This report is issued by Chuancai Securities Limited and must be read with the disclaimer and analyst certification in the appendix 2018 China Equity Market Steel & Iron Outlook Equity Research Report DepartmentGlobal Research Category In-depth Report SectorSteel & Iron RatingIncrease Date2018/1/23 Analyst Li CHEN SAC Reg. No￡oS1100517060001 8610-66495901 chenli@cczq Peng WANG SAC Reg. No￡oS1100516120001 8621-68595118 wangpeng@cczq Hanxuan QIU SAC Reg. No:S11000517070001 8610-66495651 qiuhanxuan@cczq Contact Wenyi ZHOU SAC Reg. No: S1100117120006 8610¨C 66495910 zhouwenyi@cczq Research Division Beijing Floor 15, China Overseas International Center,28 Pinganli West Street, Xicheng District,100034 Shanghai Floor 11, Hang Seng Building,1000 Lujiazui Ring Road,200120 Shenzhen Floor 21, Duty-free Building,6 Fuhua 1st Road, Futian District,518000 Chengdu Floor 17, Unit B, China Overseas International Center, China (Sichuan) Pilot-free Trade Zone, 610041 Since 2016, the crude steel capacity has been reduced by 255 million tons. In the meantime, the demand side remained strong and the overall profitability of the sector continued to improve, driving the relative gain of the sector on upside trend. As of December 2017, the steel & iron sector has seen two rounds of strong performances. The first (from June to September 2017) lasts for 3 months with a growth rate of 33.73%, thanks to better-than-expected economy, the heating season capacity-cut policy as well as improved profitability. In 2018 the supply side crude steel capacity is expected to drop by 20.17 million tons worldwide. If domestic illegal EAF capacity were to be cleared, the total capacity might further decline. Domestic demand for steel was underpinned by the real estate, manufacturing and mechanic equipment sectors. In 2H17, industrial land transaction volume increased significantly; given industrial land transaction is generally 13 months ahead of manufacturing investment, we are upbeat about the impacts of manufacturing investment in driving demand for steel in 2H18. The main purposes of utilizing steel scrap rest on increasing output and lowering cost. At the end of 2017, both the cost of pig iron and steel scrap price dropped. In 2017 the use of steel scrap totaled 70 to 75 million tons, with increased output and bettered steel scrap industrial chain. We expect in 2018 the iron ore will rise by 42 million tons, as the two are mutually replaceable, the bargaining power of the steel industry to steel scrap and
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