China Securities Co.,Ltd.: Real estate policies are driving the recovery of the steel industry, with crude steel production increasing for the first time since June.

China Securities Co., Ltd. released a research report stating that in October, pig iron and crude steel production increased by 1.4% and 2.9% respectively, rebounding for the first time since June. Currently, indicators related to real estate still show a year-on-year decline trend, but the decrease in sales area, completed area, residential investment, and other indicators has narrowed compared to the period from January to September. On November 13, the Ministry of Finance and other three departments announced a series of new policies to provide tax incentives for the real estate market. Among them, it was proposed that for the purchase of a family's first or second home with an area of 140 square meters or less, the deed tax would be levied at a rate of 1%, and it was explicitly stated that Beijing, Shanghai, Guangzhou, and Shenzhen can apply the same second home deed tax incentives as other areas, aiming to reduce the transaction costs of second-hand houses and ease the financial pressure on real estate companies. Last week, the overall outlook for building materials showed an increase in supply and a decrease in demand, with inventory levels decreasing. Key points from China Securities Co., Ltd. include: The Ministry of Finance and other three departments announced a series of new tax incentives for the real estate market. On November 15, the National Bureau of Statistics disclosed macroeconomic data for October. In terms of real estate, on the sales side: from January to October, the sales area of newly constructed commercial housing was 779.3 million square meters, a year-on-year decrease of 15.8%. On the development and investment side: from January to October, the area of new construction was 612.27 million square meters, a year-on-year decrease of 22.6%; the area under construction was 720.66 million square meters, a year-on-year decrease of 12.4%; the completed area was 41.995 million square meters, a year-on-year decrease of 23.9%. National real estate development investment was 8.63 trillion yuan, a year-on-year decrease of 10.3%; of which, residential investment was 6.564 trillion yuan, a decrease of 10.4%. Overall, indicators related to real estate continue to show a year-on-year decline, but the decrease in sales area, completed area, residential investment, etc. has narrowed compared to the period from January to September. On November 13, the Ministry of Finance and other three departments announced a series of new tax incentives for the real estate market. Among them, it was proposed that for the purchase of a family's first or second home with an area of 140 square meters or less, the deed tax would be levied at a rate of 1%, and it was explicitly stated that Beijing, Shanghai, Guangzhou, and Shenzhen can apply the same second home deed tax incentives as other areas, aiming to reduce the transaction costs of second-hand houses and ease the financial pressure on real estate companies. In terms of infrastructure, from January to October, national fixed asset investment (excluding rural households) increased by 3.4% year-on-year, and basic infrastructure investment in the tertiary industry (excluding electricity, heat, gas, and water production and supply industries) increased by 4.3%, an increase of 0.2 percentage points. Specifically, investment in water conservancy management increased by 37.9%, investment in air transportation increased by 19.2%, and investment in railway transportation increased by 14.5%. In terms of industry, in October, the value added of industrial enterprises above a designated size increased by 5.3% year-on-year, and by 0.41% month-on-month. In October, the value added of the mining industry increased by 4.6% year-on-year, the manufacturing industry increased by 5.4%, and the electricity, heat, gas, and water production and supply industry increased by 5.4%. Among the 41 major industries, 35 industries maintained a year-on-year increase in value added, while the smelting and processing of black metal decreased by 4%, and the smelting and processing of non-ferrous metals increased by 7.7%. In industries related to steel consumption, in terms of machinery: in October, the operating hours of Komatsu excavators in China were 105.3 hours, a year-on-year increase of 4.3% and a month-on-month increase of 2.8%, showing growth in both aspects. In terms of automobiles: in October, the production and sales of automobiles reached 2.996 million and 3.053 million vehicles respectively, with a month-on-month increase of 7.2% and 8.7% respectively, and a year-on-year increase of 3.6% and 7% respectively. From January to October, the cumulative production and sales of automobiles reached 24.466 million and 24.624 