core point of view
Review and Prospect: Demand is still the main contradiction in the industry. We proposed in the 2022 mid-term strategy that the supply of steel and aluminum is still limited, but the epidemic has disrupted the rhythm of demand, and the recovery of demand may dominate investment opportunities in the second half of the year. We believe that demand in 2023 will still be the main focus of investment opportunities in steel and aluminum, especially the change in demand in the real estate sector. The recovery speed of the newly started and completed areas of real estate will determine the elasticity of the steel and electrolytic aluminum sectors.
Supply: Steel production may be limited in 2023, and aluminum supply will increase significantly year-on-year. 1) Steel: Dual control of crude steel production capacity and output has become the new normal. In the context of declining industry profits, steel mills have a greater impact on self-adjustment of output. It is expected that output in 2023 will still be further restricted by industry profits and policies, but internal mergers within the industry Restructuring is expected to accelerate further in a low-margin state. 2) Aluminum: In 2021, the production capacity that has been reduced due to the impact of energy consumption and electricity will gradually recover. The importance of electrolytic aluminum production in Yunnan Province will increase significantly, and the disturbance of hydropower aluminum to supply may increase; currently, the production limit of electrolytic aluminum in Yunnan is still small. If hydropower falls further than expected, it may have a greater impact on supply. Domestic supply (including imports) is expected to grow by 4.7% in 2023.
Demand: Real estate drags down demand performance, and the pace of “steady growth” after the epidemic is extremely critical. The construction industry accounted for 54% and 32% of the downstream demand distribution of steel (2018) and aluminum (2020), respectively. Weak real estate data dragged down the performance of steel and aluminum demand. 1) Steel: According to the forecast of the World Steel Association in October 2022, my country’s steel demand in 2022 will drop by 4% year-on-year; looking forward to 2023, there is still a significant downside in demand, but the physical workload of infrastructure is expected to gradually increase, superimposed on recent heavy policies in real estate Intensively introduced, its role in stimulating steel demand will gradually improve in the future, and it is expected to achieve a year-on-year balance under optimistic circumstances. 2) Aluminum: In the context of Baojiao Building, the completed real estate area is expected to improve in 2023. Real estate and automobiles are still the main variables in aluminum demand. It is expected that the annual aluminum demand will increase by 4.1%.
Long-term demand outlook: Steel demand has entered a peak, and there is still room for aluminum to rise. 1) Steel: Referring to the experience of the United States and Japan, when the per capita housing exceeds 1 unit, the peak of housing construction will be reached. In 2020, my country’s per capita crude steel consumption will be the same as the peak per capita crude steel consumption in the United States in 1973, indicating that my country’s steel demand has entered the peak range 2) Aluminum: Compared with the United States, my country’s per capita aluminum consumption peak is expected to be in 2027 (a 29% increase from 2020).
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