Analysis of China's valve prices in the second half of 2010

Overall, the operating environment of China's valve market in the second half of 2010 is an opportunity and a challenge coexist, and price bullish and bad factors coexist and continue to develop in the direction of warming up.

First, domestic and foreign demand continues to flourish

Since the beginning of this year, China’s valve demand has maintained a strong growth trend. In the first four months, China's valve consumption index increased by about 30% year-on-year. In April, China's Manufacturing Purchasing Managers Index (PMI) industry index, the metal industry, electrical machinery and equipment manufacturing, general equipment manufacturing industry index exceeded 30%, reflecting these industries as the overall demand for valves, "leading ".

From the data indicators of some major domestic steel consumption industries, from January to April, the total urban fixed asset investment increased by 26.1% year-on-year, and the growth rate continued to increase. The domestic output of valve was 6.22 million units, a year-on-year increase of 62%, and it also showed a very high level of growth. Others, such as industrial boilers, metal cutting machine tools, civilian steel ships, etc., have all experienced significant growth, which has significantly accelerated over the previous year.

From the perspective of foreign trade exports, this year's global economic recovery environment, the rising market prices, has stimulated a sustained increase in the export of Chinese valves. According to customs statistics, from January to April, the national export volume of valves was 13.02 million tons, an increase of 98.8% over the same period of last year. Among them, 4.11 million tons of export valves were exported in April, a month-on-month increase of 29%, more than doubled from the same period last year, and the monthly export volume hit a new high after the financial crisis. Among the major valve products, the export of sheet metal in April was 2.8 million tons, an increase of nearly 5 times year-on-year; the export volume of bar materials was 430,000 tons, which was more than three times longer. The export volume of section steel is 250,000 tons, which is more than doubled.

Even if affected by the withdrawal of economic stimulus, the consumption intensity of China's valves in the second half of the year has weakened, but its continued strong growth will not change, and the overall valve consumption index remains at a relatively high level. Baosteel, the leading domestic enterprise, also reflected that currently the orders of various downstream industries are full. Although the auto industry's demand has declined slightly, it has eased the contradiction in the supply of steel for automobiles in the early stage. According to industry sources, valve companies export orders are good, and prioritize export orders. According to the export data measured in the first four months of this year, China's valve export volume may be close to 40 million tons for the year, an increase of about 50% or even more than the previous year, which is significantly higher than previously expected.

Second, the stimulus policy exit caution

What is the demand environment for Chinese valves in the second half of the year? A key influencing factor is how the national policy? There is no doubt that with the improvement of the economic situation at home and abroad, and stabilizing, in order to prevent the economy from overheating and take precautions against inflation, the state’s economic stimulus policies implemented in the earlier period will gradually withdraw. However, judging from the current situation, due to some uncertainties in economic development at home and abroad, the withdrawal of national stimulus policies will be very cautious. Under normal circumstances, the second half of the year will continue to implement a proactive fiscal policy and a moderately loose monetary policy. At the same time, we will grasp the direction, intensity, and pace of macroeconomic regulation and control. We must, in particular, prevent the adverse effects of the superposition of multiple policies, and always reasonably grasp the strength of policies. .

In terms of monetary policy, the central bank is expected to use more quantitative monetary policy adjustment tools such as adjustments to the reserve requirement ratio. For price-type tools such as raising interest rates, the central bank will be cautious and cautious. Even if interest rates increase, it is estimated that they will wait until European and American countries wait until prices rise very high, and that once the efforts will not be great, be as mild as possible to avoid a major impact on investment and industrial production.

In terms of bank credit, the RMB loan balance of financial institutions at the end of April this year was 43.35 trillion yuan, an increase of 21.96% compared with the same period of last year. Although it was down on a year-on-year basis, it was 0.15 percentage points higher than the end of last month, indicating that the central bank's credit supply exceeded expectations and there was no It was very tight. It is expected that such a fine-tuning strategy will continue to be implemented in the second half of the year, and the increase in the credit supply of financial institutions will continue to be significant. There will be no sharp contraction in the year-on-year period.

In particular, it is necessary to point out that as an important part of the exit policy, the state has weighed heavily on the control of real estate and restrained its price from being excessively fast and excessively rising. For the valve market, it is actually a bullish factor.

Specific analysis of the state's regulation and control of real estate "shrinking" content, summed up in two main: First, resolutely crack down on the land, idle homes have not been shot out of land, free recovery; second is to limit multi-suite purchase, squeeze speculation foam. The previous measure will stimulate new construction areas and promote construction; the latter measure will drive down prices, increase the purchasing power of the unit currency, and ultimately allow more residents to buy a house, which will also stimulate more housing sales and housing construction. From this it can be seen that no matter what the content, it will promote the construction of housing construction. According to statistics, in the first four months of this year, the area under construction of real estate development enterprises in the country increased by 31.7% year-on-year; the area of ​​new housing starts was 457 million square meters, an increase of 64.1% year-on-year, and the state's control measures are showing results.

If the state regulates and controls the real estate industry, it will eventually stimulate the increase in new construction area and increase the construction volume, which will increase the consumption of valves. Well, for the valve market, this is certainly a bullish factor.

