Cinda: Steel industry in the off-season has limited inventory accumulation, with high safety margins in sector allocation.

Cinda released a research report stating that, based on the judgment of the steel industry cycle, in the current environment of ample market liquidity and upward risk premium adjustments, the steel sector has strong "anti-inward" properties and large profit recovery space. High-quality steel companies have excellent upward elasticity brought about by performance recovery, as well as the potential for sector valuation increases due to improvements in supply patterns. The sector still presents strategic investment opportunities in the medium to long term, maintaining a "bullish" industry rating. Based on the above judgment, the following key focuses are suggested from top to bottom: 1) Regional leading companies with high equipment advancement and environmental protection levels such as Hunan Valin Steel, Beijing Shougang, Shandong Iron And Steel, Jiangsu Shagang, and Sansteel Minguang; 2) Companies with integration and restructuring strategies and excellent growth potential such as Baoshan Iron & Steel, Nanjing Iron & Steel, Maanshan Iron & Steel, Xinyu Iron & Steel, and Angang Steel; 3) Special steel companies benefiting from the new energy cycle such as CITIC Pacific Special Steel Group, Zhejiang JIULI Hi-tech Metals, Fangda Special Steel Technology, Fushun Special Steel, Jiangsu Changbao Steeltube, Jiang Su Wujin Stainless Steel Pipe Group, Tianjin You Fa Steel Pipe Group Stock; 4) Companies with outstanding competitive advantages in upstream raw material supply such as SHOUGANG RES Shandong Jinling Mining, Dazhong Mining, Fangda Carbon New Material, and Hbis Resources. Key points from Cinda: - Last week's market performance: The steel sector rose by 1.01% last week, outperforming the broader market; specifically, the special steel sector rose by 1.80%, the long steel sector fell by 3.15%, and the flat steel sector rose by 1.24%; the iron ore sector rose by 4.12%, steel consumption materials sector fell by 1.61%, and the trade circulation sector fell by 1.780%. - Supply situation: As of February 13, the sample steel enterprises' blast furnace capacity utilization rate was 86.4%, an increase of 0.72 percentage points week-on-week. As of February 13, the sample steel enterprises' electric furnace capacity utilization rate was 21.0%, a decrease of 27.11 percentage points week-on-week. As of February 13, the production of the five major steel products was 6.96 million tons, a decrease of 24.86 thousand tons compared to the previous week, a decrease of 3.45% week-on-week. As of February 13, the daily molten iron production was 2.3049 million tons, an increase of 1.91 thousand tons compared to the previous week, an increase of 2.50 thousand tons year-on-year. - Demand situation: As of February 13, the consumption of the five major steel products was 6.891 million tons, a decrease of 71.58 thousand tons compared to the previous week, a decrease of 9.41% week-on-week. As of February 6, the trading volume of mainstream traders building steel was 35 thousand tons, a decrease of 32.5 thousand tons compared to the previous week, a decrease of 48.24% week-on-week. - Inventory situation: As of February 13, the social inventory of the five major steel products was 10.267 million tons, an increase of 86.26 thousand tons compared to the previous week, an increase of 9.17%, a decrease of 19.78% year-on-year. As of February 13, the internal inventory of the five major steel products was 4.161 million tons, an increase of 18.72 thousand tons compared to the previous week, an increase of 4.71%, and a decrease of 23.34% year-on-year. - Steel prices & profits: As of February 13, the integrated index of general steel was 3409.5 yuan/ton, a decrease of 4.73 yuan/ton compared to the previous week, a decrease of 0.14%, and a decrease of 4.66% year-on-year. As of February 13, the integrated index of special steel was 6579.7 yuan/ton, a decrease of 2.29 yuan/ton compared to the previous week, a decrease of 0.03%, and a decrease of 2.84% year-on-year. As of February 13, the blast furnace profit of rebar was 80 yuan/ton, an increase of 15.0 yuan/ton compared to the previous week, an increase of 23.08%. As of February 10, the profit for building steel electric furnace flat steel was -48 yuan/ton, an increase of 29.0 yuan/ton compared to the previous week, an increase of 37.66%. - Raw material situation: As of February 14, the Rizhao Port Co., Ltd. Australian fine ore spot price index (62%Fe) was 754 yuan/ton, a decrease of 11.0 yuan/ton compared to the previous week, a decrease of 1.44%. As of February 13, the Jingtang Port main coking coal provided price was 1700 yuan/ton, unchanged from the previous week. As of February 13, the primary metallurgical coke ex-factory price was 1770 yuan/ton, unchanged from the previous week. As of February 13, the available days of inventory for sample steel enterprises' coke was 12.7 days, a decrease of 0.1 day compared to the previous week, a decrease of 0.5 days year-on-year. As of February 13, the average available days of imported iron ore for sample steel enterprises was 30.85 days, a decrease of 0.4 days compared to the previous week, an increase of 6.1 days year-on-year. As of February 13, the available days of inventory for sample independent coking plants' coking coal was 16.69 days, an increase of 0.2 days compared to the previous week, an increase of 6.0 days year-on-year. - Last week, as of February 13, daily molten iron production was 2.3049 million tons, an increase of 1.91 thousand tons compared to the previous week, an increase of 2.50 thousand tons year-on-year. Social inventory of the five major steel products increased by 9.17% week-on-week, internal inventory of the five major steel products increased by 4.71% week-on-week. Last week, Rizhao Port Co., Ltd. Australian fine ore (62%Fe) fell by 11.0 yuan/ton, while the Jingtang Port main coking coal provided price remained unchanged. It is worth noting that the social inventory of the five major steel products as of February 6 was 9.404 million tons, an increase of 49.68 thousand tons week-on-week, an increase of 5.58%, a decrease of 18.04% year-on-year. The internal inventory of the five major steel products as of February 6 was 3.973 million tons, an increase of 9.56 thousand tons week-on-week, an increase of 2.47%, a decrease of 24.13% year-on-year. The bank believes that the current pressure on inventory accumulation of the five major materials is relatively limited, with overall inventory at historically low levels and slower accumulation speeds compared to previous years. Coupled with the supply support formed by recent safety inspections or small-scale contraction of local production capacity, the pressure on steel inventory is limited. Currently, the profits for general steel per ton are considerable, against the backdrop of the industry's "anti-inward" trend, general steel companies have a large space for performance improvement and are expected to see value restoration, presenting a good opportunity for steel sector allocation.