The fifth part of the "online futures lecture hall" series

Recently, the global covid-19 epidemic has continued to spread, and the fluctuation of black commodities has significantly increased, posing great challenges to the steel industry. Recently, in the "online futures lecture hall -- black topic" activity held in the last phase, market participants made a detailed analysis of the fundamentals of this year's black industrial chain from the perspective of the epidemic impact, and conducted an in-depth discussion on how to make good use of derivatives in the steel trade.

The black industrial chain is greatly affected by the epidemic

Shanghai steel union Chen jingfu said at the meeting, this year the black industry chain logic forecast mainly has two aspects: one is the black industry chain fundamentals continue to weaken. The weak recovery of the global economy will be impacted by the sudden epidemic, which will affect the demand side of steel more than the supply side and the foreign market more than the domestic market, and the steel fundamentals will deteriorate. Second, the epidemic has impacted the global economy, and the stimulus policies have led to a flood of liquidity. To cope with the impact of the epidemic, many countries have opened the floodgates of unlimited supply of liquidity. This year, the logic of many commodities, including steel, may focus on "fundamental deterioration" and "excessive liquidity".

Chen jingfu further said that considering the short-term impact of the epidemic on the steel industry chain from the upstream to the downstream, the basic logic of 2020 is that the reduction of the downstream demand will force the upstream raw material supply to decrease. The price adjustment will start with steel, and the closer it is to the upstream end, the more obvious the contradiction of oversupply will be. When costs collapse, steel prices will fall more than in 2019. When the epidemic is over, the impact of liquidity will become increasingly evident, especially in the us dollar, which will directly affect the pricing of iron ore. But historical data suggest that liquidity will yield to fundamentals when fundamental contradictions are particularly acute.

The reporter of futures daily noted that at present, there are signs of a recovery in domestic demand, especially in the construction industry. However, the growth of demand in the manufacturing industry has been slowed down by the epidemic. Some market participants said that, at present, the long and short process steel plant operating rate has rebounded, but limited by the current profit level, the expected output has rebounded, but the overall level is still at a low level.

Guangfa futures development research center general manager liu qingli said that the current domestic construction steel demand rapid recovery, production is also gradually recovered, especially scrap prices fell, the short process recovery rate will increase the production of rebar, rebar steel inventory is higher than the same period last year 87%, high stock limit rebar price upward height. Foreign epidemic situation is becoming more and more severe, global automobile enterprises stop production on a large scale, foreign low-cost steel resources will also impact China's steel market, and China's steel exports are mainly plate, the epidemic has a greater impact on the export of plate in the far month, it is expected that the overall trend of hot rolled coil is weaker than rebar.

"The difference in the impact of the epidemic on the output of rolled plate and rebar is in fact the difference in the impact of the epidemic on the length of the process." Mr Chen said the impact on demand during the outbreak was significantly greater than the contraction in supply, resulting in an extraordinary build-up of steel stocks. After the epidemic, the recovery of the demand side is obviously faster than that of the supply side, which will lead to a steep inventory destocking slope.

In addition, Chen jingfu also believes that for iron ore, coke and other raw materials, the impact of the supply side is less than the demand side, iron ore, coke supply reduction will be less than the reduction of long process steel production. The impact of scrap steel supply is similar to that of short process steel production. But from the domestic point of view, profit squeeze to force raw material prices in the process, scrap will be the first to face the impact, so the trend of scrap relative to iron ore will be weaker.

Steel enterprises need to reduce production to address the imbalance between supply and demand

Mr Chen said the global impact of the outbreak on steel supply was smaller than the impact on steel demand. Based on the development and control of the epidemic in various countries and the characteristics of the economic structure, he predicted that global steel demand would fall by 2.7% in 2020.

"In the short term, the focus of the market remains on the development of covid-19. Although the covid-19 outbreak in China is basically under control, it is becoming more and more severe in other countries. In particular, the epidemic in Europe and the us is in a period of rapid expansion, which seriously impacts the global economy and has a great impact on the global manufacturing supply chain." Liu qingli said that the epidemic has led to weak downstream demand for steel products in Europe and the United States. Currently, more than 100 auto factories around the world have stopped production. In the later stage, more foreign steel resources may enter China, including steel billets and iron ore. He believes that this year is the year when China completes the building of a moderately prosperous society in all respects and the 13th five-year plan comes to an end.

