Strong real estate data, short-term support for steel demand. In May of this year, the real estate-related data rebounded significantly. Under the low inventory level, the real estate development investment was 1,082.8 billion yuan, a year-on-year increase of 9.8%, which to some extent compensated for the decline in infrastructure investment. In the month of May, the newly started housing area was 204.11 million square meters, an increase of 20.5% year-on-year, and the growth rate was the highest since May 2016. The sales area of commercial housing was 142.17 million square meters, an increase of 8.0% year-on-year. Real estate data performed strongly and supported steel consumption growth in the short term.

However, in the medium and long term, the steel industry is under pressure. In May, the fixed assets investment completed was 6,188.5 billion yuan, a year-on-year increase of 3.9%, and the growth rate dropped significantly. At the same time, real estate regulation is strict, and the strong performance of real estate data may be a short-term phenomenon. Medium and long-term steel demand is gradually stable.

Steel inventories are accelerating, the industry is basically oriented, and steel mills have no worries. This week, steel inventories continued to fall. The total volume of the five major steel libraries and factories was 14.28 million tons, down 633,800 tons from last week. The inventory slowdown was much higher than the same period of the previous year, and the inventory was lower than the same period. Some steel products have been out of stock. The steel mills shipped smoothly, the downstream demand was relatively strong, the fundamentals of the industry continued to improve, and the steel prices fluctuated at a high level. At the same time, compared with iron ore, after the supply side reform, the supply and demand relationship of China's steel is more reasonable than upstream, and the ratio of material to mine is rising. As of June 15, the ratio of snails has reached 8.23. At present, the high profit of steel mills has lasted for more than one month. In the second quarter, the simulated gross profit increased, and the profit of steel mills was worry-free.

The steel plate has the characteristics of low valuation and high dividend, and its defensiveness is prominent. The valuation of steel stocks is generally lower than the high profits that steel companies have basically determined. The PE of Hualing Iron and Steel, Anyang Iron and Steel, and Sangang Shuguang is less than 5.5 times. Stable earnings have led to a significant increase in operating cash flow in the steel industry. Under the strict control of production capacity, investment is limited, and the dividend ratio of enterprises with low debt ratio is expected to maintain a high level. The dividend yield of some enterprises may reach 10%, and the defensive attributes of the steel sector are highlighted.

Main recommendation: On the supply side, environmental protection is strictly controlled to curb steel production; on the demand side, steel sales are strong and stocks continue to fall. These factors all support the steel price, and steel companies will continue to be highly profitable. We continue to recommend Baosteel Co., Ltd., the leader of the steel industry, Valin Steel and Nangang, which are the medium-thickness plate, and Sangang Dawning and Fangda Special Steel, which have high scores and red targets.

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