According to the report released by Huafu Securities, due to continuous destocking of steel in the early stage, there is currently no significant pressure on steel inventory, and the supply-demand contradiction is not prominent. In May, steel production rebounded month-on-month, steel exports increased month-on-month, and the average export price of products was low. In the future, steel exports may face more unfavorable factors such as trade disputes and restrictions on low value-added exports, which may lead to a top reversal in export volume. Before the important meeting, the policy fell into a vacuum period, and policy expectations weakened. The market turned to focus on the industry fundamentals. Along with the deepening of the off-season and the marginal weakening of downstream demand, the supply-demand contradiction in the industry has accumulated to some extent. In the future, we should pay attention to policy signals.
It is recommended to pay attention to the general steel sector. Companies with undervalued stocks, high dividends, and stable profitability, such as Nanjing Iron & Steel (600282.SH), Hunan Valin Steel (000932.SZ), Xinxing Ductile Iron Pipes (000778.SZ), etc., should be considered. In the special steel sector, it is suggested to pay attention to the companies which have both profit elasticity and high dividends, such as CITIC Pacific Special Steel Group (000708.SZ), Jiangsu Changbao Steel Tube (002478.SZ), Yongjin Technology Group (603995.SH), etc.
Viewpoints of Huafu Securities are as follows:
Iron Ore
1) Production: In May, the domestic iron ore production was 88.48 million tons, up by 580,000 tons (+0.7%) month-on-month and 10.88 million tons (+9.0%) year-on-year. The cumulative domestic iron ore production from January to May was 457.35 million tons, up by 13.4% year-on-year.
2) Import: In May, the import of iron ore sands and concentrates was 102.03 million tons, up by 210,000 tons (+0.2%) month-on-month and 5.86 million tons (+6.1%) year-on-year. The cumulative import of iron ore sands and concentrates from January to May was 513.75 million tons, up by 7.0% year-on-year.
Smelting
1) Pig iron: In May, the pig iron production was 76.13 million tons, up by 4.50 million tons (+6.3%) month-on-month and down by 0.87 million tons (-1.2%) year-on-year. The cumulative pig iron production from January to May was 361.13 million tons, down by 3.7% year-on-year.
2) Crude steel: In May, the crude steel production was 92.86 million tons, up by 6.92 million tons (+8.0%) month-on-month and 2.74 million tons (+2.7%) year-on-year. The cumulative crude steel production from January to May was 438.61 million tons, down by 1.4% year-on-year.
Finished Products
1) Production: In May, the steel production was 122.70 million tons, up by 6.18 million tons (+5.3%) month-on-month and 4.23 million tons (+3.4%) year-on-year. The cumulative steel production from January to May was 574.05 million tons, up by 2.9% year-on-year.
2) Export: In May, the steel export was 9.63 million tons, up by 410,000 tons (+4.4%) month-on-month and 1.28 million tons (+15.3%) year-on-year. The cumulative steel export from January to May was 44.66 million tons, up by 24.7% year-on-year.
3) Inventory: In early June, the steel inventory of key national statistical steel companies was 16.43 million tons, down by 400,000 tons (-2.4%) from the previous month and up by 200,000 tons (+1.3%) year-on-year.
Investment strategy:
1) Iron ore: The supply-strong and demand-weak pattern of iron ore continues, and the pressure of port inventory is increasing. 1) Supply: From January to May, domestic mineral production increased by 13.4% year-on-year, and overseas imports increased by 7%. The amount of iron ore arriving at the port remained at a high level, and the supply remained loose. 2) Demand: From January to May, pig iron and crude steel production decreased by 3.7% and 1.4% year-on-year, respectively. Production continued to tighten, and the daily port throughput of downstream off-season weakened marginally, resulting in continued growth in iron ore port inventory. 3) Since the beginning of this year, overseas iron ore shipments and arrivals have been strong, and with the deepening of the off-season, the signal of the top-level of molten iron has gradually become clear. The iron ore port inventory is at a high level, and the supply and demand fundamentals continue to accumulate contradictions.
2) Steel: Due to the continuous destocking of steel in the early stage, the pressure of steel inventory is not high at present, and the supply and demand imbalance is not prominent. The steel production increased month-on-month in May, and the export volume of steel increased month-on-month, and the average export price of the products was low. In the future, the export volume of steel may have the possibility of top reversal due to the increasing unfavorable factors such as trade disputes and restrictions on low value-added exports. Prior to the important meeting, the policy was in a vacuum period, and the policy expectations were weakened. The market turned to focus on the industry fundamentals. With the deepening of the off-season, the marginal weakness of downstream demand, the contradiction between industrial supply and demand has accumulated, and it is necessary to pay attention to policy signals in the future.
Risk warning: 1) Production restrictions are lower than expected; 2) Downstream demand is lower than expected; 3) Overseas demand is lower than expected.