The Chinese government is going to drastically reduce or even abolish export duty exemptions on steel. It is assumed that the adjustment of the tax credit will enable the metallurgists of the Celestial Empire to focus on the domestic market, and not on excessive production for foreign demand, which will reduce the volume of polluting emissions.
At the plenary session of the CPC Central Committee in October last year, the goal was to achieve carbon neutrality of the Chinese economy by 2060, which, in particular, implies reaching peak carbon emissions in the steel sector by 2025, after which by 2030 they will be reduced by 30 %.
As part of this goal, the Chinese government imperatively limited steel production: steel mills in the Hebei-Beijing-Tianjin region and the Yangtze River Delta area to reduce dust and pollutant emissions by 30-50% by December 31, for which they will have to reduce their load sintering factories, stop blast furnaces with a volume of up to 1000 cubic meters. and converters with melting weights up to 100 tonnes. The environmental regulator in China's largest steelmaking city, Tangshan, recently dispatched inspectors to 25 local factories to ensure they comply with production restriction policies.
“This year is the first year of China's 14th Five-Year Plan (2021–2025), which can be seen as a fresh start for steel supply reforms, so total steel production in China is expected to decline this year,” explained the research director. Beijing Lange Steel Information Research Center Wang Guoqing, the largest Chinese English-language newspaper Global Times in March. "To solve the problem of a possible shortage of steel, the country can move to increase its imports." The decision of the Chinese government to revise export privileges will just help to cope with this problem. "
However, the logical result of this decision will be turmoil in the world market, since China is simultaneously the largest steel producer, importer, and exporter. "The increase in imports of Chinese steel with a decrease in exports is a significant event since the PRC is not only the largest producer but also the largest consumer with a volume of 0.95 billion tons per year, which is 53% of the world market," said the chief analyst of AO Investment Capital Investment Company Daniil Bolotskikh.
According to the Shanghai Futures Exchange, since March 2020, the cost of a ton of hot-rolled steel has grown by 60% and exceeded the $ 800 per ton mark, with the main driver of price growth being the Chinese market, Bolotskikh notes.
According to Daniil Karimov, Managing Director of the Metallurgy Sector of the Analytical Department of Otkritie Bank, at present, in almost all key consuming regions of the world, there is a significant lag between the supply of metal and demand. Therefore, in the near future, steel prices may show another round of growth due to the lack of an accurate understanding of how quickly steel companies will be able to increase production.
At the moment we are in a commodity mini-cycle, which is based on significant deferred demand after the 2020 pandemic and the weakening of the US dollar, says Andrey Rusetsky, asset manager of BCS World of Investments. For stock market participants, this means that the shares of Russian metallurgists still have significant upside potential, despite the fact that Severstal has already grown by 18% since the beginning of the year, NLMK - by 17%, MMK - by 11%. “At the moment, shares are attractive for those who trade on volatility. Most steel companies trade with a dividend yield of 15-17%, but if we set the current spot prices, the yield is even higher, ”Rusetsky said.
According to VTB estimates, the yield on Russian steel companies will be 13-17.5% over the next 12 months. At the same time, analysts expect a decline in prices. “After the lifting of European lockdowns caused by the third wave of coronavirus, steel prices will begin to decline around $ 550 per tonne.
Such an event may be closer to the middle of summer, now there is increased volatility and seasonal demand in the markets, which may briefly drag quotes to $ 1000 per ton. The weighted average price for six months will amount to $ 650-700 per ton, "Bolotskikh predicts. By the end of the year, the dividend yield of some securities in the sector may reach 20%, he is sure.

Author: Irina Vlasova
Primary source: "Vedomosti"

Experts believe, the stocks of metallurgical companies still have great growth potential.
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