Trends in the iron and steel industry: the goal of energy consumption is defined again, and the high-end pattern of the industry is presented [institutional review]

Event

The Ministry of Industry and Information Technology and other departments recently released the raw materials industry development plan of the 14th five-year Plan. The development goals include: by 2025, the production capacity of major raw materials such as crude steel and cement will only decrease but not increase, and capacity utilization will remain at a reasonable level. The comprehensive energy consumption per ton of steel in the iron and steel industry is reduced by 2%, the energy consumption per unit clinker of cement products is reduced by 3.7%, and the carbon emission of electrolytic aluminum is reduced by 5%. To study and establish a restraint mechanism to curb the expansion of excess capacity by means of carbon emissions, pollutant emissions and total energy consumption. We will implement the normal production of cement with off-peak, and explore the establishment of peak-off production mechanism in iron and steel and other industries. We will implement energy conservation reviews and strictly control fuel and coal consumption in major coal-consuming industries such as petrochemical industry, iron and steel industry and building materials industry.

Comment

The level of high-end supply is improved, and the industrial structure tends to be reasonable. China continues to increase the intensity of R & D investment in key industries, and breakthroughs have been made in key basic materials and technologies in key strategic areas. The "Plan" proposes that the production capacity of major raw materials such as crude steel and cement will only decrease but not increase, and that leading enterprises in the industrial chain will be formed, and more than five world-class advanced manufacturing clusters will be formed in the field of raw materials. At the same time, with the continuous clarity of the dual control route of energy consumption, the green level of industrial development has also been greatly improved. The target is to reduce comprehensive energy consumption per ton of steel by 2%, unit clinker energy consumption of cement products by 3.7%, and electrolytic aluminum carbon emissions by 5%, reflecting the double reduction of pollutant emission intensity and total amount per unit output value of key industries. The comprehensive utilization rate of solid wastes such as industrial waste residue has been further improved.

The price of iron ore and double coke is expected to decline, and the bargaining power of steel enterprises is expected to rise. On the supply side, domestic iron ore supply mainly comes from overseas. At present, overseas mining enterprises have a relatively strong driving force to increase production, and China continues to make efforts in iron ore security. China's port iron ore is 155 million tons, and the current inventory is close to the highest point in five years. Taking into account the continuous production restriction policy next year, it is expected that the inventory will continue to rise, and the iron ore price will be weak in the future. With the price decline of iron ore and double coke in the future, the promotion of the cost side to the finished material price will gradually weaken, and the recovery of infrastructure demand is already a high probability event. It is expected that the steel demand side will boost, and the bargaining power of the raw material side of steel enterprises will be enhanced in the later stage.

The profit center of the steel industry is expected to boost, and the sector has investment opportunities. At present, the valuation of the iron and steel sector is still relatively low, with lower costs and better real estate data, corporate production costs ushered in a significant improvement, corporate profits are likely to maintain the trend of expansion, the profit center of the industry is expected to be boosted. We judge that, according to the current instructions for the production limit policy, the profits of the industrial chain are expected to usher in redistribution, which has a positive impact on the reshaping of industry valuation, and investment opportunities in the steel sector still exist. On the one hand, we can pay attention to high-end electrical steel standards with high technical barriers and strong profitability, such as Baosteel and TISCO; on the other hand, we suggest that we should pay attention to providing high-end special steel materials for military aviation with strong fundamentals, such as Yongxing material and Fushun Special Steel.