20140620-美银美林-Chinese_production_falls_MoM_in_May_14页_752kb

Summary of Global and Regional Steel Production Trends and Investment Insights

Core Content

The document provides an overview of global and regional steel production trends for May 2014, along with investment analysis for key steel companies. It highlights the factors influencing production levels, such as seasonal slowdowns, demand shifts, and supply dynamics, and includes valuation insights and price objectives for specific firms.

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Global Steel Production

• Crude steel production rose 2.2% YoY in May 2014, driven by growth in China, Europe, and CIS.
• China reported a 2.6% YoY increase, but a -1% MoM decline, attributed to weaker property fundamentals and seasonal slowdowns.
• World ex. China saw a 1.4% MoM increase, contributing to the global rise.
• Global capacity utilisation was 78.5%, slightly down from April.
• Global utilisation rates typically peak in April-June before seasonal declines in China and Europe.

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Regional Analysis

China

• Production: 70,432 kt in May 2014, up 2.6% YoY.
• MoM: Down 1%, reflecting seasonal and structural demand factors.
• Market dynamics: Continued strong demand in non-residential construction, with plate and beam sectors showing particular strength.
• Preferred stocks: Nucor (STLD), Reliance Steel (RS), and Steel Dynamics (STLD) are highlighted for better non-residential construction performance, potential cash deployment, and valuation.

Europe

• Crude steel production: Up 2.0% YoY and 3.5% MoM.
• Capacity utilisation: 78.1% in May, with a peak period in April-June.
• Preference: Stainless steel over carbon steel due to reduced Chinese imports, driven by the Indonesian nickel export ban.
• Buy rating: Aperam is recommended due to its position in the stainless steel sector.

Brazil

• Production: Declined 4.3% YoY in May, the only major region with a negative YoY trend.
• Preferred stock: Usiminas (USIM3 BZ, USIM5 BZ), with a valuation of 5.4x and 5.0x EV/EBITDA for 2014-15, reflecting a weaker demand environment and potential price discounts.
• Gerdau: Expected to benefit from improved US operations, though Brazilian operations are a concern.
• Rating: Neutral on TX, Underperform on CSN due to possible deterioration in results and stretched valuation.

Russia

• Mixed demand: Weaker in autos and machinery, but robust in construction and pipe sectors.
• Capacity utilisation: Fully utilised due to strong exports and substitution of Ukrainian imports.
• New capacity: SVST and NLMK are adding ~20% of domestic demand, which may lead to export-party pricing and margin pressures.

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Investment Insights

• Price objective for Aperam (XPMEF): Set at EUR31/sh, based on 8x 2015E EV/EBITDA, aligning with long-run stainless steel average.
• Risks for Aperam: Slower-than-forecast demand recovery in Europe and increased Asian imports could affect pricing.
• CSN (SIDHF): 12-month price objective of R$10/share (US$4.2/ADR) is based on a 50% DCF and 50% EV/EBITDA blend.
• Valuation assumptions: 5.3x EV/EBITDA for 2014E, within the historical range for the sector.
• Upside risks for CSN: Currency depreciation and other market uncertainties.

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Key Financial Metrics

• Global crude steel production forecast: Indicates a trend of steady production with some regional variations.
• Company valuations: Include EV/EBITDA, P/E, FCF yield, and EBIT percentages for various steel firms, highlighting differences in performance and valuation across regions.

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Conclusion

The global steel market showed resilience in May 2014, with production rising 2.2% YoY and 3.5% MoM, supported by China, Europe, and CIS. Brazil and Russia exhibited mixed trends, while Europe favored stainless steel over carbon steel. Investment recommendations were made based on valuation, demand trends, and market dynamics, with a focus on firms like Aperam, Nucor, and Usiminas.