Currently, the steel industry has weak demand, and industry profits are at a low level, but with the completion of the medium and long-term ultra-low emissions transformation in the industry and further inclusion in the carbon trading market, the long-term allocation value of the sector may gradually become more prominent.
According to the Securities Times App, Everbright Securities released research reports stating that currently, the steel industry has weak demand, and industry profits are at a low level, but with the completion of the medium and long-term ultra-low emissions transformation in the industry and further inclusion in the carbon trading market, the long-term allocation value of the sector may gradually become more prominent. Against the backdrop of the China Securities Regulatory Commission's requirement for listed companies to strengthen market cap management, it is recommended to pay attention to the valuation of low-profit, stable steel state-owned enterprises such as Baoshan Iron & Steel (600019.SH), Hunan Valin Steel (000932.SZ), Xinxing Ductile Iron Pipes (000778.SZ), and recommended to focus on Xinyu Iron & Steel (600782.SH), Angang Steel (000898.SZ), hbis company limited (000709.SZ), Sansteel Minguang (002110.SZ), Beijing Shougang (000959.SZ), and Chongqing Iron & Steel (601005.SH).
Industry supply and demand are both weak, and current profits are at a low level.
On the demand side: From January to August 2024, the planned construction area of land transactions in the top 100 cities in China was 0.728 billion square meters, a year-on-year decrease of 25.87%, reaching a low level in nearly 10 years. The cumulative year-on-year growth rate of new housing construction area in the top 100 cities was -22.50%. The land area and land acquisition area in the top 100 cities are leading indicators of new housing construction, hence the new construction area is expected to continue to be under pressure in the later period.
On the supply side: From January to August 2024, China's crude steel production was 0.691 billion tons, a year-on-year decrease of 3.30%. Among them, the average daily crude steel production in August was 2.5135 million tons, reaching the lowest level in nearly 5 years.
In terms of profitability: From January 1 to September 26, 2024, the industry's average comprehensive gross profit was 161 yuan per ton, a year-on-year decrease of 35.43%.
Future energy consumption indicators and carbon taxes will restrict industry supply, further highlighting the sector's investment value.
On September 2, 2024, the relevant person in charge of the China Iron and Steel Industry Association announced new progress in the ultra-low emission transformation of China's steel industry at the 13th China International Steel Conference. Currently, 0.62 billion tons of crude steel production capacity have completed the transformation; on September 7, Minister of Ecology and Environment Huang Runqiu stated, "By the end of this year, in addition to the existing electrical utilities sector, the national carbon trading market will also include key emission industries such as steel, cement, and aluminum smelting."
On September 9, Tangshan City issued a notice regarding the improvement of differentiated electricity price policies for steel companies in implementing ultra-low emission requirements. It requires: Steel companies in the city that have not completed the national and provincial ultra-low emission transformation requirements and completed the entire process of ultra-low emission transformation and evaluation monitoring, as well as steel companies that have not met the ultra-low emission requirements after the transformation, will implement differentiated electricity pricing.
Therefore, from a medium to long-term perspective, the production costs of steel companies that have not completed ultra-low emission transformation may further increase, and the steel industry is expected to face higher carbon tax costs after being included in the carbon trading market. These factors are likely to impose certain constraints on crude steel production, with the long-term value of the industry gradually becoming more prominent.
Several central steel SOEs have a PB_LF valuation of less than 1.0 times.
As of September 26, companies with PB_LF valuation below 1.0 in central SOEs include: xinyu iron & steel (0.39X), angang steel (0.40X), hbis company limited (0.40X), sansteel minguang (0.40X), beijing shougang (0.48X), xinxing ductile iron pipes (0.54X), hunan valin steel (0.55X), chongqing iron & steel (0.56X), shanxi taigang stainless steel (0.60X), maanshan iron & steel (0.63X), hang zhou iron & steel (0.65X), lingyuan iron & steel (0.71X), baoshan iron & steel (0.71X), central-south steel (0.73X), shandong iron and steel (0.74X), liuzhou iron & steel (0.85X), bengang steel plates (0.89X), gan su jiu steel group hong xing iron & steel co,ltd (0.92X).
Risk Analysis: Steel industry demand performance may fall below expectations; ductile iron pipes industry demand performance may fall below expectations; significant increase in raw material prices.