【研究报告内容摘要】
Steel: Most attractive risk-reward commodity; CL-Buy Angang (H)
Over the past three years, China’s steel sector has lagged othercommodities such as cement. As a result, the companies under ourcoverage in the sector are now trading in an average FY13 P/B range of0.51x-0.73x, down from 1.0x-1.55x in 2005-12. Moreover, given theincreased sensitivity of steel company earnings to steel prices, we believethe steel sector offers the most upside potential to a continued rebound incommodities demand. Conversely, if increased commodities demand doesnot materialize as expected, we believe steel faces the least downside riskgiven the sector’s distressed valuations. As a result, we believe steel nowoffers the most attractive risk-reward under our coverage. We reiterate CL-Buy on Angang (H) and Buy on both Angang (A) and Baosteel.
Cutting earnings on lower steel/iron ore prices; revising TPsAfter marking to market the performance year to date, we lower our steelprice forecasts and now forecast HRC/rebar prices to rise 5%/0% yoy in2013E (10%/8% yoy previously), 3% in 2014E (from 5%) and 0% in 2015E.
We also cut our 2013/14/15 iron ore price forecasts by 3%/9%/11% due tothe ongoing investment in domestic iron ore capacity and the growingvolume of steel scrap supply. As a result, we revise our FY13-15E earningsestimates and update our 12-month target prices, which are based onDirector’s Cut.
Angang/Baosteel: We believe margins troughed in 2H12
We expect the margin expansion for flat steel producers (including Angangand Baosteel) to persist through 2013 following qoq improvement in 1Q13,on a further rebound in steel prices (Baosteel and Angang HRC/CRC pricesare up 6%-11% from 2H12) and declining iron ore prices. We continue tofavor flat steel over long steel on a divergent supply growth outlook.
Magang: Margins likely to remain under pressure in 1H13
Long steel prices have been under pressure year to date due to highinventory (long steel inventory up 66% ytd vs. a 25% rise for flat steel) andfurther exacerbation of overcapacity. We expect margins for Magang,which has the most exposure under our coverage to long products, toremain under pressure in 1H13.

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