Domestic steel prices to stop falling rebound just around the corner

2023-07-31


It is understood that with the rapid decline in steel prices, the stock price of the steel sector has recently experienced a sharp adjustment, with a maximum drop of more than 30%. From the A- H stock price relationship analysis, we believe that the current valuation advantage of the steel sector is significant, a round of valuation repair market is expected to start. Taking the most representative Angang as an example, the average premium rate of Angang A shares relative to H shares in history is 3.6. Since August, A shares have begun to show discounts relative to H shares. According to the closing price on September 23, the discount rate of Angang A shares relative to H shares is 22.6, which is the highest in history. The adjustment of steel prices and the high level of steel stocks have raised doubts about the trend of the industry. We believe that the operating trend of the industry has not undergone fundamental changes. The current round of steel price and inventory adjustments are short-term fluctuations, not long-term trends. We believe that this round of inventory adjustment is destined to be short-lived. This round of inventory adjustment is mainly to digest the demand for stock goods generated by the rapid rise in steel prices in the early period.

Under the background that the downstream real demand represented by the new construction of real estate continues to recover strongly, this round of inventory adjustment will be mainly dominated by the demand side. In addition, the demand for stock is not high, so the speed of inventory decline in circulation will be relatively fast, and it will not lead to a sharp decline in the capacity utilization rate of steel mills and a significant increase in the inventory of steel mills. We believe that with the rapid expansion of domestic and foreign spreads, domestic prices are just around the corner. In September, the inversion of domestic and foreign prices, which lasted for nearly nine months, came to an end, the price comparison relationship between domestic and foreign prices returned to the normal track, and the price gap between international market prices and domestic prices expanded rapidly. Taking hot-rolled coils as an example, the current prices in major markets such as Europe, America, Japan and South Korea are generally more than US $100/ton higher than the domestic prices in my country. The return of the price comparison relationship between domestic and foreign prices to normal, as well as the continuous upward momentum of international prices with the accelerated pace of economic recovery in Europe and the United States, will be a strong support and pull for domestic steel prices.



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