Steel industry profitability elasticity

From the recent performance of steel market prices, spot market transactions before the Spring Festival is light, and because the winter storage price is higher than that in previous years, the market merchants lack of winter storage willingness; After the Spring Festival holiday, in the cost support strength and market demand of galvanized steel pipe is expected to promote the factors of good, the domestic steel market has a rapid rise in the market. The total PMI for the steel circulation industry stood at 48.3 in February 2021, up 3.1 percentage points from the previous month. From the sub-index, the 10 sub-indexes that make up the iron and steel circulation PMI rose 9 and fell 1. Among them, nine indexes of sales volume, sales price, total order volume, purchase cost, arrival speed, inventory level, enterprise employees, trend judgment and purchase intention increased, and only one index of financing environment decreased slightly.

In 2021, as the first year of the 14th Five-Year Plan, the “new infrastructure” continued to drive the overall steel demand. Since 2021, major project plans have been launched in various provinces and cities, and projects of square steel pipe under construction and new construction have been intensively started. In addition, the outline of the plan issued by The State Council recently proposed to vigorously promote the field of transportation construction, which will improve the railway, highway, water transport, civil aviation, postal express and other infrastructure networks, to build a national comprehensive three-dimensional transportation network with railway as the main trunk, road as the foundation, water transport, civil aviation comparative advantages fully play.

With the repair of industrial enterprise profits and the pull of exports, manufacturing demand of rectangular hollow section is more sustained, steel demand will remain high. Looking forward to the whole year, Guotai Junan believes that the global economy will usher in a recovery, steel demand to the good trend will not change. Not only that, with carbon peak target constraints clear, institutions are expected to steadily improve the performance of the steel industry. The reduction of crude steel output is expected to bring the second supply-side reform to the industry. The steel industry is the largest energy consuming consumer in the national economy and the largest carbon emitter in the industrial system. Around the target node of carbon peak and carbon neutrality, the Ministry of Industry and Information Technology (MIIT) clearly focuses on resolutely reducing crude steel output and ensuring that the output of crude steel decreases year-on-year. “Strong demand and weak supply” will promote the steel industry supply and demand pattern tightening, corporate profits with greater upward elasticity. The industry leader with both growth and cost advantages, carbon neutral lower electric furnace steel is facing significant development opportunities, the optimization of high-performance special steel, reducing steel consumption may become a trend, the demand for China hollow section may gradually rise, special steel and high-end material segmentation track leader will attract attention.