Futures price "split" steel price why the off-season "not light"?

Macro policy adjustment and cost support are important drivers for the expected improvement in steel fundamentals. Steel futures prices start ahead of time and have resonated with the spot in the near future, and the two prices go up hand in hand.

The trend of steel prices in July was significantly different from that in June, gradually changing from oscillation to slow rise. As of July 19, the main rebar contract had rebounded more than 20% from its previous low in May. The author believes that the adjustment of macro policy and cost support are important drivers for the expected improvement of steel fundamentals. although the current high-temperature spot transactions are general, futures and spot prices have formed a resonance, which will strengthen the market's judgment of the future trend.

Domestic macro policy to adjust and stabilize the price of industrial products

The impact of macro policies on the prices of industrial products is still not to be underestimated. However, with the gradual shift of global macro policy from monetary policy to fiscal policy, the overall rise in industrial prices has come to an end, dominated by structural prices. During the epidemic, loose money caused the expansion of the gap between supply and demand of commodities, and commodity prices repeatedly hit record highs. Inflation and its related effects have become issues of concern to governments and central banks. Senior management has actively introduced various policies to deal with inflation, and inflation expectations in the financial markets have gradually cooled. Interest rates on 10-year US bonds have fallen sharply, falling below 1.3%, and the pro-cyclical sector of US stocks has also been sold off on a large scale.

The cooling of inflation expectations will inevitably have an impact on cyclical prices, and domestic cyclical industries account for a large proportion of the economy, so it is impossible for our government to stand idly by. On July 9, the people's Bank of China decided to lower the deposit reserve ratio of financial institutions by 0.5 percentage points (excluding financial institutions that have implemented the deposit reserve ratio of 5%) on July 15, 2021, releasing about 1 trillion yuan. In addition, 3.67 trillion yuan of social finance was added in June, greatly exceeding the market expectation of 2.96 trillion yuan. The author speculates that the purpose of the policy adjustment is to hedge ahead of time the impact of the decline in domestic exports on the economy. At present, the domestic economic situation is relatively stable, and financial-related easing policies will raise the valuation of "internal circulation" commodities, which is related to the recent rise in the prices of aluminum, steel, stainless steel and glass.

Undervalued varieties are the first choice for defense configuration.

The deviation between inflation reality and expectation will cause traders to enter a state of strategic defense, the range of volatility will increase, and the rate will accelerate. However, under the premise of no liquidity risk, it is a better defense strategy to choose assets with lower valuation and shorter duration. Recently, the stocks related to the domestic iron and steel industry and electrolytic aluminum industry have performed well, which reflects that the market is full of confidence in the profits of enterprises. However, in the early stage, due to the decline in steel prices and the strength of raw materials, according to the gross margin of current tons of steel, many steel mills fell into losses. The shortage of coking coal resources and the high concentration of iron ore resources determine that the price of the upstream is easy to rise and difficult to fall. The high probability of repairing the profits of steel mills is realized by the rise of steel prices. Steel futures have the characteristics of low valuation and short duration at the same time.

Valuation repair was strongest in the week when the central bank's social finance data were released and the reserve requirement was cut across the board. Steel futures prices started ahead of schedule and have recently resonated with the spot, and the two prices have risen hand in hand. It is not uncommon for this kind of steel prices to start in advance in the off-season of consumption in the past few years. With the gradual enhancement of the financial attributes of commodities, the main force is very good at taking advantage of expectations and time differences to strive for initiative in the game. At present, the profits of steel mills have rebounded for two weeks in a row, rising above the break-even line.

Grasp the trading rhythm and risk control through the basis

Due to the above macro and fundamental reasons, steel prices are expected to be stronger than reality in the near future. From the basis point of view, the current thread 2110 and 2201 contract prices have risen to East China three-line thread spot, the basis is at a low level in recent years. In general, investors with weak technical analysis are not recommended to chase more rising futures contracts, and the margin of safety of bargain buying or interval operation is higher. In addition, the current cash structure is more favorable for spot traders, the off-season in the spot market leads to a low degree of bubble in spot prices, and it is relatively easy to take goods, and the rising water of futures can provide a suitable price for spot position hedging. The combination of futures and cash may provide traders with excess returns.

Generally speaking, the author still continues the early medium-and long-term judgment on steel prices. Under the background of "carbon neutralization, carbon peak" and various production restriction measures, steel prices are easy to rise and difficult to fall. At the same time, it also reminds participants that valuation trading is more difficult than driving trading, and investors are advised to choose a trading method with a higher margin of safety combined with their own advantages.