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â— The industry has both joys and worries: The joy is that the country intends to establish an industrial development fund to revitalize the equipment manufacturing industry and continue to support the equipment manufacturing industry; the concern is that with the sharp rise in international iron ore prices, Baosteel will The domestic steelmakers represented by the company substantially increased the ex-factory prices of the products, which undoubtedly squeezed the profit margin of the machinery industry companies.
â— The long-term trend of the machinery industry will not fundamentally change. The rise in steel prices can be understood as the result of the revaluation of asset prices. In the short term, it will squeeze the profit margins of industry companies and can be seen as a turning point in the long-term transformation of the development mode of the machinery industry. At present, we suggest that investors can focus on listed companies with higher cost bearing capacity.
â— The import and export data of the construction machinery industry indicates that the competitiveness of certain domestic products is continuously improving. We believe that domestic companies will still have a promising future in overseas markets. Under the premise of sharp increase in steel prices, based on our comprehensive consideration of the company's gross profit margin, industry competition, and company valuation, we recommend that investors focus on Sany Heavy Industry and Zoomlion.
â— Import substitution is still the investment focus of the machine tool industry. At present, due to the strong demand of downstream industries, high-end large-scale CNC machine tools are in short supply, and therefore the bargaining power is outstanding. The industry has the ability to transfer cost pressures to downstream customers. We recommend focusing on Kunming Machine Tools.
â— Risk Warning: The systematic risks of the broader market, macro tightening policies, the continuous appreciation of the renminbi, and the continuing rise in the prices of raw materials represented by steel products may all become internal concerns for the development of the industry.
The country continues to issue industrial support policies
Recently, Li Ye, director of the State Council's National Development and Reform Commission's Office of Major Technical Equipment Coordination, said that the National Development and Reform Commission is working together with the National Development Bank to plan the establishment of an industrial development fund to revitalize the equipment manufacturing industry. At present, the fund's technical plan has been completed and eventually it needs to wait for state approval.
The National Development and Reform Commission recently issued the "Special Plan for Major Technical Equipment Development and Major Industrial Technology Development in the "Eleventh Five-Year Plan Period"" and also proposed that China will develop eight major technical equipment and conquer four major industrial technologies, and gradually change at the end of the "Eleventh Five-Year" period. The core technology and key equipment rely solely on the passive situation introduced by foreign countries and promote the optimization and upgrading of China's industrial structure.
Rising steel prices reduce profit margins
Recently, Baosteel and the world’s largest iron ore producer, Brazil’s CVRD, reached an agreement on the national iron ore benchmark price for 2008, and the system mine in southern Brazil rose by 65%. Followed by February 25, Baosteel significantly raised steel prices in the second quarter, and hot-rolled, cold-rolled and heavy-duty plates were generally raised by RMB 800/t. The price increase far exceeded the cost increase. Since Baosteel's price has a vane effect and has a very big impact on the steel market, Baosteel's price increase will further increase the spot price of domestic steel products.
Since steel is the main cost of the machinery industry, the rise in steel prices will impact the entire industry in the short term, and the profit margin of the industry companies will be squeezed. For companies with high value-added products and high comprehensive gross profit margin, the impact is small. However, for the harsh competition environment, especially for individual industries that are in the price war phase, the impact is greater and the situation is more difficult.
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