Ma Steel Shares: overcapacity does not support a sharp rise in steel prices

Galaxy Securities in the Ministry of the promulgation of "restraining order" in the context of domestic steel prices appear for 4 consecutive weeks of rise. Domestic major steel varieties of the specific market trend is: building steel and plate prices rose sharply, hot and cold plate volume price increases slightly smaller, medium and large price stability in a small rise.　　In the last week, a total of 56 rebar production enterprises in the country and 40 wire rod manufacturers raised the factory price. As a result of the domestic steel market for several weeks, the main domestic steel companies have followed up the ex-factory price increase.　　Last week, Angang, Benxi Iron and Steel, SHA Steel and other large enterprises on the recent and June products factory prices have been raised 150 yuan-350 yuan/ton, of which building materials rose more obvious. It is understood that Anshan iron and steel hot rolled products to increase the range of more than 300 yuan/ton, and the cold hot rolling products to the increase of 200 yuan-350 yuan/ton, sand steel to the end of this month, the price of the implementation of the increase in the construction materials in the rebar rose 70 yuan/ton, general line up 80 yuan/ton, the ex-factory prices are more than 3500 yuan/ton. and Hebei Iron and steel group in the middle of this month will be wire and rebar price increase of 140 yuan-180 yuan/ton, cold hot-rolled products also raised 100 yuan-200 yuan/ton.　　In addition, MA Steel also related to the price of the product has been raised. However, in the face of domestic steel overcapacity situation, the upward space of steel price is not optimistic. Since last December, China's steel prices have risen 9 weeks. Domestic steel mills are affected by the increase in production and production, resulting in a surge in domestic output.　　In a situation where demand has not warmed at all, this irrational increase directly leads to a further decline in steel prices, followed by a 10-week decline in steel prices. Recently, the Ministry of Industry has issued the "Emergency bulletin on curbing the excessive growth of steel production" (ie, "restraining order"), pointing out the grim situation of steel production surplus in China at present. The Ministry of Industry pointed out that the domestic steel production growth this year, while exports fell sharply. Steel production this year has a surplus of about 25% to 30% compared with the actual demand for domestic consumption and exports.　　As a result, overcapacity and declining exports are hard to support a sharp rise in steel prices. In the previous April output figures, although China's April crude steel production was slightly lower, the output of threaded steels in April again high, breaking the March record. According to the data of the Steel Association, China produced 9.69 million tons of threaded steel in April, more than 9.64 million tonnes of output in March, and up 18% per cent year-on-year.　　January-April production of threaded steel reached 36.7 million tons, up 19.9% per cent year-on-year. The expectations of potential demand for national stimulus programs and the true manifestation of demand have led to the enthusiasm of steel mills.　　In addition, credit easing is also a major factor driving high growth. In the first 4 months of this year, China's urban fixed assets investment 3.71 trillion yuan, an increase of 30.5%, compared to the first quarter of the increase of 1.9%.　　Among them, the new project 86,420, the total plan investment 3.68 trillion, an increase of 90.7%. April wire production from March of 7.53 million tons fell slightly to7.48 million tonnes, but the year-on-year rise rate remains at 10.3%. By contrast, the monthly output of hot-rolled sheet rose 5.9%, while the plate fell 20%. This shows that the national economic stimulus plan to benefit more is still long material.　　China's wire production in the first 4 months was 28.19 million tonnes, up 8.6% per cent year-on-year. Investment proposals are expected to be hard to improve in the short term, steel prices will be difficult to rally. Meanwhile, China's crude steel production is expected to fall to 460 million tonnes this year, affected by the "restraining order". Therefore, the profitability of domestic steel enterprises can not be effectively improved. At the same time, trading opportunities in the market are weakening over the years. Based on the above analysis, we lowered the investment rating of the steel industry to "prudent recommendation".