Steel ore price recovery inventory continues to decline

The steel market: In the early stage, the main rebar rebar, wire rods, and hot rolled steel were once again caught in adjustment. As for the national average price, rebar, wire rod and hot rolling fell by 47, 44 and 31 yuan/ton respectively; plate and cold rolled The varieties such as plating, pipes, and profiles still fell weakly. The factors affecting the steel industry are improving but they are still in a period of long and short transitions. The bullish factors included signs of loosening of domestic monetary policy; steel mills continued to reduce production, and supply pressures eased. The negative factors included the November-September HSBC PMI index hitting a new low of 32 months, indicating that China's economic growth has slowed down significantly, and the European debt crisis has continued to release bad news.

Raw materials: Iron ore price correction. First, starting from the Indian plate, 63.5% of the powder fell from the recent high of 152 US dollars/ton to 147 US dollars/ton, down by 5 US dollars/ton; the low grade mine callback was greater, and the 61.5% Australian Pb powder price fell by 9 US dollars over the same period. /Ton. The temporary adjustment of the spot price of domestic ore and port printing is small, and it is expected that there will be additional adjustments next week. On the 25th, Mysteel collected a total of 97.33 million tons of iron ore in key ports, down 760,000 tons from the previous week, of which Australian mines had the largest drop, 790,000 tons. According to the survey, the recent shipments from the mines have decreased, and domestic steel mills have generally begun to make up the inventory, so the port inventory has started to decline.

Profitability: The profitability of steel mills is still not optimistic. According to the cost model, the cost on November 24 decreased by about RMB 7/t compared with the previous weekend. The average cost of large and medium-sized enterprises in China was 4537 yuan/ton for rebar and 4595 yuan/ton for hot-rolled steel. Previous Q-1 pricing was $175/ton in the fourth quarter and $178/ton in November. In terms of profitability, as the prices of rebar and hot-rolled products turned down again, the process of turning deficits that had slightly improved in the previous period was repeated again and again. On November 24th, the average profit of rebar was -106 yuan/ton, and the loss range increased by 48 yuan/ton from the previous week; the average profit of hot rolled steel was -153 yuan/ton, and the loss range increased by 38 yuan/ton from the previous week.

Inventory: The total social inventory continues to fall, the decline continues to decrease, and the cold rolling and wire stocks increase slightly.

On the 25th, Mysteel's statistical social inventory was 13.136 million tons, 59,000 tons less than the previous week, and the decline in total inventory continued to narrow for 5 consecutive weeks. Among them, cold rolling and wire rods rebounded slightly last week. With steel mills generally lowering their ex-factory prices substantially and giving subsidies at the same time, the ex-factory price of some varieties has already fallen below the market price, and some traders have begun to try to open positions.

Valuation and investment strategy: The steel industry is experiencing positive and negative impacts of changes in the industry cycle and economic cycles. From the perspective of industry structure, the power of iron ore prices will slow or disappear, and the relative allocation value of the steel industry will gradually increase. Faced with the adverse impact of the economic cycle: economic growth rate decline, in this phase, the economic cycle downturn has greater impact on earnings, while the industry structure and bargaining power is a long-term and slow process. From the valuation point of view, we believe that the current valuation level has basically reflected the expected decline in economic growth, maintaining the industry's "recommended" rating. Specific varieties, in accordance with our previous logic, the medium-term and long-term optimistic about the price-earnings ratio is reasonable or low companies such as Daye Special Steel, Xining Special Steel, Bayi Iron and Steel, Xinxing Cast Pipe, Baosteel and other stocks.