Commodities up and down: a rare “black” market

Commodities up and down: a rare "black" market

On May 12, 2021, the main company of rebar futures reached 6,171 yuan/ton and the main company of iron ore futures reached 1,054 yuan/ton, with the two major black futures hitting record highs on this day variety at the same time. Spot market data monitoring showed that the average price of tertiary rebar in key domestic cities reached 6,100 yuan/ton at that time, a record high.

Two days before that, the price of copper, aluminum and other non-ferrous metals commodities hit a record high. Commodities have been rising for 14 months in a row, but after entering late April 2021, ferrous commodities in particular rose fiercely.

Loose liquidity, post-epidemic economic recovery, and special industrial policies have kept the market firmly bullish on the steel market, but just after ferrous commodities reached unprecedented highs on May 12, the market turned around sharply and prices fell again in quick succession within half a month.

China is the global pricing center for steel. Some people are making a fortune in it, others are getting nothing, and the market is worried about ushering in a new round of inflation, while the industry is facing pressure from all sides.

In the last three days of May 2021, commodities buckled again and the market once again began to speculate on the new direction of commodity prices.

Surge

The continuous rally began in late April. From late April to mid-May, just twenty days, a ton of steel prices rose by more than 1,000 yuan.

April 26, the China Iron and Steel Industry Association held a conference on the operation of the industry said that the rise in steel prices this year, is a result of a number of complex factors, the domestic market demand is strong, the international market is also picking up, iron ore and other raw materials make steel smelting costs high, at the same time, the world is facing a quantitative easing of the economic environment.

Agent Kang Menglin has been engaged in steel spot trade for many years in the Beijing-Tianjin-Hebei generation. The steel price has not stopped rising since the end of last year, which is in line with his basic judgment of the market situation. 2021 At the beginning of the year, once the industrial policy of capacity and production control was announced, practitioners, including Kang Menglin, generally believed that steel would continue to be a big hit in the commodity market during the year.

Only, after entering April, the fierce pace of the rise of black commodities still exceeded his expectations, the steel mills offer to turn a kind every day.

On April 28, the Office of the State Council Tariff Commission released a steel import and export tariff adjustment information. Since May 1, zero import tariff rate will be applied to pig iron and crude steel, while the export tariff of pig iron and other products will be increased. The General Administration of Taxation of the Ministry of Finance also issued an announcement to cancel the export tax rebates for 146 steel products from May 1, 2021.

In this regard, the China Steel Association has long hinted that the steel import and export pattern will change this year, which is a necessary move to ensure that the industry controls steel production capacity output in the future and responds to the industry’s carbon peaking and carbon neutral goals.

Wang Guoqing, director of Lange Steel Research Center, told the Economic Observer that this year, with an eye to achieving the carbon peak, carbon neutral milestones, the Ministry of Industry and Information Technology proposed to gradually establish a stock constraint mechanism based on carbon emissions, pollutant emissions, total energy consumption, to ensure that the full realization of the year-on-year decline in steel production in 2021, a series of policy measures have been gradually implemented.

On May 6, the National Development and Reform Commission issued the steel smelting project record management opinions, pointing out that capacity replacement must be implemented in accordance with the provisions. May 8, the Ministry of Industry and Information Technology new steel capacity replacement approach was introduced, the new capacity replacement approach to reduce the replacement ratio increased, supervision and oversight efforts to significantly strengthen. May 10, the two ministries issued 2021 steel production capacity to “look back “inspection work, on the work program, progress, effectiveness, etc. around the task of crude steel production reduction in 2021.

“The policy combination adds up, highlighting the country’s firm determination for the steel industry to achieve double control of production capacity, to achieve the early completion of the steel industry carbon peak, carbon neutral goal, the contraction of the supply side of steel is expected to enhance, making the market mentality relatively optimistic, while forming a more powerful support for market prices.” Wang Guoqing said.

Wang Guoqing measured the production rhythm of the Chinese market: January to April production of industry-wide crude steel production increased by 51 million tons year-on-year, to meet the production reduction requirements, meaning that the second half of the year-on-year to reduce the production of 20 million tons, while the first half of this extra part should also be reduced, so that the need to reduce the total amount of 80, 90 million tons, the market will form a huge gap, which significantly aggravated the market expectations.

On May 6, 2021, the main rebar company jumped 4.56%, and on May 10, it jumped 5.99%. In the spot market, ferrous commodities rose just as fiercely.

Kang Menglin, however, was caught in a passive position. Kang Menglin agent is the steel of HISCO and Jingye Steel, in the tightest time of the market, he found that can not get the goods. “Steel mills do not want to give, up the price of steel mills do not have the goods, a big drop in the downstream and do not purchase.” Kang Menglin said.

“Supply and demand can no longer explain such a surge.” An industry analysis analyst told the Economic Observer this. The person’s analysis, the sharp rise, mainly stimulated by expectations, the market sentiment is very optimistic. Although steel production is at a record high again, but the Ministry of Industry and Information Technology and the Development and Reform Commission have been emphasizing the need to reduce production, which means that the production behind the significant decline.

