* The increment of crude steel decreased month by month this year, indicating that the process of eliminating backward production capacity is progressing steadily. We believe that this trend will continue and continue to strengthen, and it is expected that the supply increment will be greatly reduced in 2008. The output of steel products was 606.72-630.72 million tons, up 7.4- 1 1.7% year-on-year. Domestic consumption will maintain a strong growth trend. It is estimated that domestic steel consumption will reach 607.39 million tons, up 16.8% year-on-year.
* Rising steel prices will inevitably lead to the improvement of profitability of steel enterprises, while rising raw material prices will only affect the degree of improvement of profitability of enterprises. If the contract price of iron ore rises by 30%, the price of steel will rise by 5%-6%.
* We believe that rising steel prices in the future will drive the profitability of enterprises to continuously improve, and the prosperity of the industry will continue to rise. Maintain the investment rating of "overweight" in the industry. Maintain the investment rating of "overweight" on baoshan iron & steel, Angang, Valin Pipeline and Hangang.
The relationship between supply and demand will be significantly improved.
Judging from the decline in the monthly growth rate of crude steel output in 2007, the effect of eliminating backward production capacity is gradually emerging. According to the statistics disclosed by the National Development and Reform Commission, as of September, the first batch of 10 provinces and cities have shut down and eliminated 9.69 million tons of backward ironmaking capacity and 8.73 million tons of steelmaking capacity, achieving 43% and 36% of the annual shutdown and elimination targets respectively. Although this progress is far below the target, we believe that this trend must be continued and strengthened.
On June 2, 2007, the National Development and Reform Commission issued the Notice on Prohibiting the Transfer and Flow of Backward Production Capacity, requiring local governments to take resolute measures to stop the practice of increasing production capacity in disguise by transferring backward production capacity equipment, so as to solve the stubborn disease caused by eliminating backward production capacity. In June 165438+ 10, the National Development and Reform Commission will sign the second batch of "military orders" with the provincial governments of about 18, with an estimated total scale of about 100000 tons. In addition, the National Development and Reform Commission and the Ministry of Finance are planning financial support policies to encourage local provinces and cities to eliminate backward steel production capacity. Therefore, we have reason to believe that the process of eliminating backward production capacity will continue to accelerate, so that the supply increment will continue to decline.
According to statistics, the ironmaking capacity will be increased by 49 million tons in 2008, and the crude steel capacity will be 5 1 10,000 tons. With regard to the elimination of backward production capacity, if the target set in 2007 (eliminating crude steel production capacity11million tons in 2007 and eliminating 24 million tons in 2008) is achieved, the actual new crude steel production capacity is only 27 million tons.
Domestic consumption will grow strongly.
In the industrialization stage, the correlation between steel consumption and the growth rate of fixed assets investment is very significant. According to the statistical data of 1993-2006, there is a positive correlation between them, and the correlation coefficient is 0.6 1. From June 5438 to September 2007, the growth rate of fixed assets investment in China was 26.4%. According to the forecast of United Securities Research Institute, the growth rate of fixed assets investment will not be less than 25% in 2008, which still has a strong pulling effect on steel consumption.
In China's steel consumption structure, construction, machinery manufacturing, automobiles, shipbuilding, railways, oil and gas, household appliances and containers account for an absolute proportion. Statistics from 1998-2002 show that the average annual consumption of steel in these eight industries is 8 1.92%. Therefore, the growth trend of these eight industries in the future will directly affect the growth of steel consumption. According to the prediction of related industry researchers of United Securities Research Institute, these eight industries will maintain high-speed growth in the future, which is an important engine to stimulate the growth of steel consumption.
Since the beginning of this year, China has issued three export policies aimed at controlling the excessive growth of steel exports. Although the monthly export volume has decreased month by month since July 2007, the absolute volume is still at a historical high. Such a large-scale steel export is obviously not conducive to the realization of energy conservation and emission reduction goals. The adjustment of export policy is like a sword of Daske Mo hanging in the sky, which may be introduced again at any time. Therefore, from the macro-policy orientation, the future export volume will not increase significantly.
Under the situation that the adjustment of export policy keeps raising the export cost of steel products, the high-priced regional market supported by strong demand growth will become an important flow direction of steel products export. This trend has actually appeared in this year's exports. This year, the price of steel in the Middle East is second only to the European Union, and the supply capacity is obviously insufficient. From June 5438 to September 2007, Iran jumped from 26th place in the same period last year to 3rd place, only 660,000 tons less than the United States. However, due to the gradual narrowing or even disappearance of the price difference between the American market and China, China's steel exports to the United States declined year-on-year. From June 5438 to September, although the export volume still ranked second, it decreased by 460,000 tons compared with the same period of last year. In the future, emerging developing countries will replace the position of the United States in China's steel export market and become an important direction of China's steel export.
According to the above analysis of the relationship between supply and demand in 2008, we believe that the change of supply and demand will support the high operation of steel prices, and due to the seasonal characteristics of steel consumption, there will be a phased increase.
The increase of iron ore contract price has little effect.
According to our calculation, in 2008, the global supply of iron ore by sea exceeded the demand (the supply increased by 70 million tons and the demand increased by 48.56 million tons). However, due to the oligopoly pattern of iron ore suppliers, the supply is not only easy to be regulated, but also has high bargaining power, so the increase of iron ore contract price in 2008 is a fait accompli. We expect the increase to be within 30%.
By analyzing the influence of every possible increase on the cost per ton of steel in iron and steel enterprises, it is found that if the contract price of iron ore rises by 30%, the price of steel will rise by 5%-6%. If the impact of iron ore contract price increase on operating performance is sorted from large to small, we think that the higher the proportion of long orders, the greater the increase of iron ore cost price. For most enterprises, because a considerable proportion of iron ore is purchased from the domestic market, the increase of spot market price has been reflected in the current statements of enterprises, so it is less affected by the increase of iron ore contract price.
We believe that the rise in steel prices will inevitably lead to the improvement of corporate profitability, while the rise in raw material prices will only affect the degree of corporate profitability. Superimposing the steel price index with the iron ore price and profit rate of main business of key steel enterprises, it is found that the higher the ratio of iron ore price and profit rate of main business to the steel price index, the greater the increase of iron ore cost price.
Both gross profit rate, return on net assets and net profit rate of sales indicate that the profitability of iron and steel enterprises in the first three quarters of 2007 is still at a historical low level, which also reflects that the industry boom has not reached a high point.
By analyzing the operating performance of listed iron and steel companies in the third quarter, the leading companies all showed a downward trend from the previous quarter, while the second-tier companies were different, some were the same as those in the second quarter, and some even increased. The main reason for the decline in the operating performance of iron and steel companies in the third quarter is that the adjustment of their product price policy lags behind the market price, and the product prices of leading companies (Angang and WISCO) lag for a long time. Although the market price stopped falling and rebounded from the end of July, the product prices of some companies, especially leading companies, declined in the third quarter compared with the second quarter, so the decline in operating performance in the third quarter was in line with reality.
As most steel enterprises have substantially raised their ex-factory prices in the fourth quarter, we expect the profitability of steel enterprises to improve in the fourth quarter. Secondly, based on the forecast that steel prices will continue to rise in 2008, the profitability in 2008 will continue to improve.
To sum up, we believe that the prosperity of the industry will continue to improve in 2008 and maintain the investment rating of "overweight" in the industry.