◎ Li Xiang
At the end of the disclosure season, the steel industry is operating poorly due to multiple factors. Looking at the performance of listed companies in the steel industry in the past two years, on the whole, the total profit of steel smelting companies in 2022 will be about 22.2 billion yuan, which will fall back to about 16.7 billion yuan in 2023, and the total profit of these steel listed companies in the first quarter of this year will be about negative 1 billion yuan, and the industry reshuffle will intensify.
However, in the case of great changes in the business environment, the survival of the fittest in the industry, some steel enterprises are actively transforming to achieve contrarian growth.
On the 9th, the Financial Associated Press learned from the 2024 special exchange activities of the steel industry for bond investors that benefiting from the stabilization of the general environment and the positive transformation of some steel enterprises, the bond valuation of some steel enterprises has been repaired to a certain extent, and the credit spread has narrowed.
01
The transformation of steel enterprises is on the way
The above activities were jointly organized by China Chengxin Investor Lounge, China Securities Securities, China CITIC Bank and Senpu Sumscope, aiming to build a bridge between enterprises and investors, and provide investors with a platform to gain an in-depth understanding of the current situation and development trend of the steel industry.
The participants had a full exchange with investors on the current economic environment, the development and reform of the steel industry and the financing needs. Most participants said that although steel companies have been under pressure in the past few years, steel prices are expected to stabilize this year, and the transformation of steel companies is also on the way.
According to Wind data statistics, from January to March 2023 and 2024, there will be a total of 26 bond issuers of iron and steel enterprises, of which 20 are AAA-rated, accounting for 76.92%, with a high overall rating rating, and 180 bonds will be issued, with a total issuance amount of 230.01 billion yuan. As of the end of 2023, the outstanding bonds of the steel industry amounted to RMB323.366 billion.
The overall distribution of steel bond issuers is relatively concentrated. Among them, Shougang Group Co., Ltd., Shandong Iron and Steel Group Co., Ltd., HBIS Group Co., Ltd. (hereinafter referred to as "HBIS Group"), Anshan Iron and Steel Group Co., Ltd. (hereinafter referred to as "Anshan Iron and Steel Group"), and China Baowu Iron and Steel Group Co., Ltd. accounted for 69.82% of the total bond issuance, accounting for a relatively high proportion.
For the contrarian growth of some steel enterprises, Li Junyan, an analyst at China Chengxin International Rating, believes that in addition to the excellent product structure, the high proportion of self-owned mine supply, and the participation in high-quality financial or mineral assets, one of the major reasons for these issuers is the high contribution of non-steel business, which seizes the opportunity of the downstream industry in the supply chain in their respective upward cycles, so that they still maintain a good gross profit margin level in the cold winter of the industry.
For example, the person in charge of Panzhihua Iron and Steel Group, a subsidiary of Anshan Iron and Steel Group, said that Panzhihua Iron and Steel Group achieved a "good start" with a revenue of 17.2 billion yuan and a net profit of 554 million yuan in the first quarter of the general loss of the industry, which is not unrelated to the promotion of the non-steel industry of Pangang Group.
The person in charge said that in Pangang's 2024 annual budget, only 58% of the total revenue will be the traditional steel industry, and the remaining proportion includes emerging industries such as special steel, titanium and vanadium. At present, Pangang has an annual output of 1.75 million tons of titanium, the first in China, and the output of vanadium pentoxide of 50,000 tons ranks first in the world.
In addition, the steel supplied by HBIS Group has in-depth cooperation with many domestic leading automobile and home appliance enterprises, and is the second largest supplier of automotive steel in mainland China and the first largest supplier of steel for home appliances, and has strong brand influence and market bargaining power in the above two markets. Benefiting from the booming new energy vehicle market, the automotive industry is expected to usher in a new high of about 61 million tons of steel consumption in 2024, achieving a year-on-year growth of about 3%.
Since the cycles of the above-mentioned industries are all long-wave cycles, it is expected that the development of these industries will form a strong support for the steel market and drive the upgrading of the overall product structure of the domestic steel industry.
02
Steel stabilized, and steel bonds are expected to usher in valuation repair
Wang Xiaofang, an analyst at China Securities Construction Investment, said that in terms of data, the average tonnage prices of coking coal, coke, rebar, hot-rolled, and iron ore in 2023 will be 2,283 yuan, 2,107 yuan, 3,925 yuan, 4,007 yuan, and 120 yuan, respectively, except for iron ore, which are significantly lower than 2,840 yuan, 2,802 yuan, 4,397 yuan, and 4,424 yuan in the same period last year.
"However, this is mainly due to the overcapacity of steel caused by the lack of downstream demand represented by real estate and infrastructure, but this trend will stabilize in 2024, of which the coking coal tonnage price is expected to rebound to about 2,363 yuan." At the same time, Wang Xiaofang believes that at present, under the regulatory requirements, some domestic steel enterprises have taken the initiative to reduce load and production, which will also play a role in the stability of steel prices.
In addition, many steel companies have strengthened overseas market development, which has obvious support for the demand of the mainland steel industry. According to the data, the national steel export volume jumped to 90.26 million tons in 2023, a significant increase of 23.99 million tons compared with the previous year, achieving a growth rate of 36.2%. The positive growth trend in overseas markets has prompted domestic steel manufacturers to increase their attention and participation in overseas markets.
According to Baosteel Group's annual financial report, the group's overseas market sales in 2023 will be 49.06 billion yuan, an increase of 3.23 billion yuan from the previous year. It is worth noting that the gross profit margin of products in overseas markets reached 10.19%, which was 4.59 pct higher than that of products in the domestic market, and 6.49 pct higher than that of overseas market products in the previous year.
With the stabilization of the general environment and the positive transformation of some steel enterprises, the valuation of some steel bonds has been repaired to a certain extent, and the overall credit risk is still controllable.
According to the statistics of institutional research reports, since 2023, the average issuance interest rate of AAA issuers in the steel industry is only 3.03%. In terms of spreads, the average issuance spreads of AAA-rated issuers are also significantly lower than those of AA+ and AA-rated issuers, and the agency expects that the average credit spreads of the steel industry are expected to further narrow in 2024 as the start of real estate and infrastructure projects picks up.
Table: Statistics of the issuance interest rate and interest rate spread of the steel industry in 2023 and January ~ March 2024
Data source: public information, compiled by the Financial Associated Press
Zhou Guannan, chief of Huachuang Fixed Income, also said that judging from the recent credit spread statistics, the spread of steel bonds under the market adjustment has narrowed across the board, with the spread of 1y varieties narrowing by 23-26BP, and the rest of the varieties narrowing by 4-13BP across the board. At present, the 3-5y implied rating of steel bonds AA+ is at a higher premium than that of coal bonds, and the income mining opportunities are worth paying attention to.
Source: Finance Associated Press