How To Deal With The Big Fluctuation Pressure Of Cost Side In The Black Series Of Commodities Falling Sharply?
On May 20, the prices of black commodities continued to fall sharply. As of the press release, the Wenhua black industry chain index has fallen to 163.71 points, swallowing all the gains since the first ten days of May. On the contrary, the nonferrous metal plate guided by LME pricing fell less than 3%.
On May 19, after the executive meeting of the State Council made it clear to do a good job of ensuring the supply and price of bulk commodities, the domestic futures market generally plummeted. By the end of the night trading, black futures suffered heavy losses, with coking coal down 7.98%, iron ore down 7.92%, steam coal 7.81%, hot rolled coil plate 7.21%, rebar 7.07% and coke 6.45%.
According to the classification of varieties, bulk industrial products can be divided into petrochemical, non-ferrous metals, black goods, soft goods (cotton, rubber) several categories. Among them, most commodity pricing rights are in overseas markets, such as Brent crude oil, LME copper, etc., which are important price guidelines for domestic related products.
In contrast, the black commodities composed of steel and coal are priced at home, and there is no corresponding overseas reference price at present.
The characteristics of high price autonomy also give great flexibility to the price operation of subdivision products such as screw thread, plate, steam coal and coking coal. Whenever the supply-demand relationship of the industry changes or the market expectation reverses, the price rise and fall rate of this kind of commodity will be very prominent.
This is the case with the recent changes in the domestic market.
Take the hot rolling coil as an example, it took five days to increase more than 900 yuan, and then it took five days to drop 1100 yuan. We should know that the price base of this product is only 5700 yuan / ton.
Black series commodity prices plummeted behind, is from the reversal of market expectations.
The executive meeting of the State Council held on May 19 proposed that great attention should be paid to the adverse effects of rising commodity prices, ensure the supply of bulk commodities, curb the unreasonable price rise, and prevent the transmission to consumer prices.
The meeting stressed the need to strengthen the joint supervision of futures and spot markets, and investigate abnormal transactions and malicious speculation. In accordance with the law, we will strictly investigate the phenomenon of price hikes, especially hoarding. This is the second time in seven consecutive days that the national standing committee "names" commodities.
Obviously, commodities, including black series, have entered a "regulation" cycle. Will this affect their supply-demand relationship? Will the mid - and long-term price inflection point arise as a result? How to deal with the sharp rise and fall of commodity prices?
"Black series" from soaring to plummeting
This round of rise in the black series is closely related to the overall environment of the commodity market. As far as the historical trend is concerned, the rise of black series since April this year is just the continuation of the market in 2020.
From January to march of 2020, Xinguan epidemic broke out. In April of the same year, domestic epidemic situation began to stabilize and economic production activities gradually resumed. Reflected in the manufacturing industry, the demand was released after April, which led to the collective rise of raw materials based commodities.
This logic is also applicable to black products. At that time, some people in the industry have reported similar situations.
This is also the price rise caused by the periodic mismatch between supply and demand. Since then, the black series commodities and the Wenhua commodity index, which tracks multiple varieties, maintain a unilateral upward trend in 2020.
Judging from the operation of the black industry chain index, in the first three months of this year, there was a periodic consolidation situation. It was only in late April that it broke through the early high point, and in May it began to pull up collectively. What changes have taken place in the relationship between supply and demand and expectations? The key word is "environmental protection".
The "21 hard core investment and research" jointly launched by 21st Century Capital Research Institute and Lange steel at the end of March once pointed out that the Ministry of industry and information technology had repeatedly stated that it would reduce the crude steel output to ensure that the crude steel output in 2021 would drop year on year. "The upper limit set at the supply side has the similar effect as the 2016 de capacity, so the industry has formed the expectation of the second supply side reform".
Specifically, Tangshan launched a series of production restriction actions under the pressure of "back ten", and determined that the proportion of production restriction and emission reduction of local steel enterprises reached 30% - 50% from March 20 to the end of the year.
However, according to the weekly data of crude steel production nationwide, domestic production has not decreased significantly until April at least.
Market expectations change again. In the words of a steel industry chief, "if we want to achieve the goal of reducing crude steel production throughout the year, we will certainly limit the supply side with greater strength."
In other words, even in front of the high crude steel output in the first quarter, the terminal market still has the ability to digest, which also reflects the stability of the demand side.
Under the superposition of various factors, the black series commodity broke through the above high point in late April and then rose rapidly. Among them, the Wenhua black industry chain index, which includes iron ore, ferrosilicon, coke, rebar and other varieties, rose to 194.26 points on May 12, breaking the high point of 190.7 points in February 2011.
On the spot, the national average spot price of rebar broke through 6200 yuan / ton, while the average spot price of hot rolled coil increased by more than 6600 yuan / ton.
However, with the increase of market attention and discussion, the impact of rising prices of upstream raw materials on the middle and lower industries and the worry about pushing up the domestic inflation level, black series commodities have entered a "regulatory cycle".
