According to the report from the China Securities News, on June 7, the National Development and Reform Commission and other departments issued the "Steel Industry Energy Saving and Carbon Reduction Special Action Plan", "Refining Industry Energy Saving and Carbon Reduction Special Action Plan", "Synthetic Ammonia Industry Energy Saving and Carbon Reduction Special Action Plan", and "Cement Industry Energy Saving and Carbon Reduction Special Action Plan". Analysts point out that the implementation of carbon reduction plans for steel and cement energy-consuming companies is not only to fulfill the commitments made in the Paris Climate Agreement, but also an essential step for China's transformation and upgrading. This is good news for large steel and cement companies because it will eliminate some backward production capacity and increase market share.

Specifically, the "Steel Industry Energy Saving and Carbon Reduction Special Action Plan" proposes that from 2024 to 2025, by implementing energy-saving and carbon-reducing reforms in the steel industry and updating energy-using equipment, approximately 20 million tons of standard coal will be saved and about 53 million tons of carbon dioxide will be reduced. By the end of 2030, the energy efficiency of major energy-consuming equipment in the steel industry will basically reach advanced levels, and comprehensive energy consumption and carbon emissions per ton of steel will be significantly reduced. In addition, breakthroughs will be made in energy-saving and carbon-reducing advanced technologies such as blast furnace oxygen-enrichment technology and hydrogen metallurgy technology. At the same time, the steel capacity replacement policy should be strictly enforced, and no new steel production capacity may be added under the name of machinery processing, casting, ferroalloy, etc. In 2024, crude steel output control will be continued.

The "Cement Industry Energy Saving and Carbon Reduction Special Action Plan" proposes that by the end of 2025, the cement clinker production capacity should be controlled at around 1.8 billion tons, and the proportion of production capacity above the energy efficiency benchmark level should reach 30%. Production capacity below the energy efficiency benchmark level should complete technical transformation or be eliminated. From 2024 to 2025, approximately 5 million tons of standard coal and about 13 million tons of carbon dioxide will be saved through energy-saving and carbon-reducing reforms in the cement industry and the updating of energy-using equipment. By the end of 2030, the layout of the cement industry will be further optimized, and the proportion of production capacity above the energy efficiency benchmark level will be greatly increased.

According to analysts, the implementation of carbon reduction plans for steel and cement energy-consuming companies is not only to fulfill the commitments made in the Paris Climate Agreement, but also an essential step for China's transformation and upgrading. This is good news for large steel and cement companies because it will eliminate some backward production capacity and increase market share.

In addition, the State Council recently issued the "2024-2025 Energy Saving and Carbon Reduction Action Plan", which clearly stated that "the steel production capacity replacement should be strictly implemented and the production of "inferior steel" capacity should be prevented from resurging. Before the completion of the energy-saving and carbon-reduction targets in the first three years of the 14th Five-Year Plan for those regions with lagging progress, no new steel production capacity may be added."

Recently, the real estate industry support policies have continued to be introduced. The People's Bank of China has set up a 300 billion yuan loan for guarantee housing. Cities such as Shanghai and Shenzhen have stronger real estate policies, which have boosted medium-term demand in the steel industry. At the same time, the promotion of equipment updating and transformation will drive the demand for steel in the manufacturing industry. In terms of exports, steel exports reached 35.024 million tons from January to April 2024, an increase of 27.0% year-on-year, and exports remained at a good level. Under policy support, the steel industry demand is gradually stabilizing.

According to Cinda Securities, although the steel industry is currently facing prominent supply and demand imbalances, a drop in overall industry profitability, and other issues, with the deepening of the policy to stabilize growth, the total demand for steel is expected to maintain stability or marginally increase with the support of the bottoming out of the real estate market, the stable growth of infrastructure investment, the continued development of manufacturing, and high steel exports. In contrast, under the expected policy of control, the total supply of steel is tight and the industry concentration continues to strengthen. The overall situation of supply and demand in the steel industry is expected to remain stable. At the same time, under the macro trend of high-quality economic development and new production forces, especially with the high barriers, high added value of high-end steel benefiting from the energy cycle, domestic substitution, and high-end equipment manufacturing, the industry pattern of the steel industry is expected to stabilize and improve. Currently, some companies are in the low-valuation zone, and there are still structural investment opportunities, particularly for specialty steel enterprises with high gross margins and leading steel enterprises with strong cost control and scale efficiency. There are opportunities for valuation repairs in the future.

The bank believes that the future industrial structure of the steel industry is expected to improve, and combined with the current situation where some companies are in the low-valuation zone, there are still structural investment opportunities. This is particularly true for specialty steel enterprises with high gross margins and leading steel enterprises with strong cost control and scale efficiency, which still have opportunities for valuation repairs at this stage.

In recent times, the price of cement in the domestic market has continued to rise, with prices rising in the Northeast, Central, Southern, and Southwest regions since May. Some regions are still preparing to raise prices. As of May 24, the national average price of cement reached 372 yuan/ton, an increase of about 12 yuan since the beginning of the month, setting a new high since the second quarter. The new national standard for cement will be implemented on June 1. The mixing material of ordinary Portland cement has been revised to be greater than or equal to 6% and less than or equal to 20% (previously only required to meet strength requirements without compulsory component requirements).

On the one hand, the implementation of the new national standard is expected to increase the utilization rate of clinker production capacity throughout the industry. It is expected that the use of clinker will not be less than 75% after the implementation of the new standard, an increase of at least 10 percentage points compared to before, and is expected to drive an increase in clinker demand of about 200 million tons, corresponding to an 11% increase in production capacity utilization rates, which could help partially alleviate the pressure of overcapacity. On the other hand, the improvement of clinker blending and mixing materials quality requirements will increase cement production costs, and the expected cost increase will be about 10-30 yuan, with greater pressure on small and medium-sized enterprise operations.

Tianfeng Securities pointed out that the main reason for the recent increase in cement prices is due to cost pressure, and compared to the previous round of price increases, this round of increases involves a wider range. Short-term price increases in cement are still expected to continue, and the increased profits brought by price increases will be even greater for leading companies.

Related concept stocks:

Angang Steel (00347): The company's main business is black metal smelting and steel processing. The company has become a high-quality plate production base with an annual output of 16 million tons of steel, with automobile plates, household appliance plates, container plates, shipbuilding plates, pipeline steel, cold-rolled silicon steel and other main products.

China National Building Material (03323): The company operates cement, lightweight building materials, fiberglass, composite materials, and engineering services. The company's sales cover the entire country and supply the infrastructure and real estate sectors.

Conch Cement (00914): The company is mainly engaged in the production and sales of cement and cement clinker commodities. The company has built five large clinker bases in Tongling, Yingde, Chizhou, Zongyang, and Wuhu, and has built four 12,000-ton production lines in Wuhu, Tongling, and Yangchun, Guangdong.