million vehicles respectively, with year-on-year increases of 1.9% and 2.7% respectively. In terms of home appliances: market monitoring data from AVC Cloud shows that in October, online retail sales of refrigerators, freezers, washing machines, and air conditioners increased by 51.7%, 7.5%, 25.2%, and 48.1% year-on-year respectively, while offline retail sales increased by 85.7%, 10.2%, 78.8%, and 113.9% year-on-year respectively. Crude steel production rebounded for the first time since June, indicating an increase in supply and a decrease in demand for building materials last Friday. Focusing on the steel industry, from January to October, domestic pig iron production was 715.11 million tons, a year-on-year decrease of 4%; crude steel production was 850.73 million tons, a year-on-year decrease of 3%; and steel production was 1,164.84 million tons, a year-on-year increase of 0.5%. In October, pig iron and crude steel production increased by 1.4% and 2.9% respectively, rebounding for the first time since June. In terms of supply, last Friday, the supply of major steel varieties was 8.6158 million tons, an increase of 0.09 million tons from the previous week. Steel mills continue to be profitable, driving continuous production, and the supply of steel products is increasing; last Friday, the total inventory of major steel products was 12.0379 million tons, a decrease of 0.1499 million tons from the previous week, with a decrease in total inventory of major varieties, a decrease of 0.774 million tons in plant inventory, and a decrease of 0.725 million tons in social inventory. In terms of consumption, the weekly consumption volume of major varieties was 8.7657 million tons, a decrease of 0.103 million tons from the previous week. Overall, from the data of the five major varieties, there is a pattern of increasing supply and decreasing demand, with inventory levels decreasing. As of November 15, the prices of rebar, hot-rolled coil, medium plate, and cold-rolled coil were respectively -110 yuan/ton, -100 yuan/ton, -60 yuan/ton, -80 yuan/ton compared to the previous week; the spot gross margins of rebar, hot-rolled coil, medium plate, and cold-rolled coil were 34 yuan/ton, -44 yuan/ton, -228 yuan/ton, -72 yuan/ton respectively, compared to -40 yuan/ton, -31 yuan/ton, -14 yuan/ton, +4 yuan/ton from the previous week. The profit rate of 247 steel mills is 57.58%, a month-on-month decrease of -21.6 percentage points. Investment advice for general steel Since general steel products are mainly used in the construction industry and the recovery time of the real estate market is still uncertain, when allocating assets, one can consider prioritizing high dividend, high dividend yields, and leading enterprises in various downstream industries. Investment advice for special steel and new materials Special steel is a sector supported by government policies, and there is an opportunity for import substitution as well as an increase in global market share in China's medium to high-end special steel new materials. Currently, the proportion of medium to high-end special steel in China is around 4%, which is significantly lower compared to developed countries such as Japan, Europe, and the United States. As China's medium to high-end manufacturing industry develops rapidly, the demand for medium to high-end special steel is expected to grow rapidly, leading to potential increases in the valuation of medium to high-end special steel companies, following the example of developed countries.In terms of valuation, the special steel company is mostly at a level of 15-25 times. The rapid development stage of special steel in Japan, Europe, and the United States has passed, while China's high-end special steel is still in a period of growth. The application of new energy, shipbuilding, and aerospace industries in China is in a period of vigorous development, and should enjoy a certain valuation premium.Risk Warning: Currently, in a complex and severe market situation, the steel industry also faces many difficult challenges and operational differentiation among enterprises. Influenced by factors such as the impact of monetary policy shocks in developed economies, ongoing inflationary pressures, tightening global financial environment, weak trade growth, and declining confidence among enterprises and consumers, economic growth still faces multiple risks and challenges. In recent years, there have been continuous risk events on the raw material supply side, such as the collapse of the Vale dam, import bans on Australian coal, extreme weather in Brazil and Australia, and energy crises triggered by geopolitical conflicts. With various risk events continuously evolving and escalating, raw material prices have been continuously pushed up, and steel mills have been squeezed between demand and costs, leading to extreme profit compression.