March - April is the traditional peak season of the steel industry, steel demand will become the focus of the market. Zhai hepan, head of black research at China construction credit futures, said that compared with previous years, the "three gold, three silver and four silver" policies have already been delayed and will be delayed until around may this year due to the epidemic. Under the background of globalization, the recovery of China's steel demand can hardly make up for the global demand decline. Based on this calculation, the second quarter of steel prices fell to the next platform, in fiscal and monetary policy under the influence of the lag effect of stabilizing and rising.

Cinda futures researcher li tao think black, as terminal index of cement mill starts and new home starts to recover speed significantly slower than sentiment index and apparent demand, do not rule out the possibility of the downstream work but take the goods in advance, the extent of the real demand of steel may be very limited, superimposed current steel high inventory, late blast furnace capacity is expected to pick up slowly, future expected more pessimistic.

In terms of steel supply and demand, Chen jingfu believes that although domestic crude steel supply has growth potential, but the demand forecast is not optimistic, the relationship between supply and demand has been out of balance. To rebalance supply and demand, steel mills must cut production and expectations for infrastructure demand must not be too high.

Looking from the whole year, Chen jingfu believes that domestic demand is generally stable in a declining trend. According to rough estimation, compared with last year, this year's peak inventory will increase by about 14 million tons, which is equivalent to the reduction of domestic steel demand caused by the epidemic. Considering the subsequent demand, it is estimated that domestic crude steel consumption will decrease by about 10 million tons, or about 1.5%, year on year. Net exports are expected to continue to decline on a year-on-year basis, given that the supply-demand imbalance abroad is worse than at home. So some of the reduction in domestic demand will be added to domestic inventories, and some will have to be rebalanced only by a reduction in supply.

Steel trade to use derivatives tools

Hedging and efficiency enhancement are two major demands of the industry for derivatives, which also reflect the value of derivatives instruments for the industry. In the eyes of Lao hongbo, deputy general manager of reconnect group, derivative instruments can help enterprises accomplish what traditional business models cannot. First, derivatives can help companies improve efficiency and reduce costs. There are some risks hidden in the actual production and operation activities. Enterprises can reduce risks and smooth out fluctuations through derivatives, which can help them maintain stable production capacity. Second, in the past production, when the customer wanted to sign a long-term order, the enterprise could not lock in the raw material price and dared not accept the order. After using the derivative instrument, the enterprise could take the initiative to accept the forward order.

"If you use derivatives well, you have an advantage over your peers who can't use them." "Mr. Lao said. The use of derivatives to lock in raw material costs can avoid order losses. In addition, the enterprise can also take the initiative to offer quotations to accept orders, expand market share, take the initiative to provide customers with more valuable services and more in-depth services.

In fact, the application of derivative instruments in the operation of enterprises has a variety of models. According to luo hongbo, there are mainly five models, which are adopted by different business entities and achieve different goals. In particular, basis speculation is generally done by investment companies, its main purpose is to obtain basis of speculative income; Hedging and basis trading are carried out by industrial companies; The basis service mainly means that the service company provides the service scheme for the enterprise in the basis way. Rights trading is a service company combining options and basis to provide services.

So, how to provide services for industrial chains and industrial companies? Lao hongbo further said that different subjects do different things. Basis speculation, hedging, basis trade and basis service are all behaviors of buying spot and selling futures, but their main body and purpose are different. Industry service companies need to clearly analyze various models and choose to provide appropriate derivative services based on the resources and capabilities of customers.

When talking about how to carry out the basis trade, Lao hongbo said that the basis trade in the copper, oil and grease industry has been relatively mature, the basis trade of the black industry still needs the coordination and recognition of the whole industry. In the process of development, different industrial chains have different demands and different participants have different motivations. In some strong links, participants do not want to participate in the basis trade because they do not want to harm their own position in the industry, while some participants hope to carry out the basis trade to stabilize production.

"At the beginning, it is difficult to serve the whole industrial chain. We can serve the weak links first, and then expand to other links, so that each link of the industry can understand and accept basic trade in the service." 'fundamental trade is not only helpful for one part of the industrial chain, but actually it is beneficial for the whole chain to reduce volatility,' Mr. Lao said.

For iron and steel enterprises, LaoHongBo admits, price service is the basis of service as the core, is part of the "four circulations" service, i.e., according to the processing and distribution service as the center of goods flow, centering on the basis of service flow service, the price of the industry chain research centered information service and supply chain financial centered capital services.

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