Jing Chuan, Deputy General Manager and Chief Analyst of China Securities Futures Co., Ltd., recently stated in an interview with China Securities News that in the long run, urbanization construction will drive the demand for steel to maintain an upward trend; However, urbanization is a long-term project, and the short-term pace may not be fast enough. Moreover, the concept of new urbanization may focus more on cultural construction, so the short-term actual demand may be limited or even lower than market expectations.
China Securities Journal: What are the common and unique factors that affect the prices of stock index futures and rebar futures? Jingchuan: Since its listing in 2009, rebar futures have always been a hot topic of discussion among various parties. Due to the lack of corresponding varieties in the international market, their operation is relatively contradictory. Compared to varieties with abundant logistics and commercial flows both domestically and internationally, in addition to the convergence of macro fundamentals, they are more sensitive to domestic fiscal and monetary policies, which is precisely the operational characteristic of stocks and stock index futures. Therefore, it is natural for investors to connect the two. Especially in the past two years, investors have found a clear convergence between the two, and some even refer to the stock index to make rebar or refer to the operation of rebar to operate the stock index with good returns. In my opinion, there are three main reasons for this. Firstly, the trends of stock index futures and rebar futures are also relatively limited to the influence of peripheral markets. Due to the incomplete opening of China's financial asset accounts and the lack of free convertibility of the renminbi, the impact of the international economic situation on the Chinese stock market is relatively limited. This is mainly the result of domestic fiscal and monetary policies and changes in the industry. Obviously, there is a similar situation with rebar futures. Shanghai copper is constrained by London copper, while Shanghai rubber is constrained by rubber, resulting in even worse independence of domestic agricultural products. Compared to them, the independence of the trend of Shanghai steel is self-evident. Therefore, the common feature of the two is that they reflect the cyclical changes of the Chinese economy in a relatively independent context.
Secondly, in the composition of the Shenzhen 300 Index, the financial services industry and the real estate industry account for about 32% and 7% respectively, with the banking industry accounting for about 20%. The weight of the banking and real estate industries is crucial in the Shanghai and Shenzhen 300 Index. For rebar, real estate is a traditional consumer, and as the futures product with the largest amount of hedging participation by spot enterprises, the tightness of bank funds not only affects the cost of speculative funds, but also affects the operation of steel mills and traders. It can be seen that the price trend of rebar is closely related to the development of banks and the real estate industry. In the past two years, the national macroeconomic regulation policies have mainly focused on the real estate and banking industries, especially since the beginning of 2010. Domestic regulation has focused on high housing prices, and real estate loans are the largest business of banks. Therefore, the prices of the Shanghai and Shenzhen 300 and steel have been influenced by relevant information about the banking and real estate industries in China. Therefore, during this historical period, the consistency of its kinetic energy showed the same result, which became inevitable.
Thirdly, both stock index futures and rebar futures are more closely related to the trend of domestic macroeconomic development. Mainly due to the fact that China's current economic growth model is mainly driven by investment, and structural adjustments have not yet been achieved. Therefore, the development of industries such as real estate, railways, and infrastructure has a relatively consistent impact on the stock index and rebar futures. At the same time, the personality differences between rebar and the stock index itself to a certain extent also make the two not completely related. Firstly, the rebar market is influenced by fundamental factors in its own industry, such as the impact of raw material prices such as iron ore on steel prices, the seasonal promotion of winter storage effects by steel traders, and the impact of energy-saving and emission reduction policies on phasing out outdated production capacity. And stock index futures are also more sensitive to domestic policies, such as the release of IPOs and the lifting of restrictions on the size of non restricted stocks, which have a more important impact on the stock market compared to rebar. Secondly, different funding preferences also drive the two differently. In the first two years, the influx of hot money has brought unlimited prosperity to commodities, and rebar, as one of the commodities, will benefit more or less. However, the stock market, which was once a hot spot for speculative capital from 2007 to 2008, is no longer shining. The reason is simple: the growth of corporate profitability is lower than expected, the fundamental support is insufficient, and the boost to the stock index is relatively limited.
China Securities Journal: How is the function of steel futures compared to industries such as non-ferrous metals?
Jingchuan: Due to being listed later than non-ferrous metal varieties, especially without going through the baptism of the 2008 financial crisis, and lacking mature international experience for reference, it is normal for rebar futures to not play as well as non-ferrous metals. I believe that over time, rebar futures will increasingly play a role in risk management and effective resource allocation.
At present, many non-ferrous spot enterprises use purchase prices based on futures market prices, while steel spot enterprises rarely directly use futures prices. However, sometimes futures prices and spot prices can affect each other. From the perspective of composition, the proportion and scope of non-ferrous spot enterprises (including upstream, midstream, and downstream) participating in non-ferrous metal futures hedging are significantly higher than that of steel spot enterprises. Their functional performance naturally has a broad industrial foundation, and the effective allocation of resources in the entire industry has been relatively well utilized. The intermediate links are relatively less profitable, and the industrial efficiency is obvious. The resource allocation of the entire industry is relatively reasonable, while steel enterprises still have room for improvement in their functional performance due to their current participation level being far less than that of non-ferrous metals.
China Securities News: Urbanization will be an important driving force for future economic development in China. How does this concept affect rebar futures?
Jingchuan: Currently, the urban population in China has just reached 50% according to data, and there is still a 20% growth space before urbanization. This determines that the construction of supporting infrastructure for urbanization in China before 2020 will undoubtedly drive a large demand for rebar, and its prospects are still broad. Transportation and urban construction will accelerate, including urban rail transit construction and real estate investment. And these investments are indispensable for the demand for rebar. At present, the impact of urbanization on rebar futures can be discussed from two aspects: in the short term, it remains more at the level of expectations, and the expectation of demand release will significantly increase. However, as urbanization is a long-term project, the short-term pace may not be fast enough, and the concept of new urbanization may focus more on cultural construction. Therefore, the short-term actual demand pull may be limited, even lower than market expectations; In the long run, it may drive the growth of steel demand and help maintain an upward trend in steel demand. For the supporting construction of urbanization, this driving force will be long-term, and the construction of housing, transportation, medical care, education, and other living facilities cannot do without the demand for steel, which to some extent has digested excess production capacity.