Iron and steel industry: steel prices are expected to weaken by weak institutions

Although the market has great expectation for the recovery of the steel sector, only one day after the rise of the steel sector on October 18, the entire sector staged a pullback to lead the two markets. The Shanghai and Shenzhen stock markets fell on the 19th of October. Over 70% of the stocks in the sector fell, indicating that the market lacks confidence in the steel sector.

Industry analysts believe that the current stock price of the steel sector is an early reflection of the company's future profitability expectations for the entire industry and industry.

"Spot price will fluctuate slightly in the short term and there may be a round of rebound in the near term. However, from the long-term trend, I am bearish." Zhang Ping, an analyst at United Metals, told the Investor Daily about the future. A certain period of steel price movements made such a judgment.

Similar views also include Ma Zhongpu, an expert in the famous steel market. He said that steel prices will fluctuate repeatedly in the future. As the overall spot price of steel will not increase significantly, the profitability of steel companies is not optimistic, "it is estimated that the state of low profit."

In spite of this, many organizations have been generally optimistic about the trend of the steel sector. Many institutions believe that the valuation of steel stocks is close to the lowest level in history, and factors such as inflation and appreciation will increase the industry's earnings and valuation. The future trend will be stronger than the market.

Inventory maintains high inflation inconsistent steel prices

"This year, we cannot judge the trend of steel prices from the increase or decrease in demand. The dominant steel prices are the national economic policies, such as the cancellation of the export tax rebate policy in May, the suppression of the real estate industry and the elimination of backward production capacity, including energy-saving emission reduction in the later period. Reorganization, etc..” Zhang Dakun, an analyst at United Metals, concluded that under the influence of macroeconomic policies, steel prices have remained at a low level and fluctuate under the influence of weak demand from downstream industries (real estate, autos, etc.).

In the near term, the domestic economy is facing inflationary pressure and commodity prices have risen. However, Zhang Daikun believes that the current market performance cycle of steel products deviates from the inflation environment. After the cancellation of export tax rebates, domestic steel stocks have risen steadily, and the steel market has maintained a steady decline as much as possible. The major tasks of the steel industry in October It is also digesting inventory, which has caused the current round of inflation to not shake steel products. Steel recently performed the weakest among commodities.

The latest research report of the research organization Monita believes that the release of domestic steel production is still being suppressed by energy-saving and emission reduction policies. With the steady demand for steel products, the destocking of steel products is expected to restart. However, it does not rule out the possibility of de-stocking caused by the impact of liquidity.

"Current steel stocks are still relatively high, and downstream demand hasn't seen much growth, so the recent market is not very optimistic. On the whole, steel still exceeds demand." Zhang Daikun believes that the future will be due to the demand side. Without major improvements, steel prices will remain bearish.

For the recent rise in steel stocks, Zhang Daikun said, “This is not an increase in demand or the emergence of a significant increase in steel prices, mainly the market speculation more factors. Even if the speculation in the short term up, due to no growth in the latter part of the stock price It is more likely to fall."

Third quarter earnings pessimistic

Due to the low steel prices, the performance of iron and steel companies is also not satisfactory.

“The iron and steel companies' profitability in the third quarter is not good. Due to the pressure of iron ore prices and the very low prices of products in July and August, steel enterprises are currently in a state of low profit as a whole.” Ma Zhongpu told reporters. He said that due to the narrow range of steel price fluctuations in the fourth quarter, the profits of steel companies are also not optimistic.

It is reported that in July, due to steel prices at the bottom, many companies fell into losses, but steel prices rebounded in August. In September, steel prices were stimulated by energy-saving and emission reduction policies. Steel enterprises’ profitability gradually recovered, basically making up for the losses. At present, Anshan Iron and Steel, Most steel companies such as Wuhan Iron & Steel, Maanshan Iron and Steel, Tai Steel, and Hebei Iron & Steel [4.31 2.38%] are in a breakeven or marginal state.

Recently, steel companies bear the brunt of the storm of energy conservation and emission reduction. Ma Zhongpu believes that the current national energy-saving emission reduction has little effect on steel prices. “Although steel prices have risen slightly due to limited production capacity, domestic steel production capacity is very elastic. Once demand is released, production capacity will be released at any time.”

“According to the current situation, only the international market can affect the profitability of Chinese steel companies, but this will not occur this year, but in the second half of next year.” Ma Zhongpu judged that future exports will be the key to solving the downturn in the steel industry .

Although steel prices are not expected to be good, CICC believes that Baosteel has a leading product structure and regional and resource advantages [3124.48 4.34%] companies such as Xining Special Steel [10.78 5.38%], Linggang, Bayi Steel [13.60 2.03%], Jiu Steel, etc. will still have good performance.

CICC analyzed that due to the start of demand in the peak season, the construction of affordable housing will accelerate before the end of the year; the impact of energy-saving and emission-reduction policies on production will continue until the end of the year; and the relaxation of overseas liquidity will push up the price of ore to form a support for steel prices. Therefore, the steel price in the fourth quarter will fluctuate upwards, and the profit of steel enterprises will improve.

The steel mills with their own ores and the signing of the 4th quarter agreement prices can lock in some of the costs and resist the risk of rising spot ore prices, which will significantly increase their earnings. Therefore, CICC recently raised its 2010 earnings forecast for Baosteel, TISCO, Jiuquan, Xining Special Steel and Bayi Steel by 15% to 22%, and raised its 2011 earnings forecast by 7% to 20% accordingly.

Institutions see more plates

Wind data shows that the current average price-to-book ratio of the steel sector is less than 1.5 times, while the PB of other industries averages 2.6 times. The market-to-net ratio of steel stocks is close to the lowest level in history and has a high valuation security. Margin; From the price-earnings ratio, the dynamic price-earnings ratio (PE) for the steel sector is 18 times, which is also in the lower region.

The research report released by CICC on the 18th pointed out that the steel sector is one of the largest declines in the year so far. Currently, the stock price and valuation are still at the bottom of the cycle. The average PB of the A-share industry is only 1.42 times, and the average PB of the industry so far in 2003 It is 1.77 times higher than the current valuation of about 25%. Steel plate still has much room for growth.

“The current valuation of the steel plate is very low and it is ready to go.” Guosen Securities also made the same judgment in the latest steel industry research report.

CITIC Securities [15.93 2.71%] had previously published a steel industry research report that, driven by energy conservation and emission reductions, the structural adjustment of the steel industry has significantly improved profitability; at the same time, factors such as the appreciation of *** will increase the industry's profitability and valuation. CITIC Securities recommends focusing on three main types of investment: The first category is companies with high performance elasticity, such as Bayi Iron and Steel (600581.SH), Linggang Group [10.17 5.17%] (600231.SH); the second category is long-term growth. Special steel and high-grade sheet companies, such as Daye Special Steel [16.53 3.31%] (000708.SZ), Baosteel Co., Ltd. [7.29 1.67%] (600019.SH), Xinxing Pipe [9.55 4.95%] (000778.SZ), etc. The third category is iron ore resources companies that benefit from appreciation.

The latest research report of Qilu Securities pointed out that overall, the ore price will continue to climb in the later period and continue to be optimistic about iron ore listed companies. The focus is still on the previously recommended ore tigers: Chuangxing Real Estate [18.12 7.03%], Jinling Mining [26.14 10.02%], Linggang Steel, Xining Special Steel, etc. At the same time, industry mergers and reorganization will become the focus of attention in 2011. It is recommended to focus on Baosteel, Anshan Iron and Steel, and Bengang Steel [6.73 2.44%].