Iron ore rose even more. May 6, the main company of iron ore in the big business soared 6.81%, May 7, rose 6.37%, May 10, up from April 9 to May 12, the futures rose from 979 to 1337, a month’s time rose to 36.6%.

May 6, the National Development and Reform Commission issued a statement, will indefinitely suspend all activities under the China-Australia Strategic Economic Dialogue mechanism, the news was interpreted by the market to limit imports of Australian iron ore, the statement just landed, the iron ore futures market rose in response.

The aforementioned people said that the steel profits are abundant, steel mills on raw material prices and cost tolerance is strong, willing to purchase, which is a reason for pulling raw materials up. Ore prices rose to more than $ 200, has little to do with the demand push. More is due to the recent surge in steel prices, at this time raw materials will follow the rise.

On April 27, CISA said in response to the rise in iron ore, the expectations and speculation component is very large, in addition, the market’s main reference pricing index – Platts Iron Ore Index (IODEX) pricing mechanism design is not reasonable, the index is currently the most widely used price benchmark for the iron ore shipping market. Including the China Steel Association and Chinese steel companies, there have been endless accusations against the Platts price index over the past years.

May 20, S&P Global Platts for the recent iron ore prices issued a statement with a “counter” meaning, the statement’s core view that the rise in iron ore prices driven by market fundamentals, the index pricing mechanism is not a problem, Platts receives and publishes more than 100 iron ore price information every day.

Platts said global steel market demand recovered strongly, with Chinese crude steel production hitting a new high of 3.12 million tons per day in April. The tight supply side is compounded by demand factors, with shipments from the world’s top five mines totaling 273.3 million tons in the first quarter of 2021, down 40 million tons from the fourth quarter of 2020. The combination of these factors has brought iron ore prices to historic highs.

Wang Jinhua, an analyst at Steel Finder, analyzed to the Economic Observer that, from the commodity increase alone, commodity prices have continued to rise for nearly 14 months from last year’s epidemic low, with most varieties rising by more than 70%. For trading, up more will fall, down more will rise, prices fluctuate around the value of up and down, unchanged.

2021, a big year for black commodities, many varieties of iterations of the record high. This round of surge, Wang Jinhua believes that there are several reasons: First, the post-epidemic era, the global economic recovery is expected; second, the quantitative easing policy, global inflation is expected; third, “carbon peak” “carbon neutral” background, the expected reduction in crude steel production Fourth, the overall supply of raw materials is expected to be tight.

Wang Guoqing told the Economic Observer that the U.S. has continued monetary easing since March last year, as well as the EU. 2021 April, the U.S. CPI 4.2, a record high since September 2008, while the global manufacturing industry continues to rebound, 2021 April, the global JP Morgan composite PMI of 56.3%, the U.S., Europe and Japan manufacturing PMI were 60.7%, 62.9% and 60.9% respectively. 60.7%, 62.9% and 53.6%, all above the wither line.

“The big logic of the rise in the first half of the year is inflation coupled with carbon Dafeng carbon neutral.” Wang Wenjiang, a steel trader from the Shanghai area, concluded to the Economic Observer that.

The steel trader in the past round of violent turmoil in the market did not make a big profit, but there are people in this round of the market to earn, such as some state-owned enterprises from Zhejiang, a better grasp of policy, advance stocking more fully.

Reversal

May 2021, steel, iron ore and other ferrous commodities, as well as many varieties of non-ferrous metals, as well as the resulting inflationary risks may bring, triggered strong concern at the top, the relevant regulatory departments of the “cooling” measures were immediately introduced.

On May 12, DME revised the rules of iron ore and lowered the delivery standard, and on May 17, DME issued an announcement on the revision of the iron ore futures contract and related rules, amending the “Dalian Commodity Exchange Iron Ore Futures Contract”, “Dalian Commodity Exchange Settlement Management Measures”, “Dalian Commodity Exchange Delivery Management Measures” and “Dalian Commodity Exchange Iron Ore Futures Business Rules”. On May 19, the Dalian Commodity Exchange also made adjustments to the iron ore futures deliverable brand premiums and discounts.

On the day that the Commodity Exchange revised the iron ore delivery standard, iron ore fell in response, and steel fell sharply at the same time. Since then, steel prices have been staged down almost every day.

May 18, the China Steel Association held a symposium in Shanghai, participants around the iron ore pricing mechanism, raw material supply security, the financial attributes of raw materials and other issues agreed that Platts has long existed in the real transaction sample size is small, not open, not transparent, the problem of financial “intensification”, a serious departure from its spot pricing positioning. Called for this situation must be changed, it is necessary to further promote the optimization and improvement of multiple indices. At the same time, the participants reached a consensus to accelerate the simplification of the approval process for the construction and expansion of domestic mines, effectively expand the supply of iron ore resources, optimize the futures contracts for raw material-related products, strengthen the supervision and promote enterprises to protect supply.

