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North China's environmental protection limit is tightened again

North China's environmental protection limit is tightened again

Recently, environmental protection and production restrictions in North China have once again become stricter. Tangshan, Wu'an, Shandong, Xuzhou and other places have limited production of 50%-70%, and environmental protection has been strengthened. According to the research information of relevant institutions, the limited production of some steel mills in North China will last until the end of March. The capacity of hot rolled coil in North China is relatively large, and its supply compression is expected to be higher than that of rebar.

From the perspective of steel stocks, the current steel is still in the seasonal inventory cycle, but the inventory accumulation is slowing down; the total inventory pressure of steel is relatively high, close to the same period last year. In terms of varieties, the inventory levels of rebar and wire are higher than in previous years, while the stock levels of hot rolled coil, cold rolled coil and medium and heavy plate are lower than in previous years. The inventory pressure is mainly reflected in the long products, and the sheet stock pressure is small.

Marginal improvement of downstream demand for hot rolled coil

The downstream demand for hot rolled coil is mainly reflected in the construction machinery, automobiles, home appliances, metal containers and other industries. We have found that the terminal demand margin has improved.

In terms of construction machinery, according to the investigation of the construction machinery industry chain by relevant institutions, it is expected that the sales volume of excavators will exceed the expected growth in the first quarter of 2019. At present, the demand for renewal of construction machinery equipment is dominant. Most of the participants in the industry are long-term participants, and the expectation of subsequent engineering volume supports their purchasing power. It is estimated that the growth rate of excavator sales in construction machinery industry in February is expected to be 30%-40%, and the growth rate in March is expected to be 10%-15%. It is expected that the growth rate of excavator sales in the first quarter of 2019 will exceed the previous growth. 10% expected.

In terms of automobiles, according to the latest data of the China Automobile Association, the wholesale sales of passenger cars in January was 2.021 million, a year-on-year decrease of 17.7%, and the decline was expanded. According to the data of the Association, the retail sales of narrow-seat passenger cars in January was 2.161 million, a year-on-year decrease of 4.0% and a decrease of 2.8% from the previous month. Retail data is better than wholesale data, indicating that manufacturers are actively destocking. In January, the inventory factor of auto dealers was 1.40, down 12% year-on-year and 19% quarter-on-quarter. The stock level has been below the warning line for the first time since 2018. Recently, the 10 ministries and commissions jointly issued a document to promote automobile consumption. Many car companies responded to the policy of car going to the countryside, and the subsidies for buying cars and vehicles were relatively strong, which is expected to boost consumer confidence and stimulate the recovery of the automobile market.

In terms of home appliances, the current domestic demand in the home appliance industry is still not optimistic. At this stage, the state plans to introduce a policy of home appliances to the countryside, and the improvement in home appliance demand may be in the long run.

In terms of metal containers, the amount of financial container orders increased significantly in February, and the box factory increased the purchase of steel materials.

Overall, in the downstream industry of hot rolled coil, the construction machinery industry is expected to improve, the automotive industry is actively destocking, the current domestic demand of the household appliance industry is still not optimistic that the long-term demand may improve, the demand for the metal container industry is improving, and the overall demand for terminals is improving.

In short, the macro economy still faces certain downward pressure in 2019, but the counter-cyclical regulation of the national policy has exceeded the expectations of the economy. The government work report has lowered the manufacturing VAT rate from 16% to 13%, and the tax reduction is relatively strong. In the short term, steel prices are negative, but in the medium and long term, the overall macro environment has improved significantly. In this context, it is expected that the hot rolled coil futures price will be stronger.

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