Under the sharp rise and fall of commodities, how should downstream enterprises face the fluctuation of raw material prices and hedge operational risks?
Text/Caijing reporter Wang Ying
Editor/Ling Lu
The domestic commodity market in May was extremely unstable, and the prices of black commodities such as steel and coal could be described as a "roller coaster", and since May 12, they have changed the previous sharp rise in the market and opened a downward mode. In the context of the decline in commodities, the pro-cyclical stocks that rose sharply in the early stage of A-shares have also recently seen a significant retracement, for example, the steel sector fell back to the highest point of 13%.
For this round of adjustment of bulk commodities, many interviewed industry insiders said that it is closely related to policy orientation.
Wang Siya, senior analyst of Lange Steel Network, mentioned three factors in an interview with the "Finance" reporter: first, the national policy regulation and control increased, the Executive Meeting of the State Council twice "named" commodities in 7 days, Shanghai and other places interviewed local steel companies; second, exchange control, the three major domestic commodity exchanges have carried out nine regulations before and after, intending to cool down commodities by adjusting the range of up and down stop boards, trading margin levels and other policies; third, fundamental factors, with the recent price continues to rise, terminal willingness to buy is reduced Speculation dominated, and then under the government's various regulations, futures peaked and stopped in the short term, increasing the cash out sentiment of the spot market.
Driven by the decline in the futures market, there has also been a significant price correction in the black spot market. Taking steel as an example, Dong Yun, director of the Hangzhou office of Zhongtian Steel Sales Department, told Caijing that the current steel price has dropped by about 1,000 yuan per ton, "the increase after May Day is all knocked out, indicating that the increase after May Day is more speculation than a healthy rise." ”
Market views diverged on the future of the black commodity market.
Wang Siya believes that in the short term, it is still in a downward trend, "everyone is a little panicked about market expectations, every day is killing, and the bears are also smashing down, after all, the disk fell more than 1,000 yuan, which is rare in this life." ”
Dong Yun remained optimistic, "because supply and demand have not changed." He believes that as far as steel is concerned, it is currently oversold, "it will slow down, and when the limelight passes, steel prices will rise again, which is closely related to the structural reform of the supply side of the entire country and the general direction of ecological civilization construction." ”
In fact, in 2021, with the economic recovery and global inflation expectations climbing, commodities have ushered in a big bull market. Nowadays, in the face of regulatory collective cooling, have commodities, including the black system, entered the "regulation" cycle, and has the price inflection point arrived? Under the sharp fluctuations in commodity prices, how should companies respond?
<h1 class="pgc-h-arrow-right" data-track="16" > regulatory shot cooling</h1>
Judging from the recent market performance of commodities, market prices have clearly deviated from supply and demand fundamentals, and the will of regulators to curb the excessive rise in commodity prices is very obvious.
On May 19, Premier Li Keqiang of the State Council presided over an executive meeting of the State Council (hereinafter referred to as the "National Standing Meeting") to make arrangements to ensure the supply and price stability of bulk commodities and maintain the stable operation of the economy. The meeting pointed out that it is necessary to attach great importance to the adverse impact of rising commodity prices, strengthen the linkage supervision of the spot market, and take targeted measures in a timely manner to check abnormal transactions and malicious speculation.
As soon as the news of the National Standing Committee came out, the futures market was in the night market that night, and many varieties of black commodities staged a down-to-stop tide. As of the close of trading on May 20, coking coal fell 7.98%, thermal coal fell 8%, iron ore fell 5.7%, and rebar, coke and hot coil all fell by nearly 5%.
This is the second time that the National Standing Committee will "name" the price increase of commodities in a week. On May 12, Premier Li Keqiang presided over a national standing meeting, which called for tracking and analyzing the situation and market changes at home and abroad, and effectively responding to the rapid rise in commodity prices and its collateral impact.
"After so many years of work, the prime minister has never seen a continuous voice on commodities." An industry analyst lamented.
In fact, in order to curb the acceleration of commodity prices, the relevant domestic departments have been regulated several times.
