How much supply can the hottest steel industry hav

Steel industry: how much supply can be renewed

Where is the source of the so-called supply increment in the first half of 2018? The year-on-year increase in 2018h1 includes: 1) 5.12 million tons of blast furnace production, 2) 190000 tons of capacity replacement, 3) 10.9 million tons of electric arc furnace production, 4) 17.81 million tons of scrap increment, 5) 820000 tons of non heating season production restriction (the non heating season production restriction in the first half of 2018 and the first half of 2017 affected the crude steel production by 12.08 million tons and 12.9 million tons respectively, and the non heating season production restriction contributed 820000 tons of crude steel year-on-year increase in the first half of this year)

2018h1 year-on-year reduction includes: 1) 6.17 million tons of blast furnace eliminated, 2) 6.15 million tons of capacity replacement eliminated, 3) 30million tons of ground bar steel eliminated, 4) 3.78 million tons of limited production in the heating season reduced (3.78 million tons of limited production in the heating season:

there was no limited production in the heating season in the first half of 2017. By deducting seasonal changes, the limited production in the heating season in the first half of 2018 actually reduced crude steel by 3.78 million tons)

according to the comprehensive statistics of the increase and decrease in the first half of 2018, the total data decreased by about 11.25 million tons year-on-year. Of course, the output data may increase slightly, mainly due to a series of reasons after the raw smooth oil entered the bearing, such as the increase in the proportion of high-grade ore, the increase in the proportion of scrap addition, and the decrease in the proportion of effective capacity in the eliminated blast furnace. Driven by high profits, compared with other shoes with multiple foams and low ratio, it will take many years to develop heavy soft foams. The profit seeking nature is the driving force for the industry to strive to improve production efficiency

in the future: the overall domestic production capacity will be reduced slightly, and there are constraints on foreign imports. From the perspective of domestic and foreign dimensions, the supply side will further optimize the industrial regional layout in the future, with a certain increment, but the overall impact on the industrial supply and demand pattern is small, and it will take a certain time. 1) Domestic: considering factors such as replacement of blast furnace + electric furnace capacity, elimination and addition of new capacity, the crude steel capacity will be removed as a whole; 2) Abroad: the capacity increment of the original main import regions (Japan and South Korea, etc.) is limited. Although the planned capacity of Southeast Asia in emerging regions (42.6 million tons) is significant, the import price does not have obvious advantages after considering tariffs and freight

if the demand is assumed to be stable, how much will the change in supply affect the profitability and valuation? Price is the representation of supply and demand, and profit refers not only to supply and demand, but also to the comparison of supply and demand between the upstream and downstream of the industrial chain, so as to determine the distribution premium ability of different industrial chain links in industrial profits

in the case of limited supply, the future profit expansion of the industry may come from two dimensions: 1. Endogenous: reduce capital expenditure, thereby reducing the financial expenses and depreciation of the industry in the future; 2. Exogenous: the output is suppressed and the price is relatively stable, which plays a fundamental supporting role in the profitability of steel enterprises

calculate the change of industry profits according to endogenous and exogenous paths. If the static simple assumption is that the demand is relatively stable, the reasonable PE level of the industry in the next few years is about times, and the valuation level is still attractive