Continue to be optimistic about the opportunities of the iron and steel sector without changing the expectation of demand recovery [Institutional Research report]

22 years of steel demand toughness, steady growth will help demand repair, the plate will usher in the repair market. We believe that carbon neutralization is a major theme of industrial products in the next 5-10 years. The 21-year steel production cycle is basically over and the new cycle of the plate begins.

Summary:

The short-term epidemic affects the pick-up of demand in the peak season. Last Friday, the social warehouse of large varieties of steel fell by 407300 tons, the factory warehouse rose by 337700 tons, and the total inventory dropped by 69500 tons. Last Friday, the apparent consumption of large varieties of steel was 995.61 tons, up 341300 tons. Last week, the epidemic situation alleviated in some areas, and downstream steel consumption improved somewhat. But overall, transportation and downstream construction are still affected by the epidemic, and steel demand in the peak season is not as warm as in previous years. In the context of "steady growth", the central bank cut reserve requirements across the board and social finance data in March exceeded market expectations and continued to release positive signals, boosting market confidence. We believe that with the gradual improvement of the epidemic situation in various places, the demand for infrastructure will accelerate, and the demand for real estate and cars will also bottom out. At the same time, the demand for steel exports will be high, and we expect that steel demand will pick up in a pulsating manner in the later period.

The weekly output of large varieties of steel last Friday was 9.8866 million tons, up 11100 tons from the previous week and down 5.84 per cent from the same period last year. Last week, the operating rate of blast furnaces in 247 steel mills nationwide was 80.11 percent, up 0.84 percent from the previous week; and the national operating rate of electric furnaces was 62.82 percent, up 1.92 percent from the previous week. According to the data of the National Bureau of Statistics, from January to February, the national crude steel output was 157.96 million tons, down 10% from the same period last year; the national average daily crude steel output was 2.6773 million tons, down 9.7% from the same period last year. In the short term, the enthusiasm of steel mills to increase production was restrained by low profits, and the weekly output increased only slightly. Throughout the year, we believe that the requirement of strictly banning new production capacity in the industry will continue, the room for steel production growth is limited, and the logic of the industry's long-term boom will remain unchanged.

Last week, the simulated production profits of thread and hot coil were 353.2 yuan / ton and 83.2 yuan / ton respectively. On the cost side, iron ore arrivals fell to a 22-year low last week, while steel mills in North China resumed production, driving up demand for iron ore. Last week, supply and demand in the iron ore market continued to tighten, and iron ore prices fluctuated at high levels. At the same time, affected by the epidemic, the supply of raw materials such as coke and scrap is blocked, and their prices are also strong. Overall, short-term steel mill profits continue to be under pressure. However, for the whole year, the supply of the four major mines and non-mainstream ore and iron ore is expected to increase by about 40 million tons, and the guaranteed supply policy of coke and coking coal will continue, so we expect that the raw material price center of steel mills will return to a reasonable range in the later stage, and the profits of steel mills will gradually pick up.

Maintain the "overweight" rating. At present, the plate is already in the worst fundamental stage of demand bottom, cost top and inelastic supply upward. Looking forward to the future, with the emergence of a phased inflection point of the epidemic, the suppressed demand will be made up. From the perspective of the real estate cycle, the policy bottom is bringing fundamental changes and is expected to gradually stabilize in the second half of the year, while the cost side is likely to decline at a high level, and the industry's gross profit per ton will usher in a re-expansion. It is recommended to pay attention to the plate opportunities with high dividends, low valuation, low configuration and low expectations. Recommend low-cost, strong management of Pu Steel leading Fangda Special Steel, Sangang Minguang, Valin Iron and Steel, Baosteel, Shougang, Ma Steel, Xingang, Angang, etc.; benefit from manufacturing upgrading and import substitution, recommend Special Steel leading Yongjin shares, CITIC Special Steel, Jiuli Special Materials; Fushun Special Steel, the vast number of specialties waiting for the performance inflection point. In terms of new materials, benefit from the rising proportion of electric furnace steel, recommend graphite electrode leader large carbon; benefit from the development of liquid flow battery energy storage, recommend leading Panzhihua Iron and Steel Co., Ltd.; Lithium Carbonate price remains high, recommend Yongxing material for lithium battery transformation; recommend rare earth mine leading Baotou Steel shares, recommend Yuean new materials; Underground pipe corridor and pipeline construction usher in the opportunity period, recommend pipeline leading emerging cast pipe, Jinzhou pipeline, Youfa Group.

Risk hint: the policy of production restriction has been relaxed more than expected, and the demand of the industry has fallen back more than expected.