After skyrocketing, it is concentrated to fall back immediately, "roller coaster" type market appears.
Lange steel data show that as of May 18, the national average spot price of rebar has been adjusted to 5739 yuan, down 497 yuan from the highest price in history; The average spot price of hot rolled coil in China was adjusted to 6184 yuan, 481 yuan lower than the highest price in history.
The periodic top is May 12, the executive meeting of the State Council on that day required to track and analyze the situation and market changes at home and abroad, and effectively deal with the excessive rise of commodity prices and its associated effects.
The next day, Wenhua black industry chain index fell 5.29%, coal, coke and steel industry chain varieties fell back.
On May 14, Tangshan and Shanghai market supervision bureaus and other departments respectively interviewed local iron and steel enterprises and made requirements to cooperate with the government to do a good job in stabilizing steel market prices. At the same time, the national development and Reform Commission also made frequent calls.
The executive meeting of the State Council held on May 19 called for attaching great importance to the adverse effects of rising commodity prices, ensuring the supply of bulk commodities, curbing the unreasonable price rise, and preventing the transmission of commodity prices to residents.
On the same day and night, black series of commodities fell twice.
In the early trading of May 20, the main contracts of steam coal and coking coal futures fell to the limit, while iron ore, hot coil, screw thread, coke and other varieties with higher early growth all fell by more than 6%.
So far, the Wenhua black industry chain index, which tracks the operation of such commodities, has swallowed up all the gains in the first ten days of May. Black series commodity short-term rise market, the stage ended.
Policy uncertainty increases sharply
Only from the perspective of price trend in recent 20 years, the more obvious rise of black series is concentrated in the period from the end of 2008 to July 2011, and from the beginning of 2016 to the end of 2018.
Among them, the former is driven by domestic investment demand of 4 trillion yuan, while the latter starts with supply side reform and steel industry lifting off capacity.
The incentives for the end of the rising cycle are the rapid release of industrial capacity after 2011 and the early completion of 150 million tons of capacity reduction task in 2018.
The core logic of the medium and long-term operation of the dominant price is always the relationship between supply and demand, and so is the short-term market performance. Under the background of carbon neutralization and carbon peak, the steel industry requires steel enterprises to reduce carbon and production at the policy level. On the other hand, with the continuous recovery of domestic economy and the promotion of domestic export growth driven by the shutdown of epidemic situation in overseas markets, the demand side shows strong resilience.
The coal industry, on the other hand, is faced with the continuous increase of environmental protection policies, frequent coal mine production stoppage, and the demand side coincides with the intensive replenishment of inventory in the downstream before the summer electricity peak. Under the stimulation of staged mismatch between supply and demand, the rise of coal, coke and steel industry chain, coal and other subdivision commodities only accelerated in May.
This week, the policy of the commodity market is expected to change again, but the supply-demand relationship in the market will not change so quickly. It is expected that it will take time to ferment and cash in gradually.
As far as steel mills are concerned, under the stimulation of high profit per ton of steel, the enthusiasm for production is still high, and it is difficult to determine when the crude steel output will have an inflection point.
In addition, the cost side of steel mills has also changed significantly. Although the finished products rose significantly in May, the prices of iron ore and coke also followed the upward trend.
Lange steel data show that as of May 18, the price of Tangshan coke reached 2720 yuan / ton, up 420 yuan from the end of April; The price of Tangshan Iron Concentrate Powder reached 1610 yuan / ton, 200 yuan higher than the end of April; The price of scrap steel in Tangshan reached 3650 yuan / ton, an increase of 230 yuan over the end of April.
After the cost price rises, how can the steel mill reduce the price actively in order to maintain the production profit?
From the sales price adjustment of Baosteel, Angang and other domestic leading steel enterprises in June, the main steel varieties including plate, wire rod and bar were mainly increased, with the increase range of 100-700 yuan.
Combined with the performance of the first two cycles in 2011 and 2018, the black line is the mid and long-term inflection point of commodity prices, which will also be marked by the substantial reversal of supply-demand relationship. Up to now, the supply and demand side of the steel and coal industries has obviously not changed significantly.
In the short term, the biggest uncertainty comes from the policy side.
The national development and Reform Commission has previously pointed out that it is jointly investigating the steel and iron ore markets with the market supervision administration to further understand the industry trends“ In the next step, we will continue to work with relevant departments to continuously strengthen monitoring and early warning, strengthen market supervision, and take targeted measures to effectively maintain market stability. "
In addition, the national Standing Committee has focused on the commodity market twice in a row, and the commodity market is likely to fall into the "bubble squeeze" stage. At the same time, there is also the possibility that some adjustments will be made at the policy level, which may reverse the short-term supply-demand relationship and expectations of related commodities.
