Steel industry: steel prices continued to drop with inventory callback

    Steel market: the pre-bounce main force deformed steel bar, wire rod and hot rolled steel again get into adjustment. According to the national average price, the deformed steel bar, wire rod and hot rolled steel decrease 47,44 and 31 respectively yuan / ton; plate, cold rolled, coated, steel pipe, profiles and other species are still vulnerable down. Factors affecting the steel industry is improving but is still long and short staggered phase. Bullish factors, including domestic monetary policy to loosen; steel production continues to advance, reducing the supply pressure. Negative factors, including HSBC in November PMI index hit a 32-month low, indicating China’s economic growth slowed down significantly, the debt crisis has continued to release bad news.
    Raw materials: iron ore price correction. First, from the Indian plate outside mining began, 63.5% Indian powder from the recent high $ 152 / ton down to 147 U.S. dollars / ton, about $ 5 / ton; callback rate of low-grade ore is much, 61.5% Pb powder prices dropped in Australia 9 U.S. dollars / ton. Indian ore mine and port domestic spot price adjustment is not temporary, is expected next week there will be supplement of steel. 25th Mysteel had the statistics of key harbour of iron ore stocks was total 97.33 million tons, down 760,000 tons the previous week, in which the biggest drop is Australian ore, 79 million tons. According to the survey, the recent mining areas shipments has decreased, while domestic steel mills generally start up inventory, so the port stocks began to decline.
    Profit margins: the profitability of steel is still optimistic. Based on cost model, in November 24 the cost had decreased 7 yuan / ton over the previous weekend, the national average cost for medium-sized enterprises deformed steel bar is 4537 yuan / ton, hot-rolled steel pipe is 4595 yuan / ton. For profitability, with the deformed steel bar, and other varieties of hot-rolled prices have again turned down, a slight improvement in the turnaround process early reoccurrence repeated. November 24, average earnings in the steel is -106 yuan / ton, the loss rate over the previous week increased by 48 yuan / ton; hot rolling steel average earnings is -153 yuan / ton, the loss rate over the previous week increased by 38 yuan / ton.
    Inventory: Inventory of society continue to fall, cold-rolled steel, wire stock increased slightly.
    25th, Mysteel had a statistics of the social stock is 13.136 million tons, compared with the previous week by 5.9 million tons, the total inventory continued to narrow for 5 weeks. Among them, the cold-rolled steel and wire rose slightly last week. With the steel mills generally lower ex-factory price, while giving subsidies, some varieties of ex-factory price has been lower than market price, some traders have begun tentatively build the stock.    
    Valuation and investment strategy: the steel industry is going through industry cycles and changes in the economic cycle to the impact of positive and negative. Saying from the industry pattern, which will help slow down or force the price of iron ore disappeared, the steel industry gradually enhanced the value of the relative configuration. But faced with the adverse impact of the economic cycle: slowdown in economic growth, the stage, the economic cycle down a greater impact on profitability, and industry structure had enhanced the bargaining power which is long and slow process. From the valuation considerations, we believe the current valuation level basically reflects the slowdown in economic growth is expected to maintain the industry “recommended” rating. Specific species, in accordance with our previous logic, long-term is bullish reasonable or low price-earnings ratio of companies such as Daye Special Steel, Xining Special Steel, Bayi Iron & Steel, Xinxing Ductile Iron Pipes, Baosteel and so on.

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