中国钢铁业：历史高位库存应保持全年低盈利.docx

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1、ABGlobalResearch27March2020ChinaSteelSectorHistoricalhighinventoryshouldkeepfull-yearprofitabilitylowLow2020EprofitabilityforChinesesteelmillsbutthisshouldbeinthepriceGivenslowresumptionofdownstreamproductionandahighproductionrunrate,steelinventorycontinuestohithistoricalhighs.Ourrevised20

2、20Chinasteelsupply-demand(SD)modelandquarterlyanalysisshowQ220steelprofitabilitywouldbeloweveninourupsidescenario,duetohighinventoryandexcesscapacity.However,webelievethetroughvaluationsofmoststockshavepricedinpoorprofitability.Weareneutralonthesector,butupgradeAngang-A/HtoBuysasweviewtheir

3、valuationsasoverlylow.WereiterateSellsonMaanshan-A/H,astheirvaluationsarefarfromhistoricaltroughs.Factoringcoronavirusimpactsofarinto2020EsteelSDWeforecastChina’ssteeldemandtodeclineby1.6%YoYin2020(wepreviouslyestimated2%growth)as:1)UBSeconomistshaveraisedtheirinfrastructuredemandgrowthesti

4、matefrom9%to10%YoY;2)ouranalystshaverevisedtheirpropertydemandforecastfrom-2%to-3%YoY;and3)ourautoteamhascutitsYoYautodemandgrowthestimatetoahighsingledigit.Weexpectthesetodrivedownthe2020industryutilisationrate(UTR)to83%,versus87%in2019.Ourupsidescenario—propertydemandisflat,infrastructure

5、isup15%YoYandautoisdownbyalowsingledigit.Inthiscase,bothsteelproductionanddemandwouldincreasebyabout1%YoYwithUTRat85%.Ourdownsidescenario—propertydemandisdownbyasingledigit,autoisdownbyover10%YoYandinfrastructureisupby5%YoYonly.Inthiscase,steelproduction/demandwoulddropby4%/5%YoYwithUTRat80

6、%.OurstresstestshowsrobustbalancesheetsofsteelcompaniesundercoverageOurstressanalysisshows:eveninourdownsidecase,thehighestnetgearingwouldonlybe40%in2020(historicallyMaanshanreportedthesector’shighestnetgearingatabout90%in2015).WebelieveChina’ssupply-sidereformhassupportedstrongbalancesheet

7、s.Beforethereform,industryUTRwaslowerthan70%.During/afterthereform,ithasbeenabove80%andcompanybalancesheetshavebeenrepaired.NeutralonthesectorduetolowvaluationsOurbasecasefactorsinhighinventorypressuringsteelmills’UTRandprofitabilityin2020.Baosteel,Angan