On May 10, dalian commodity exchange, Zhengzhou commodity exchange and Shanghai futures exchange issued risk tips for commodity price fluctuations, and adjusted the limit range, transaction margin and handling fee of black commodities such as thermal coal, rebar and hot-rolled coil. "The recent decline in the futures market is related to the liquidation of some long positions." Some industry insiders revealed to the "Finance" reporter.
On May 14, the relevant departments of Tangshan, Hebei and Shanghai successively interviewed local steel companies, emphasizing that price management should be strengthened, and that price increase information should not be fabricated or disseminated to maintain the price order of the steel market.
How will such a intensive regulatory effort affect the commodity market?
Liu Wensheng, deputy general manager of the black business department of Yide Futures, told the "Finance" reporter that the recently introduced policies mainly reduce the market speculative bullish expectations, thus achieving stable expectations and belonging to a kind of expectation management category. Taking steel as an example, there was a certain panic in the early stage of the spot level, but when the spot price was close to the price level before May Day, it was difficult for traders to make a profit on the spot held by traders, so the price sentiment stabilized, while the fundamentals of short-term domestic and foreign spot did not change much, the demand would not slide rapidly, and the factory price of steel mills was still relatively firm. At this stage, steel prices have entered a stage of shock from the soaring and plummeting stage, traders' speculative sentiment has cooled, and inventories will remain near the normal level.
Market views differ on the future trend of black commodities.
Zhang Wang, deputy director of the equity investment department of Pengyang Fund, told the "Finance" reporter that the variety of varieties with domestic policies as the main influence and obvious domestic supply constraints, such as threads, aluminum and other varieties, has a large probability of falling in the future; and for varieties that are driven by global demand and are subject to supply restrictions due to repeated overseas epidemics, the probability of future high shocks is greater.
"Policy suppression is staged, and eventually the market will return to the fundamentals of supply and demand, the current demand inside and outside is good, at this stage is still in the seasonal peak season, if the epidemic does not have too many mutation factors, steel prices may gradually tend to moderate a small rise or range fluctuations." However, at this stage, it will rain in the south for several days, and the rainy season in Jiangnan will also come in the later stage, which will have an impact on demand. Cai Yongzheng, president of Jiangsu Fushi Data Research Institute, said in an interview with Caijing.
On the other hand, the decline in black commodities led to the decline of pro-cyclical stocks that had risen sharply in the previous period. On May 20, coal, steel, coal, non-ferrous metals and other sectors fell the most.
How do you view the pro-cyclical market of the A-share market in 2021? Su Wenjie, fund manager of Harvest Resources Selection, said in an interview with the "Finance" reporter that he continued to be optimistic about the pro-cyclical plate, for two reasons, one is that the duration of this round of active inventory replenishment may exceed expectations, and from the perspective of the inventory cycle, it is still the active replenishment stage; the second is that the economy will gradually recover in the next six months or so and the liquidity is relatively abundant, and the most beneficial in this case is still commodity assets.
However, on May 20, Huang Yanming, director of guotai Junan Securities Research Institute, said on a forum, "Cyclical stocks have recently performed very hot, but I would like to say that the cycle has reached the top, if you go to buy products or buy stocks, the cycle cannot be matched because of the rise in product prices." ”
<h1 class="pgc-h-arrow-right" data-track="33" > how to deal with price increases downstream</h1>
In fact, before this round of commodity price adjustment, since 2021, the prices of international commodities and domestic industrial products have continued to rise, especially the rise of black commodities represented by iron ore and steel, which has aroused concern from all walks of life.
On May 10, in the domestic futures market, the main contract of iron ore futures rose to a limit of 1326 yuan in a straight line, and the main contracts of rebar and hot-rolled coil both crossed the 6000 yuan / ton mark, all of which hit a record high.
In the spot market, take the price of steel as an example. "In April, the steel widened, quickly stood at the 5,000 yuan mark, and did not stop, in May continued to sprint 6,000 yuan mark, the coil class is more powerful, some varieties exceeded 7,000 yuan." Wang Siya said. The soaring price of steel also continues to stimulate the production enthusiasm of enterprises.
