China Steel Sector. Supply and Demand Outlook. Helen Lau. Senior Analyst (Metals and Mining) UOB Kay Hian (Hong Kong)

Transcription

1 China Steel Sector Supply and Demand Outlook Helen Lau Senior Analyst (Metals and Mining) UOB Kay Hian (Hong Kong) Tel.: (852) November

2 Steel Price Recovery Steel Prices Rising on Low Inventory mt Mar-06 Aug-06 Dec-06 May-07 Sep-07 Feb-08 China traders' inventory Spot HR steel prices Spot Wire Rod Prices Jul-08 Nov-08 Apr-09 Aug-09 Jan-10 Jun-10 Oct-10 Mar-11 Jul-11 Dec-11 May-12 Sep-12 Rmb/t 6,500 6,000 5,500 5,000 4,500 4,000 3,500 3,000 Daily steel production is easing China Daily Crude Steel Production (mt) Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Source: Nysteel Source: CISA Steel price will on track to recover, because Traders inventory is at year-to-date low. Seasonality and Festive days (through winter) will lead to lower production. 2

3 China Economy Bottoming Out Fixed Asset Investment (FAI) accelerated: 20.7% yoy in 10M2012, up from 20.5% in 9M2012. Investment in real estate development rose 15.4% yoy in 10M2012, flat from 9M2012. Industrial Production rose 9.6% yoy in October, accelerated from 9.2% yoy in September and 8.9% in August. General equipment production: uo 7.1% yoy Automobile production, up 5.9% yoy Railway and other logistic equipments production: up 6.1% Electrical machineries production: up 7.9% yoy Telecom and electronic equipments production: up 10.1% Retail consumption rose 14.5% yoy in October, up from 14.2% in September, extended the 3rd month acceleration Export also grew faster at 11.6% yoy in October, up from 9.9% in September Purchase Managers Index (PMI) rose back to +50 expansion level to 50.2% in October, up from 49.2 in August and 49.8 in September 3

4 China Steel Demand by Sectors Oil/Petrochem, 1.4% Railway, 1.2% Others, 16.7% Shipbuilding and container, 3.4% Autombile, 3.9% Construction, 48.5% Light industry (white goods), 7.7% Source: UOB Kay Hian Machinary, 17.2% 4

5 China Steel Demand Forecast China Steel Demand to increase by 3-5% yoy in , decelerated from 8% yoy growth in 2011 Source of demand drivers are Infrastructure Home Appliances Automobiles Machinery Oil/PetroChem No signs of demand recovery from property construction Shipbuilding 5

6 China Steel Demand Breakdown mt Breakdown Property 33% Infrastructure 18% Machinary 17% Home appliances 8% Autombile 5% Shipbuilding and container 3% Oil/Petrochem 1% Others 14% Total % yoy growth Property 0% -2% -3% -4% Infrastructure 7% 6% 3% 2% Machinary 7% 6% 5% 4% Home appliances 6% 6% 5% 4% Autombile 7% 6% 5% 4% Shipbuilding and container -15% -5% -5% -2% Oil/Petrochem 3% 1% 0% 0% Others 2% 0% -3% -4% Total Steel Demand 5% 4% 4% 3% Source: UOB Kay Hian, CEIC 6

7 Positive Impact from Macro Policy Shifts The new leadership will continue last leadership s legacy with mild changes. Last leadership has already layout plans for China s futures in 10 years. China will aim to double per capita income to China will redistribute wealth to their people. China will have more fiscal spending, not on construction, but more on health care, education, environment protection, job securities, etc. China will continue to make efforts to cut carbon emission and target to cut the emission by 20% in 2020 from China will be shifting from investment-focused economy to consumption focused economy. 7

8 China Steel Supply & Demand Forecast F 2013 F 2014 F 2015 F FAI Rmb bn 19,414 24,141 30,193 36,534 44,023 52,828 63,129 % yoy 31.0% 24.4% 25.1% 21.0% 20.5% 20.0% 19.5% Pig iron production mt % yoy 16% 9% 7% 5% 5% 4% 4% Crude steel production mt % yoy 13% 10% 9% 5% 5% 4% 4% Steel import mt Steel export mt Steel demand mt % yoy 23% 7% 8% 5% 4% 4% 3% Crude steel demand per unit FAI tonnes 28,891 24,875 21,526 18,628 16,120 13,950 12,072 % yoy -6% -14% -13% -13% -13% -13% -13% Steel Production Capacity mt % yoy 11% 11% 6% 6% 2% 2% 2% Utilization % 79% 78% 80% 80% 83% 84% 86% Source: UOB Kay Hian 8

