According to the Zhithong Finance APP, Huafu Securities released a research report stating that looking ahead to December, in the short term, entering the off-season will weaken supply and demand, but the inventory level is not high, so the pressure of supply and demand conflicts has not yet manifested, especially since steel mill inventory remains at a reasonable level, and there is a certain expectation for social winter storage, which will provide good support for steel prices in the short term. In the long term, the national finance work conference pointed out that a more proactive fiscal policy will be implemented by 2025, increasing the fiscal deficit rate; the national housing and urban-rural construction work conference indicated that efforts should be sustained to promote the real estate market to stop falling and stabilize, and to vigorously implement urban renewal; the policy direction is clear and continuously strengthened, leading to further stabilization of steel demand in industries like infrastructure and real estate by 2025, the fundamentals of the steel industry may迎real substantial improvement, and steel prices are expected to stabilize.

The main views of Huafu Securities are as follows:

Iron Ore

1) Production: In November, domestic iron ore raw output was 81.15 million tons, down 6.1% month-on-month and down 9.3% year-on-year; from January to November, the cumulative output of domestic iron ore raw material was 952.26 million tons, up 1.9% year-on-year. 2) Imports: In November, imported iron ore and its concentrates were 101.86 million tons, down -1.98 million tons or 1.9% month-on-month and down -0.88 million tons or 0.9% year-on-year; from January to November, cumulative imports of iron ore and its concentrates were 1,124.24 million tons, up 4.3% year-on-year.

Coking Coal

1) Output: In November, the raw coal output was 0.428 billion tons, up 1.8% year-on-year; from January to November, the raw coal output was 4.322 billion tons, cumulatively up 1.2%. In November, Shanxi's raw coal output was 0.114 billion tons, up 1.95% month-on-month and down 4.0% year-on-year, with a cumulative raw coal output of 1.16 billion tons, down 7.3% compared to last year. 2) Imports: In November, coking coal imports were 12.295 million tons, up 24.02% year-on-year; from January to November, coking coal imports totaled 111.51 million tons, cumulatively up 23.32% year-on-year.

Steel

1) Crude Steel: In November, crude steel production was 78.4 million tons, a decrease of -3.48 million tons/-4.3% month-on-month, and an increase of 2.3 million tons/+2.5% year-on-year; from January to November, the cumulative production of crude steel was 929.19 million tons, a year-on-year decrease of 2.7%. 2) Steel: In November, steel production was 118.81 million tons, a decrease of -0.6 million tons/-0.5% month-on-month, and an increase of 8.38 million tons/+5.1% year-on-year; from January to November, the cumulative production of steel was 1283.04 million tons, a year-on-year increase of 0.9%. 3) Exports: In November, steel exports were 9.28 million tons, a decrease of -1.9 million tons/-17.0% month-on-month, and an increase of 1.27 million tons/+15.9% year-on-year; from January to November, the cumulative steel exports were 101.15 million tons, a year-on-year increase of 22.6%.

November Review

In terms of raw materials: Supply of iron ore has contracted, both domestic production and foreign imports have declined, and port inventories remain high; raw coal production has increased, coking coal imports continue to grow, and the supply of coking coal remains loose. In terms of production: Steel mills' production rhythm has slowed, crude steel production has decreased month-on-month, and the annual cumulative production decline has narrowed; additionally, the decline in rebar production is steeper, with continued differentiation of products. In terms of exports: The quantity of steel exports in November declined month-on-month, but remains high year-on-year; steel exports are trading price for volume, and prices remain highly competitive; attention is warranted regarding the impact of increasing trade tensions on steel exports.

Investment Suggestions

Hua Fu Securities stated that there is no significant contradiction between supply and demand in the industry, and under the force of incremental policies, the Steel Sector has the foundation to continue rebounding upward. The steel sector has experienced large declines, many stocks are trading below net asset value, and institutional Hold Positions are low, suggesting attention to five main lines:

Main Line 1) The variety structure is continuously optimized, able to withstand cycles, consistently stable high dividends, low valuation safety margin, and high odds: Hunan Valin Steel (000932.SZ), Baoshan Iron & Steel (600019.SH), Nanjing Iron & Steel (600282.SH).

Main Line 2) Companies with high technical or cost barriers that can resist "involution," while also layouting incremental projects or overseas projects: Citic Pacific Special Steel Group (000708.SZ), Yongjin Technology Group (603995.SH), Zhejiang JIULI Hi-tech Metals (002318.SZ).

Main line 3) Waiting for the reversal of difficulties, with significant performance elasticity, focusing on extreme cost reduction or exploring the valuation enhancement of state-owned enterprises such as Fangda Special Steel Technology (600507.SH) and Sansteel Minguang (002110.SZ).

Main line 4) Other long-term below book value, belonging to central state-owned enterprise nature: Shandong Iron And Steel (600022.SH), Xinyu Iron & Steel (600782.SH), Xinxing Ductile Iron Pipes (000778.SZ), Shanxi Taigang Stainless Steel (000825.SZ).

Main line 5) Dual-use military and civilian, high-temperature alloys as a continuously prosperous growth segment, belonging to industry leaders such as Gaona Aero Material (300034.SZ) and Fushun Special Steel (600399.SH); additionally, focus on Hbis Resources (000923.SZ) benefiting from the expansion of Copper phase two.

Risk Warning

The intensity of production control and restrictions is not as expected; the progress of domestic economic recovery is not as expected; the international trade environment is not as expected.