{"id":110820,"date":"2021-03-30T00:11:52","date_gmt":"2021-03-30T00:11:52","guid":{"rendered":"https:\/\/fin2me.com\/?p=110820"},"modified":"2021-03-30T00:11:52","modified_gmt":"2021-03-30T00:11:52","slug":"analysis-ready-to-roll-china-flat-steelmakers-set-to-cash-in-on-manufacturing-boom","status":"publish","type":"post","link":"https:\/\/fin2me.com\/markets\/analysis-ready-to-roll-china-flat-steelmakers-set-to-cash-in-on-manufacturing-boom\/","title":{"rendered":"Analysis: Ready to roll: China flat steelmakers set to cash in on manufacturing boom"},"content":{"rendered":"

BEIJING\/SINGAPORE (Reuters) – China\u2019s top flat steel producers are primed for profit from a post-COVID-19 recovery in global manufacturing and goods demand in 2021, as well as from an emissions-cutting drive that will likely knock out high-cost competitors, sector analysts said.<\/p>

FILE PHOTO: A worker walks past steel rolls at the Chongqing Iron and Steel plant in Changshou, Chongqing, China August 6, 2018. Picture taken August 6, 2018. REUTERS\/Damir Sagolj\/File Photo<\/figcaption>

Prices for hot rolled coil (HRC) – flat steel rolled at high temperatures for use in cars, home appliances and machinery – has climbed 50% in the past six months as China\u2019s manufacturers cranked to life after coronavirus lockdowns were lifted in mid-2020.<\/p>\n

Profit margins of hot rolled coil in northern China<\/p>\n

Steel demand from manufacturing is improving significantly and the ferrous sector will have the biggest supply shortage since 2017, when supply-side reforms slashed steel mill capacities, analysts with CITIC Securities said in a note.<\/p>\n

\u201cProfits earned by steel firms are likely to hit a record this year,\u201d said CITIC Securities.<\/p>\n

MANUFACTURING MANIA<\/h2>\n

Flat steel consumption has boomed since the second half of last year as China\u2019s mammoth manufacturing engine churned out home appliances, shipping containers, vehicles and other products in high demand across the world.<\/p>\n

That momentum has extended into 2021, with industrial output in January-February gaining 7.3% from December and 35.1% from a year earlier, and it is expected to accelerate as more regional economies recover from 2020\u2019s COVID-19 skid.<\/p>\n

Shipments of metal-heavy items to overseas market have also jumped this year. Exports of new-made containers more than doubled during January-February compared with the same months of 2020, while vehicle exports rose 85%.<\/p>\n

\u201cWe expect flat steel products will outperform construction materials this year … while overseas recovery will benefit China\u2019s exports for such metals,\u201d said Shen Yonggang, an analyst with Huatai Futures in Beijing.<\/p>\n

China’s industrial products output<\/p>\n

SUPPLY-SIDE REFORM 2.0<\/h2>\n

While robust factory activity has boosted steelmaker profitability all around, it\u2019s China\u2019s carbon neutrality goal – what some call \u201csupply-side reform 2.0\u201d – that stands to reshape the sector in favour of the largest players, said analysts.<\/p>\n

Steelmakers account for 15% of China\u2019s carbon emissions, making the sector key to whether the nation can achieve its goal of becoming carbon neutral by 2030.<\/p>\n

China\u2019s environment ministry recently ramped up inspections on steel plants in Tangshan – heart of the nation\u2019s steel industry – after it found four mills had failed to adopt emergency pollution measures to improve air quality.<\/p>\n

As a result, output cuts of between 30% and 50% have been enforced for the rest of the year on 23 long-process steelmakers in the city – including plants owned by state-backed HBIS Group and private operators – that were deemed to lack sufficient pollution controls. That is expected to boost the profitability at plants able to operate at full capacity.<\/p>\n

\u201cHalf of Tangshan\u2019s steel are flat products,\u201d said Li Wentao, analyst with Tianfeng Futures.<\/p>\n

\u201cIf the production curbs continue, overall profits for flat products could reach or even surpass 2018,\u201d Li said, referring to big gains in the industry after China\u2019s supply-side reform to eliminate excess and outdated steel capacities.<\/p>\n

Tangshan\u2019s crude steel output stood at 144 million tonnes last year, accounting for 13.5% of China\u2019s total, and was 45% more than produced by the world\u2019s second largest steelmaker, India.<\/p>\n

China’s hot rolled coil futures prices vs coke and iron ore prices<\/p>\n

STOCKS SURGE<\/h2>\n

Fuelled by the upbeat sentiment, share prices of listed steel firms, which have long underperformed consumer and financial stocks in China, became the top equity market performers so far this year.<\/p>\n

China steel stocks index jump in the first quarter<\/p>\n

Stocks of China\u2019s top listed steelmaker Baoshan Iron & Steel Co Ltd, which is also the biggest auto sheet supplier, have climbed 38% so far in 2021.<\/p>\n

Hunan Valin Steel Co Ltd, which told investors its order books from machine and appliance makers are full for the coming one to two months, saw its shares rise over 44%.<\/p>\n

\u201cThe most fast-growing period for steel equities has not come yet,\u201d according to Tang Chuanlin, analyst with CITIC Securities.<\/p>\n

\u201cThe steel (performance) is not just a quarterly matter, but a certainty of the year.\u201d<\/p>\n

($1 = 6.5095 yuan)<\/p>\n

Source: Read Full Article<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

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