Event:
1) After Baoshan Iron & Steel (600019) and Wuhan Iron and Steel (600005) released their April price policies in early March, Angang Steel (000898) and Inner Mongolia BaoTou Steel Union (600010) announced April price policies as well; they all sharply lowered products prices.
2) Base price of iron ore would probably drop by 40%-50%.
Our Analysis and Estimation:
1) Steel enterprises lower product price due to recent sluggish steel market;
2) Steel price anticipation has been fully assimilated by the market;
3) Iron ore price negotiation will be ended by base price down-regulation by suppliers;
Investment Suggestion:
Down-regulation of iron ore’s base price will be substantially favorable to domestic steel enterprises. At present, price of iron and steel has not fully reflected to the down-regulation; if we calculate on assumption that iron ore’s base price lowers 40%, steel cost will decrease ~Rmb500 per ton and performance of iron & steel shares will greatly boost. Thus we maintain “Recommended” rating for iron & steel industry.