that by 2030, India's iron ore demand CAGR will be about 10.0%, driving global iron ore demand by 9.4%; Coking coal demand CAGR is about 10.2%, driving global coking coal demand by 7.1%. (1) Long process vs. short process: India's industrialization time is short, and the finished products of the steel industry are mainly accumulated in the construction industry. The recycling period of scrap steel is long and the recycling rate is low. The shortage of social scrap steel resources restricts the growth rate of scrap steel supply, thereby opening up the demand space for iron ore. (2) Blast furnace-basic oxygen furnace vs. direct reduced iron: India's high-grade iron ore and the lack of coking coal promote the advantageous position of direct reduction process (which does not rely on coking coal). However, India's mainstream coal-based direct reduction process has defects such as small production scale, low efficiency, and high energy consumption. Essentially, it is a backward long process technology that may be replaced by efficient blast furnace-basic oxygen furnace. Among India's planned steel projects, the blast furnace-basic oxygen furnace capacity accounts for 84%, and direct reduction plus short process only accounts for 12%, confirming the development trend.

Supply: Resource rigid constraint, limited growth of mine and coke supply.

After seeing the dazzling growth elasticity of India's mine and coke demand, attention is focused on the supply side. Under the rigid constraint of resource endowment, the growth ability of domestic supply of mines and coke in India may be significantly inferior to demand. It is estimated that by 2030, India's iron ore supply will have a CAGR of approximately 6.5%, driving global iron ore supply by 6.1%; coking coal supply CAGR is about 3.9%, driving global coking coal supply by 0.2%. While exacerbating the shortage of global mineral and coke, the contradiction between supply and demand for coking coal may be more prominent. (1) Iron ore: Compared with the mine life of 60~70 years in mainstream countries, the mining life corresponding to India's current reserves is only 20 years, which is difficult to support the expansion plan far ahead of 0.4 billion tons. However, if India increases the comprehensive utilization of low-quality ores, the storage space will still be relatively broad. (2) Coking coal: Coking coal is mainly enriched in underground deep mines. India has a weak investment in underground mines, and the high ash content and fine-grained intergrowth characteristics of coal make the washing rate of coking coal low and the proportion of coking coal small. Looking at the plan, open-pit mines account for 98% of India's new production capacity. Coupled with poor performance in fulfilling promises, it restricts the space for coking coal production growth.

In the era of resources, we are bullish on the long-term investment value of black resources.

In the age of resources, and resources of the age. With the rising industrialization demand of developing countries represented by India, the demand for coking coal, iron ore and other resources with constrained supply is expected to reshape the long-term supply-demand pattern. In terms of coal, the market is worried that high ROE will cause capacity expansion. However, under factors such as "dual-carbon", "safety supervision", and "cost", it is difficult for coal production capacity to expand; but demand is still expected to steadily increase, supporting prices to remain high in the medium and long term. With the long duration of profits, the sector has a basis for valuation improvement and the long-term asset space is still sufficient for stable and profitable leading enterprises. In terms of iron ore, the quality supply pattern and improved domestic economic expectations have boosted the current ore price with both winning and losing probability in the short term; in the long term, after the gradual release of capacity at West Mangdud and the domestic "cornerstone plan", there may be loose expectations for iron ore supply; however, the increase in demand from emerging countries cannot be ignored, and the supply-demand relationship still depends on the realization of the pace. For investment, pay attention to the resonance of iron and copper in HBIS Resources, high-quality coking coal resource leaders such as Huaibei Mining Holdings, Pingdingshan Tianan Coal Mining, and Shanxi Coking Coal Energy Group.

Risk warning

1. Low expectations for Indian economic development; 2. Slowdown in construction demand; 3. Manufacturing demand is below expectations; 4. Geopolitical risks.