美林中国钢铁行业深度研究报告.pdf

People’s Rep. of China
In-depth Report Steels
1 June 2004
Desiree Dang
(86 21) 6279 8096 China Steel Sector
desiree_dang@
Vicky Binns
Head of Asia Pacific These Stocks Aren’t Heavy
Metals & Mining Research
vicky_binns@
Matthew Starick Reason for Report: Initiation of Sector Coverage
(612) 9226 5630
matthew_starick.
• Market concerns about China’s tightening policies is overdone: China’s tightening
policies recently led to a heavy sell-off of steel stocks. From a fundamental perspective, we
believe the market’s reaction is overdone. heless, the price correction provides a good
buying opportunity for selected steel stocks – ., those that can deliver sustainable strong
earnings growth from capacity expansion and a favorable product mix.
• 2H05 a critical period: We expect steel demand growth to slow to 14% in 2004 and
further to 12% in 2005 from a CAGR of 24% over the past three years. But raw material
and transportation bottlenecks are likely to persist, extending the domestic shortfall. We
believe 2H05 will be a critical period for the steel cycle; that is when China’s steel
shortfall should begin to subside, and supply bottlenecks ease.
• Better outlook for flat steel: We favor flat steel over long-steel products due to the
former's lower leverage on the construction sector and the heavy domestic shortfall.
Despite trying to catch up, capacity expansion for flat steel has not been fast enough. We
believe the supply gap will continue to increase and cannot be filled in the short term.
• Margin expansion for integrated flat steel makers: We see a strong possibility of
margin enhancement for integrated flat steel makers in 2004. Steel price increases should
more than offset cost increases. However, producers of long-steel products and mini-mills
face the risk of margins being squeezed.
• Attractive due to capacity expansion: Despite a slowdown in steel demand in China,
the country still has one of the f