According to the latest statistics from the customs, China's steel exports in November were 2.95 million tons, a decrease of 1.67 million tons compared to the previous month (hereinafter referred to as the month on month); In November, China imported 1.03 million tons of steel, a decrease of 120000 tons compared to the previous month; In November, the net export of crude steel was 1.94 million tons, a decrease of 45.5% compared to October.
Dongfang Securities Review
In November, domestic steel exports accelerated their month on month decline, with crude steel exports and net exports falling back to the level of April 2006, close to the level affected by the snow disaster in February this year. The main reason is the deterioration of the international demand environment leading to a decline in export orders, while the price difference between domestic and foreign steel products has significantly narrowed.
Compared to the record high of 8.24 million tons of crude steel exports in August, crude steel exports decreased by 5.26 million tons (63.8%) in November, while imports only decreased by 480000 tons (31.6%) from the highest point (1.52 million tons in April this year), resulting in a decrease of 4.96 million tons (71.9%) in net crude steel exports from the highest point of 6.9 million tons, reflecting a rapid decline in international demand.
Due to weak export orders and sluggish international manufacturing data, it is expected that domestic steel exports will continue to decline in December, but there is not much room for a month on month decline compared to November; Based on the global economic fundamentals for the next six months, it is expected that domestic steel exports will continue to operate at a low level until the second half of 2009.
Although the government lifted some export tariffs on steel on November 12th, it is difficult to change the trend of sluggish exports for two reasons:
1. With the significant drop in international steel prices, the price difference between domestic and international steel has significantly narrowed, and the rebound in exports still requires the recovery of international demand.
2. Against the backdrop of significant production cuts by international steel companies, the future rebound of domestic steel exports may face more trade protection pressures (such as anti-dumping).
According to the export data of products in October, sheet products, which account for about 50% of exports, will face greater pressure next year due to capacity expansion. This year, the total export of long materials accounts for about 25%, and will benefit more from the government's large-scale investment stimulus.
With the recent significant rebound of steel stocks, the industry average P/B has recovered to 1.1 times, which is about 40% higher than the historical lowest level. Considering that the industry's profitability will be at the bottom of the cycle in the next two years, the current valuation of the industry is already within a reasonable range.
Overall, based on the quarter on quarter trend, the steel industry is expected to face temporary trading opportunities for profit improvement in the next 3-6 months (from deep losses to balance). However, the current industry valuation level already reflects the fundamentals of industry profits in 2009, and we maintain a "neutral" rating for the industry.