The Central Conference has released a resolute signal to stabilize growth. Steel, as a low-position countercyclical variety, is expected to fully benefit, and excess returns are expected.
According to the information from the Zhitong Finance APP, China Galaxy Securities released a research report stating that the Central Conference has released a resolute signal to stabilize growth. Steel, as a low-position countercyclical variety, is expected to fully benefit, with excess returns expected. Currently, as steel demand transitions from real estate to high-end manufacturing, the domestic manufacturing industry is expected to continuously transform and upgrade. Steel mills are expected to resume production, and the manufacturing sector's demand for steel has rigid support. Infrastructure demand is expected to be concentrated, export demand is resilient, and total demand is expected to be better than the first half of the year. The traditional 'Gold September Silver October' peak season for steel consumption is approaching, and the supply-demand pattern in the industry is expected to further improve, catalyzing a rebound in steel prices. Core assets in the manufacturing industry with operational resilience and competitive advantages are expected to see profit recovery and value reassessment.
China Galaxy Securities' main points are as follows:
Secondary Market Trends:
This month (2024.10.1-2024.10.15), the SSE Composite Index fell by 4.05%; the Shenzhen Component Index fell by 4.40%; the ChiNext Price Index fell by 4.10%; among the primary industry indices, the steel sector saw a decline of 5.55%. Based on the three sub-industries of the steel sector, the steel pipe sub-sector has performed well in terms of total market value-weighted average data. Among individual stocks in the steel sector, the proportions of stocks that rose, maintained, and declined were 13.64%, 2.27%, and 84.09% respectively.
Summary of Steel Quantity and Price Data:
Influenced by macro factors, monthly steel prices fluctuated towards strength. As an essential basic raw material, steel is quite sensitive to policy changes. In this round of loose cycles, steel market prices have rebounded somewhat. According to the latest data from the National Bureau of Statistics and others, as of September 2024, China's comprehensive steel index was 91.26, a decrease of 2.45 from the previous month, a decrease of 2.62%. Production output has decreased year-on-year, with crude steel, pig iron, and steel production in China in September at 77.07, 66.76, and 117.31 million tons respectively, declining by 6.10%, 6.70%, and 2.40% respectively. Inventory reduction in the domestic steel market, with 7.48 million tons of social steel inventory in China, down 20.09% month-on-month and down 16.52% year-on-year. Net steel exports have increased month-on-month, with China's net steel export volume in September at 9.599 million tons, an increase of 0.609 million tons compared to the previous month.
Steel supply and demand industry chain analysis:
From the supply side, the favorable macro policies in September boosted confidence in the steel market, reduced production scale, and some steel mills resumed production. However, downstream demand release is limited, steel mill production recovery is slow, and output remains low. Among 247 sample steel enterprises nationwide, in September 2024, the domestic blast furnace average capacity utilization rate was 77.95%, down 0.87% month-on-month and 6.29% year-on-year. From the perspective of downstream demand, the recovery is below expectations. In September, the domestic apparent consumption of steel products was 107.71 million tons, a decrease of 2.43% year-on-year.
Looking at different types of steel products, in August, the domestic apparent consumption of rebar, cold-rolled coil, hot-rolled coil, wire rod, and medium plate was 12.339 million tons (a decrease of 20.04% compared to the previous month), 2.969 million tons (a decrease of 9.67% compared to the previous month), 11.354 million tons (a decrease of 13.40% compared to the previous month), 9.797 million tons (a decrease of 11.36% compared to the previous month), and 6.029 million tons (a decrease of 12.84% compared to the previous month). From the upstream perspective, with the rise in raw material prices, the profitability of steel companies is declining, approaching historical lows.
From the perspective of downstream demand, in September, the year-on-year growth of value added in industries above designated size in China was 5.40%, an increase of 0.90 percentage points from the previous month. By sector, infrastructure construction investment (excluding electricity) cumulatively increased by +4.10% year-on-year, real estate investment cumulatively decreased by -9.90% year-on-year, manufacturing investment cumulatively increased by +9.20% year-on-year, with strong demand in the manufacturing sector expected to continue. Overall, the manufacturing industry's recovery trend continues, real estate policy effects are expected to gradually emerge, and marginal improvement on the consumption side.
Focus on the general steel sector and special steel sector leading companies.
Risk Warning: Risks of lower-than-expected demand in downstream real estate and infrastructure; uncertainties in raw material prices such as iron ore and coal; risks of significant changes in steel industry policies, etc.
