production limit of environmental protection and supply& demand pattern

As we expected, the environmental limit in 2019 cannot be completely withdrawn. From the perspective of top-level design, we believe that under the background of “consolidating the achievements of the three major battles” proposed by the central government, it is very unlikely to completely abandon the environmental protection and production restriction. The first priority is to promote ultra-low emissions in the steel industry. At present, many steel pipe manufacturers are already carrying out ultra-low emissions transformation in response to the requirements of the blue sky defense war. According to the new data released, the average number of good days in all cities of hebei province in 2018 reached 208, accounting for 57% of the total number of good days. The influence of environmental protection on steel supply in 2019 is still difficult to completely eliminate.

The supply release is controllable, and the expected increment of effective capacity is less than 30 million tons. According to the utilization rate of production capacity, the actual effective production capacity of the reduction of mild steel tube in the same period in 2018 is estimated to be about 11 million to 12 million tons, which is lower than the theoretical value. According to the survey data, the average operating rate of blast furnaces in hebei province from January 1 to March 15,2018 is 52%. Based on the current operating rate of blast furnaces in hebei province, which is 56%, the implementation of the production limit in 2019 is expected to increase by 3 million tons in 2018. It is estimated that an additional 5 million tons of effective capacity of structural steel pipe will be added in 2019. In general, the easing of production restrictions will result in an increase in effective production capacity of less than 20 million tons, and a replacement of 10 million tons of newly added production capacity. The total increase in production capacity is expected to be no more than 30 million tons.

We are firmly optimistic about the performance of downstream demand in 2019. The central government proposed to strengthen the weak links in infrastructure construction. The expansion of special debt issuance will drive the moderate recovery of investment growth rate in infrastructure industry, among which the investment in urban rail and highway will maintain a growth rate of 20% and 10%. Automobile consumption is expected to bottom out by the middle of the year and supply&demand for hot-rolled steel pipe will not be excessively out of balance.