Dong Yun said that the profit per ton of steel of domestic steel companies once exceeded 1,000 yuan, "the profit of industrial steel is higher, and the profit of construction steel is slightly lower." From the production situation, the steel mills in the production limit area strictly implement the conditions for limiting production, and the non-limited production areas are still working hard to produce step by step, the biggest feature of this year is that due to the low price of scrap steel, the price of finished products is higher, and the electric arc furnace steel mill used to produce in the valley electricity, and now it is all-weather production. ”
The volume and price of steel products have risen together, driving the trading of the steel trade market. Wang Siya said that in the early stage, some markets rose too quickly because of prices, the purchase cost increased, and some traders accepted cash shipments in order to withdraw funds. At that time, the steel mill's order production was more sufficient, some of which were negative inventories, and the demand for the stage was increasing, so once there was no quantity or over-sales, the steel mill would have a warehouse closure and suspension of reporting.
In Dong Yun's view, the arrival of this round of steel bull market, in addition to the impact of supply-side production restrictions, is more important than the strong downstream demand. For construction steel, the policy of housing and not speculation has brought about the re-upgrading of the real estate industry, increasing the turnover rate, real estate companies are always in a hurry, and construction will keep the demand for building materials stable. For industrial steel, the manufacturing industry this year continued the strong demand since the second half of last year, the main reason is because domestic and foreign are in the active replenishment cycle, and the industrial chain of the manufacturing industry is particularly long, once the trend is formed, it is difficult to change, especially the overseas active replenishment kinetic energy is very strong, resulting in a sharp rise in overseas hot coil prices, driving domestic hot coil prices to a new high.
The rise in steel prices has opened up the profit space of upstream steel mills, but it has also brought huge financial pressure and risks to downstream steel deep processing enterprises, as well as manufacturing industries such as building materials and home appliances.
The profit margins of the manufacturing industry have been squeezed, and in desperation, they can only transfer cost pressure to the end market by adjusting prices. Taking the home appliance industry as an example, since January this year, there have been many brands including Oaks Air Conditioning, Chigo Air Conditioning, Hisense, TCL and other brands have successively adjusted prices, with a price adjustment range of about 5%-15%.
When the price of raw materials has been significantly higher than the orders accepted by the downstream manufacturing industry, some manufacturing manufacturers have chosen to return orders in order to avoid larger losses. "Because the price is rising too quickly, the difference between some orders is 1000-1500 yuan / ton or even higher, instead of supply losses, it is better to pay liquidated damages directly and re-take orders." Wang Siya said.
As microeconomic individuals, companies' perception of changes in industry fundamentals is sometimes relatively hazy and lagging behind. The sharp rise and fall of commodity prices has also increased the difficulty of production and operation and inventory management of enterprises. Hedging through the futures market in response to volatile markets is not a good way to hedge risk?
Cai Yongzheng, who previously served as a hedging consultant for many well-known domestic enterprises, said that the price and profit of steel in the early stage are at a high level, and when the policy is facing a turn, there should be many steel mills to hedge operations, but from the current point of view, the actual participation of steel mills in hedging is not too high, and the industry may see less than 10%. Mainly due to the lack of hedging system of state-owned enterprises, under the constraints of risk control and compliance, the operation is cautious. Private enterprises operate more in the trade link, and at the factory end, the depth of value preservation intervention varies. There are also many steel companies that are actually carrying out speculative operations that have nothing to do with spot.
He introduced a variety of hedging methods to The Finance reporter. In his view, from the perspective of steel companies, hedging operations are mostly carried out at the factory end and the trade end.
Factory-side hedging is carried out from several aspects: lock-in order cost management, raw material procurement cost management, finished product inventory management and virtual steel mill profit management. For example, lock price order management, spot end and downstream customers sign forward lock price orders, futures end corresponding to the purchase of iron ore, coke contract lock order costs; or raw material procurement cost management, starting from the supply and demand relationship of the industrial chain and emergencies, in the futures disk raw material iron ore, coke disk virtual inventory procurement, to prevent and hedge the rise in the price in the later stage.
The steel mill trade end is mainly to the steel mill trade platform procurement of iron ore price and inventory management, trading directions. Of course, there is also a point basis trade method, which determines a mutually acceptable basis, and the spot trading price in the later period is the futures price + basis.