On May 19, Premier Li Keqiang hosted an executive meeting of the State Council to deploy a good job of commodity supply and price stability. The meeting requested to pay great attention to the adverse impact of rising commodity prices, in response to market changes, highlighting the focus of comprehensive measures to protect the supply of bulk commodities, curb their prices unreasonably high, efforts to prevent the conduction of consumer prices to residents, and take measures to strengthen the two-way regulation of supply and demand. Implement policies such as raising export tariffs on some steel products, implementing zero import provisional tax rates on pig iron and scrap steel, and canceling export tax rebates on some steel products to promote increased supply in the domestic market.

Wang Guoqing to the Economic Observer analysis that the state often put forward the “supply”, meaning that the implementation of the policy of production reduction in the next may no longer be so tough, making the whole market on steel prices bullish expectations are no longer so strong.

May 23, the National Development and Reform Commission, the Ministry of Industry and Information Technology, the State-owned Assets Supervision and Administration Commission, the General Administration of Market Regulation, the Securities and Futures Commission five departments held a meeting, a joint interview with iron ore, steel, copper, aluminum and other industries with a strong market influence on the key enterprises, the China Steel Association, the Non-ferrous Metals Association to participate. The meeting pointed out that since this year, some commodity prices continue to rise sharply, some varieties of prices have reached record highs, the current round of price increases are the result of a variety of factors, both international conduction factors, but also many aspects reflect the existence of excessive speculation and speculation, disrupting the normal production and marketing cycle, the role of price increases have pushed up.

The meeting required that the key enterprises to raise their positions, take the lead in maintaining the price order of the commodity market, not to collude with each other to manipulate market prices, fabricate and disseminate information on price increases, not hoarding, price gouging.

May 26, the State Council executive meeting again on raw material prices and other issues to be concerned about, and this has been 14 days, the State Council executive meeting for the third time to focus on the issue of commodities and raw materials and other price increases.

On the same day, the China Steel Association published a self-regulatory initiative for the steel industry, saying that leading enterprises should give full play to the role of market “stabilizer”, rationalize production, improve the proportion of direct supply, and when the market changes significantly, they should take the initiative to promote the balance of supply and demand through measures such as regulating production, optimizing the structure of varieties, and regulating inventory to maintain market stability.

On May 26, the main rebar company dropped to 4,667 yuan per ton. Compared with the highest point, it dropped by as much as 1,500 yuan per ton, and it took just less than two weeks.

The Platts iron ore price index, like steel prices, shot up and down, and has now fallen to the level of late April. My steel network information director Xu Xiangchun believes that the early steel market hype is obvious, and now fell to a relatively reasonable position.

“The cause of the market, due to expectations, the plunge after the surge and the ensuing oversold rebound, also resulted. The recent introduction of a series of macro-control policies to calm the tension in the black system of supply and demand, changing the expectations of some of the market, which is the root cause of the overall plunge in the black system.” Wang Jinhua said.

This time the big rise and fall, Kang Menglin did not earn, steel procurement is the same day to the same day settlement, but in the plunge in the market, the goods do not go out in time means a big loss. Kang Menglin said, do not want to steel agents in fact, the market is more stable, as for the market rumors in the violent fluctuations in the market to gain huge profits is only a minority of the case.

Wang Wenjiang in the early rise in the money earned in the subsequent two weeks of down market and “spit out”, he said he had not yet “eaten” policy.

Wang Jinhua believes that, although the “visible hand” is traceable, but the market will eventually return to the fundamentals. The market under the influence of macro policy regulation, prices have been relatively large pullback, to a certain extent, the release of market risk, and prices fell after the terminal replenishment is still expected, the steel market should not be overly pessimistic about the market.

The market rebounded again in the last three days of May 2021. 29 May, rebar futures main company again back above 5,000 points, along with the past two days, even pulled three positive lines, iron ore is also the same after three consecutive up, back above 1,000 points.

Some key non-ferrous metal varieties such as copper and aluminum showed roughly the same rhythm. on May 10, Shanghai copper hit an all-time high of 77720, and on the same day, Shanghai aluminum reached an all-time high of 20420, after which both began a brief retreat, but soon began to rebound again.

Wang Guoqing believes that the decline reflects the constraints on commodities at the Chinese regulatory level, which is manifested in both ferrous and non-ferrous metals, except that compared to other commodities, ferrous commodities have shown a closer relationship with the Chinese market, and in the past year or so, the ups and downs of ferrous have also been significantly larger than other commodities.

Time will soon enter June. Wang Guoqing analyzed that the successive shouts of the policy layer in the past half month have squeezed the market bubble to a certain extent. In fact, from May 12 onwards, the Ministry of Industry and Information Technology, the Development and Reform Commission did not emphasize the “reduction of crude steel production”.

She expects that the next few months may be in a range of oscillation. From the general environment, the domestic and international favorable factors to maintain a strong commodity market is still strong, if the industrial policy of production continues to keep a low profile, the market mentality may be stable, the market will return to the fundamentals of supply and demand .

This article is from WeChat public number: Economic Observation Network (ID: eeojjgcw), author: Li Zichen

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/commodities-up-and-down-a-rare-black-market/
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