China Galaxy Securities: Supply and demand rebound in November, manufacturing steel expected to maintain high prosperity.

China Galaxy Securities released a research report stating that the operating rate of steel plants in November slightly rebounded, and the enthusiasm for resuming production continued to improve; market demand was boosted by positive policy effects. In terms of specific fields, infrastructure construction investment (excluding power) accumulated year-on-year growth of +4.30%; real estate industry investment accumulated year-on-year decline of -10.60%; manufacturing industry investment accumulated year-on-year growth of +9.30%. Real estate prices and sales showed signs of stabilizing; manufacturing industry investment was mainly affected by pressure on profits, and the constraint effect of low commodity prices on investment still exists. The year-end "two highs," "two news" policies, and the recovery of profits in the consumer goods manufacturing industry are expected to provide support for the resilience of manufacturing industry investment. The main points of China Galaxy Securities are as follows: Steel quantity and price data overview: In terms of prices, steel prices fluctuated weakly in November. The comprehensive index of Chinese steel was 97.95, a decrease of 3.57 from the previous month, a decrease of 3.52%. In November, as the weather got colder, construction activities were somewhat limited, the release speed of downstream product demand slowed down, and steel prices showed a weak and fluctuating trend. In terms of production, the operating rate of steel plants slightly increased in November. In terms of production volume, in November 2024, domestic crude steel, pig iron, and steel production were 78.40 million tons, 67.48 million tons, and 118.81 million tons, respectively, an increase of 2.50%, 3.90%, and 5.10% year-on-year, respectively. Net exports decreased in November, with domestic net steel exports totaling 8.81 million tons, a decrease of 1.83 million tons from the previous month. Steel supply and demand industrial chain analysis: From the supply side, the operating rate of steel plants slightly rebounded in November, and the enthusiasm for resuming production continued to improve. In November 2024, the average blast furnace operating rate in China was 82.18%, an increase of 1.67 percentage points month-on-month and 1.49 percentage points year-on-year. From the demand side, in November, market demand was boosted by positive policy effects. The apparent consumption of steel in China in November was 110 million tons, an increase of 6.75% year-on-year. Among different types of steel, the apparent consumption of rebar, cold-rolled coil, hot-rolled coil, wire rod, and medium plate in October was 17.418 million tons (an increase of 16.24% month-on-month), 3.204 million tons (an increase of 5.59% month-on-month), 10.515 million tons (an increase of 0.45% month-on-month), 11.377 million tons (an increase of 3.72% month-on-month), and 6.807 million tons (an increase of 23.82% month-on-month). From the upstream perspective, as raw material prices rise, steel companies' profit margins are declining, approaching historical lows. According to the latest data from the National Bureau of Statistics, China's industrial value-added above a designated scale increased by 5.40% year-on-year in October, an increase of 0.10 percentage points from the previous month. China's manufacturing PMI was 50.3%, operating in the expansion range for two consecutive months, indicating the economy is beginning to stabilize. From January to November, the cumulative fixed asset investment in China (excluding rural households) was 46.6 trillion yuan, an increase of +3.30% year-on-year, a decrease of 0.1 percentage points from the previous month. In terms of specific fields, infrastructure construction investment (excluding power) accumulated year-on-year growth of +4.30%; real estate industry investment accumulated year-on-year decline of -10.60%; manufacturing industry investment accumulated year-on-year growth of +9.30%. Real estate prices and sales showed signs of stabilizing; manufacturing industry investment was mainly affected by pressure on profits, and the constraint effect of low commodity prices on investment still exists. The year-end "two highs," "two news" policies, and the recovery of profits in the consumer goods manufacturing industry are expected to provide support for the resilience of manufacturing industry investment. Investment recommendations: The Central Economic Work Conference pointed out the implementation of a series of policies to stabilize the real estate market, which is positive for the black metal sector. The steel industry's fundamentals are expected to remain stable, with downstream demand expected to grow under the positive influence of policies. Currently, as steel demand transitions from real estate to high-end manufacturing, domestic manufacturing is expected to continuously upgrade, steel plants are expected to continue to resume production, and manufacturing industry demand for steel has rigid support. Infrastructure demand is expected to be released, export demand has resilience, and total demand is expected to stabilize and rebound throughout the year. As the transformation and upgrading of the manufacturing industry accelerates, the demand for steel in high-end manufacturing industries is expected to marginally improve. In addition, benefiting from the development of downstream industries such as aerospace and automotive manufacturing, the prospects for special steel consumption are good, and special steel companies are expected to experience stable growth. Suggestions for targets: pay attention to leading companies in the general steel sector with improving demand margins due to favorable policy expectations, and leading companies in the special steel sector with good fundamentals. Risk warning: risks of downstream real estate and infrastructure demand falling short of expectations; uncertainties in the prices of raw materials such as iron ore and coal; risks of major changes in steel industry policies, etc.