The Zhitong Finance app learned that CITIC Securities released a research report saying that on August 25, the Ministry of Industry and Information Technology took the lead in issuing the “Steel Industry Steady Growth Work Plan” with various departments to clarify the general policy for industry growth in 2023 and 2024. Among them, stabilizing demand is the main background for this plan; stabilizing demand, preventing excess, and promoting transformation are the three major requirements. The bank believes that the steel industry is highly cyclical and is currently at the bottom of valuation and profit. It is expected that the economic stabilization policy in the second half of the year will bring about improvements in demand and implementation of the general direction of production restrictions, which will continue to improve the profitability of the industry and enhance the bargaining power of the steel industry in the industry. Maintain the steel industry's “better than the market” rating.
The main views of CITIC Securities are as follows:
The “Steel Industry Steady Growth Work Plan” clarifies the general policy for industry growth in 2023 and 2024:
From 2023 to 2024, the main goal of steady growth in the steel industry is: in 2023, supply and demand in the steel industry maintain a dynamic balance, fixed asset investment throughout the industry maintain steady growth, economic benefits have improved markedly, industry R&D investment competition has reached 1.5%, and industrial value added will increase by about 3.5%; in 2024, the industry development environment and industrial structure will be further optimized, and the level of high-end, intelligent and greening will continue to rise, and industrial value added will increase by more than 4%. Among them, the value added of the ferrous metal smelting and rolling processing industry belonging to the steel industry increased by 5.5% in the first half of this year.
Stabilizing demand is the main background for this plan; stabilizing demand, preventing excess, and promoting transformation are the three major requirements.
On August 25, the Ministry of Industry and Information Technology took the lead and released separate documents on the steady growth of the four key raw material industries of steel, non-ferrous metals, building materials, and petrochemicals, and clarified the development goals of these industries from 2023 to 2024. At the press conference on the same day, Chang Guowu, director of the Raw Materials Industry Department of the Ministry of Industry and Information Technology, said that the current pressure for steady growth in the raw materials industry is still high. Not only is domestic demand still insufficient and the pressure on resources and the environment is increasing, but there is still a problem of excess traditional products, and the task of transformation and upgrading is arduous. Stabilizing demand, preventing excess, and promoting transformation are still the main goals in the field of raw materials.
Stable demand: The steel industry continues to maintain stable demand vitality, and the transformation has brought about a new increase in demand.
According to data from the National Bureau of Statistics and the bank's estimates, the actual domestic consumption volume of the steel industry in the first half of this year (crude steel production - net exports - accumulation of stocks) was 486 million tons, up 2.5% from last year. Strong demand resilience has been shown. Among them, construction steel was affected by the decline in real estate, and demand declined year-on-year, while the steady operation of the domestic manufacturing industry as a whole has not only made up for the downturn in real estate, but also brought about growth. Considering the low base demand effect in the second half of last year, the bank expects that it will not be very difficult to achieve a positive year-on-year increase in steel demand in the second half of the year. Considering the structural transformation of steel demand in recent years and the low base effect of last year, the bank expects the steel industry to maintain good demand vitality in the second half of the year.
Preventing excess: Policy continuity is the bottom line requirement for industry development, and quality improvement depends on a long-term mechanism.
China's steel industry has continued to make large-scale capital investments since 2003, and production capacity and output have been rising steadily. After entering 2013, it has entered a stage of obvious overcapacity, and the capacity utilization rate has been low for a long time. China implemented two industry policies of “removal of production capacity” and “removal of production” in 2017 and 2021, respectively, which significantly increased the capacity utilization rate of the industry, led to the continuous elimination of backward production capacity, and accelerated the transformation and upgrading of production capacity. However, the current concentration of China's steel industry is low, and inefficient competition between regions or enterprises is still quite common. Long-term policy mechanisms to prevent disorderly growth in production and continue production restrictions are essential. In the “Work Plan for Steady Growth in the Steel Industry”, the first column points out “consolidating the achievements of capacity removal”: continuing to consolidate and improve the results of the work to eliminate excess capacity in steel, improve the long-term mechanism for eliminating excess capacity through market-based rule of law, and use comprehensive standards to promote the elimination of backward production capacity according to law and regulations. Looking at the experience of developed countries, the US, Japan, Germany, etc. reduced production at an average rate of 1.5% per year after entering the quantification stage in the steel industry, which is an important reference for the decline in production in China's steel industry in the future.
The implementation cycle of multiple policy goals is prone to misalignment, which can easily lead to major fluctuations in the industry.
The increase in industry concentration is difficult to achieve overnight; it often takes a long cycle of 5-10 years. However, the downstream demand transformation, although results have already been shown in the past two years, is often deeply tied to the upgrading of the national manufacturing industry. It is expected that 3-5 years will be a good transformation cycle. However, short-term industry support often requires efficient and consistent policies. The steel industry's “volume reduction” policy is an important means of industry support in the 1-2 year dimension, which helps to ensure a smooth transition of the industry to a medium- to long-term cycle of demand transformation and increased industrial concentration. Without good policy support, a short-term vacuum period is likely to occur, leading to large fluctuations in industry profits.
Risk Factors:Demand for steel fell short of expectations; production restrictions fell short of expectations; and exports of steel products declined markedly.