Taking the coal industry as an example, the national standing meeting on May 19 pointed out that "we should urge key coal enterprises to increase production and supply, increase wind power, photovoltaic power, hydropower, nuclear power and other output on the premise of ensuring safety, and do a good job in energy security during the peak and summer."
The statement about the iron and steel industry is as follows: "implement the policies of increasing export tariff on some steel products, implementing the provisional zero import tax rate on pig iron and scrap steel, and canceling export tax rebate for some iron and steel products, so as to promote the increase of domestic market supply."
Although there is no mention of increasing production, the release and implementation of policies in the future will probably start from the relationship between supply and demand, which will obviously help to ease the pressure of rapid rise in commodity prices.
How to deal with the sharp fluctuation pressure of cost side
Due to the relatively stable demand side of the mature industry, the total profit growth rate will not be very high. More often, there is a certain "Involution" phenomenon in the profit distribution of mature industries. The upper, middle and lower reaches of the industrial chain compete for several profits. The fuse to break the original profit distribution pattern is often the change of core product prices.
Taking steel as an example, its downstream includes construction, automobile, shipbuilding, machinery and other large industries. Now, with the steel price setting a new record, the above-mentioned profit distribution pattern will change accordingly.
In this regard, the 21st century economic report has repeatedly pointed out that since the systematic rise of bulk commodities, the profit space of the industries such as home appliances, fire fighting equipment, mechanical equipment and casting industry has been squeezed, so it is only possible to transfer the cost to the terminal market by means of price adjustment to raise the pressure.
On the contrary, since May, the price performance of black series commodities has risen sharply first and then plummeted, making inventory management and operation more difficult.
Taking the way of increasing raw material inventory in advance as an example, if downstream enterprises make up inventory at a high level in the first ten days of May, they will fall into the dilemma of inventory falling price again. Prior to this, coal downstream strong enterprises have been misjudged may coal prices, prices did not fall but rose, centralized procurement led to price rise.
In contrast, the way to transfer risk through derivatives market is more flexible, and margin trading system also makes the capital pressure of enterprises less.
Taking a coating production enterprise in Shandong Province as an example, the raw material of the company is mainly hot-rolled coil, and the purchase price is subject to the market. However, in the rising stage of steel price, the cost of galvanized and color coated sheet increases obviously, and its profit will be swallowed up according to the price originally signed with customers.
In the middle of January this year, the company received a foreign trade order of 40000 tons of galvanized and color coated products, with a delivery period of 40-50 days. After receiving the order, the enterprise needs to purchase hot coils from the market to organize production.
In order to lock in profits, save capital occupation and storage costs, and avoid the risk of rising raw material prices, enterprises timely buy hot coil futures on the futures panel after receiving orders, and increase virtual inventory for profit protection.
Since February, the hot coil period and spot prices have continued to rise sharply, from 4300 yuan / ton to 6700 yuan / ton in May. Finally, the enterprise bought hot coil spot according to its own production rhythm, and closed the corresponding hot coil long position, which successfully locked the production profit.
However, this requires enterprises to establish their own derivatives strategy, trading, risk control system and team, and have a deep understanding of the futures and current markets, which is not suitable for every enterprise.
Especially in the current commodity market volatility, the price trend is not clear in the market environment, enterprises only rely on their own risk management greatly increased.
The 21st Century Capital Research Institute believes that, compared with the above model, it is more feasible to tailor hedging strategies by risk management companies and spot trading companies.
In January 2020, Shanghai urban construction as the general contractor bid for the South extension project of Hangzhou times Avenue. According to the material price at the time of winning the bid, the overall project has a certain reasonable profit. However, if the price of raw materials rises significantly, the cost of the whole project will change greatly, and Shanghai urban construction will face operational risks.
In recent two years, the fluctuation of bulk commodity prices has been intensified. As one of the important raw materials for the above projects, the price increase of rebar is very obvious.
In April this year, Shanghai urban construction entrusted the task of locking the price of raw materials for the times Avenue Project to Dongzheng Runhe Capital Management Co., Ltd., a risk management subsidiary of Dongzheng futures.
After the opening of the times Avenue Project, Shanghai Urban Construction Co., Ltd. purchased relatively stable price from Dongzheng Runhe according to the specification, model and scale of rebar required in each month specified in the winning contract, while Dongzheng Runhe hedged the spot sales in the futures market.
In other words, it doesn't matter if the entity does not understand the derivatives market. They can pass on the risk of rising costs to the derivatives market through the services of dongzhengrun and such institutions.
Further tracing back, it is the speculative trading participants in the derivatives market who bear the risk and gain their own price differential income at the same time.
It should be pointed out that the essence of derivatives is a tool. Its original intention is to discover prices and transfer risks. There is no need to turn pale. The key is how to use them.
Considering the participation of enterprises for many years, as long as we abide by the principle of risk hedging rather than participate in speculative transactions, the risk can be controlled as a whole.
This is also the most effective and operable solution to avoid the drastic fluctuation of current bulk raw materials.
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