9 Chronic OverSupply Over mid term, China will still be in structural oversupply Steel Production Capacity in 2012 will be +900mt Difficult to close down old capacity Local governments reluctant to close down production capcity, because of concern on unemployment issue and tax revenue Large SOEs seldom lay off employees because of concern on social stability. Large steel SOEs who have been loss making can still have access to financings or credit lines from SOE banks, even if their debt to equity ratio or gearing have been around 70-80%. 9

10 China Steel Industry Consolidation China Large Steel SOEs Capacity Expansion By 2015 Company Location/Province mt Angang Group/"Big Angang" Angang listed company Liaoning 25 Pangang Sichuang 10 Bengang Liaoning 20 Sangang Fujian Linggang Liaoning 5 Total Baosteel Group Baosteel listed company Shanghai 33 Bayi Xinjiang 10 Zhanjiang Guangdong 10 Ninggang Jiangsu 10 Shaogang Guangdong 5 Total 68 Wugang Group Wugang listed company Hubei 20 e'gang Hubei 5 Fangchenggang Guangxi 10 Liugang Guangxi 10 Kungang Yunnan 10 Brazil JV Brazil 5 Total 60 Source: UOB Kay Hian 10 Market Share of Top 10 Steel Companies in China 1, China Crude Steel Production (mt) (LHS) Source: UOB Kay Hian % of market share in top 10 (RHS) 70% 60% 50% 40% 30% 20% 10% 0%

11 Other Measures on Supply Reform on SOEs Increase profitability and efficiency by allowing involvement from private enterprises. Reform on Banking and Financial Sector No more easing lending to loss-making SOEs More strict on control on bad loans More stringent on enforcing measures on energy efficiency and carbon reduction New projects approvals are conditioned on having met environmental protection standards. Existing steel mills have to install expensive environmental protection equipments 11

12 Thank You! 12

13 Disclaimer As of 19 Nov 2012, the analyst and his / her immediate family do not hold positions in the securities recommended in this presentation. We have based this document on information obtained from sources we believe to be reliable, but we do not make any representation or warranty nor accept any responsibility or liability as to its accuracy, completeness or correctness. Expressions of opinion contained herein are those of UOB Kay Hian Research Pte Ltd only and are subject to change without notice. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of the addressee only and is not to be taken as substitution for the exercise of judgement by the addressee. This document is not and should not be construed as an offer or a solicitation of an offer to purchase or subscribe or sell any securities. UOB Kay Hian and its affiliates, their Directors, officers and/or employees may own or have positions in any securities mentioned herein or any securities related thereto and may from time to time add to or dispose of any such securities. UOB Kay Hian and its affiliates may act as market maker or have assumed an underwriting position in the securities of companies discussed herein (or investments related thereto) and may sell them to or buy them from customers on a principal basis and may also perform or seek to perform investment banking or underwriting services for or relating to those companies. UOB Kay Hian (U.K.) Limited, a UOB Kay Hian subsidiary which distributes UOB Kay Hian research for only institutional clients, is an authorised person in the meaning of the Financial Services and Markets Act 2000 and is regulated by Financial Services Authority (FSA). In the United States of America, this research report is being distributed by UOB Kay Hian (U.S.) Inc ("UOBKHUS") which accepts responsibility for the contents. UOBKHUS is a broker-dealer registered with the U.S. Securities and Exchange Commission and is an affiliate company of UOBKH. Any U.S. person receiving this report who wishes to effect transactions in any securities referred to herein should contact UOBKHUS, not its affiliate. The information herein has been obtained from, and any opinions herein are based upon sources believed reliable, but we do not represent that it is accurate or complete and it should not be relied upon as such. All opinions and estimates herein reflect our judgement on the date of this report and are subject to change without notice. This report is not intended to be an offer, or the solicitation of any offer, to buy or sell the securities referred to herein. From time to time, the firm preparing this report or its affiliates or the principals or employees of such firm or its affiliates may have a position in the securities referred to herein or hold options, warrants or rights with respect thereto or other securities of such issuers and may make a market or otherwise act as principal in transactions in any of these securities. Any such non-u.s. persons may have purchased securities referred to herein for their own account in advance of release of this report. Further information on the securities referred to herein may be obtained from UOBKHUS upon request. UOB Kay Hian (Hong Kong) Research Department Room 901, 9/F, Aon China Building, 29 Queen's Road Central, Hong Kong Tel: (852) , Fax: (852) MICA (P) 048/03/2011 RCB Regn. No E 13