Third, new cost factors appear

After entering the second half of the year, Chinese valve companies will face higher production costs. The higher cost factor will emerge from three aspects: First, the relatively low-priced iron ore imported and stored in the early stages is basically depleted, and the higher price of iron ore is starting to face, and valve companies will enter a period of real high production costs. Second, the quarterly pricing of iron ore indicates that the iron ore agreement price will converge to the spot price. Since the current spot price is significantly higher than the agreed price, it also means that the price of iron ore consumed by valve companies will increase in the second half of the year, and the increase will not be too small. Third, in addition to the agreement that iron ore prices continue to rise, coke prices that affect the cost of China's valves will also rise significantly. Due to the expected recovery from the global economy and the impact of China's economic acceleration environment, the southwestern drought will increase thermal power generation, and coal product prices will operate at high levels during the year, and further increases may not be ruled out. The relevant authorities recently issued the warning that coal supply may tighten again in the second half of the year.

According to relevant information, domestic coke-producing provinces such as Shanxi, Hebei, and Shandong have recently held coking industry market analysis conferences. Under the situation where the price of coking coal has caused the cost and the price of coke products to hang upside down, the five major coke producing areas have reached a tacit agreement to limit production and insure prices. . After the price increase in May, the price of coke in major producing areas will exceed 2,000 yuan/ton. Affected by this, in the second half of the year, coke market prices will increase rapidly, which is bound to become a new cost increase factor for valve companies. In addition, if the country raises its electricity and water prices in the second half of the year and introduces environmental taxes, it will further increase production costs.

Higher production costs have created new support for valve prices. From the current price of hot-rolled products such as rebar, it is no longer possible to cover new cost factors for future high-priced materials, and market prices must be adjusted.

Fourth, capacity release is inhibited

While domestic and foreign demand continues to grow vigorously, the release of China's valve production capacity will be inhibited in three ways.

The first is the suppression of the capacity already put into production. From the viewpoint of crude steel, the country’s crude steel production in the first four months of the year totaled 213.87 million tons, up 25.4% year-on-year and approximately 640 million tons on an annual basis. According to the current output of 700 million tons of crude steel, the capacity utilization rate has reached 91.4% belong to the internationally recognized tight supply level. It is expected that even if China's crude steel output continues to grow in the future, it will not be much higher than the monthly production level of 55.4 million tons in April this year. It should be said that the crude steel capacity that has already been put into production is basically released. Although the year-on-year increase will be higher, there is little potential for growth in the second half of the year.

Followed by the restrictions on the supply of iron ore. The tight supply of iron ore will become the biggest constraint to the release of China's valve production capacity. In 2009, in addition to China, the world's major steel-producing countries have reduced their valve production, so more than 100 million tons of affluent iron ore are exported to China and are digested by Chinese valve companies. This situation will cease to exist this year. As the recovery of the world economy stimulates the production of valve companies in Europe, North America and East Asia, there will be a possible supply gap in global iron ore in 2010. Due to the long-term coal mine destruction in some Chinese valve companies in 2009, this year may face the “bottleneck” of iron ore. The tight supply of iron ore will undoubtedly restrict the release of China's crude steel production capacity.

Again, the power supply is limited. The tight supply of coal and other energy sources will affect the electricity supply. In the second half of the year, there may be restrictions on electricity in some parts of the country. Valve companies, especially small and medium-sized valve companies, will bear the brunt of energy consumption in all regions. The lack of electricity supply will also limit the release of some of the valve's production capacity.

Eliminate backward restrictions. According to recent sources, the state must use its “iron hand” to eliminate backward production capacity, including the three ministries and commissions to cancel the preferential price of electricity for high-energy-consuming enterprises such as electrolytic aluminum and valves, and increase the price of eliminating and restricting production capacity. All these measures should have some effect on the limitations of backward valve production capacity. In the situation where demand continues to be strong, the backward production capacity of the valve is inhibited, which is conducive to improving market relations.

V. Market prices bottomed out

Since April and May, domestic valve prices have experienced periodical corrections, mainly due to the country’s heavy suppression of excessive price increases and panic in the euro zone debt crisis, as well as the continued rise in early-stage valve prices and the accumulation of a large number of “floating profits”. The psychological and practical operation of the “businessmen and investors” has not caused any change in the fundamentals of strong demand and cost support. Therefore, after the adjustment, the price of valves in China will bottom out and continue to operate at a high level. It is expected that the price of the Shanghai rebar futures main contract will be near RMB 4,000/tonne in the near future, and it will rebound to about RMB 5,000/ton, with a profit margin of nearly 1,000 points.

6. Significant increase in profits of valve companies

The bottoming out of the valve price, even rising further, and the increase in output will inevitably increase the profitability of valve companies. According to the data released by the National Bureau of Statistics, in the first quarter, the profits of 38 industries rose from the same period last year in 39 industrial categories. Among them, the profits of the valve industry increased 338 times year-on-year, with the most significant increase. The industry is generally worried that due to the doubling of iron ore prices, the large loss of the valve industry did not appear.

Although the year-on-year increase in valve company profits in the first quarter was highly related to the low base last year, the profit was still significantly higher than expected. It is estimated that thanks to the substantial increase in prices, the profits of China's valve companies in the first half of the year and the whole year will increase significantly. For example, the company’s accumulated net profit for the first half of 2010 is expected to increase by 6 to 10 times compared with the same period of last year.

It is expected that the overall profit level of valve companies in the second half of the year will be significantly higher than the level of the same period of last year. The increase in the cost of iron ore and other costs will not cause a large area loss for valve companies.