Most popular interpretation of many strange phenom

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Interpreting many strange phenomena in the domestic polyolefin market

in recent months, several strange phenomena have appeared in the polyolefin market: first, the social inventory is high, and since it can effectively protect and prolong the service life of the experimental machine itself, the price has been gradually rising since July. Second, the futures arbitrage window exists, but it cannot directly push up the spot price as before. It cannot be explained by simple microeconomic theory and experience, which also makes the author who has been working for seven years puzzled. In the recent research and Discussion on the current market situation between the author and market participants, I have some tips to share with you here

strange phenomenon 1: high inventory rising

on the one hand is the news that the futures warehouse has been nearly full for half a year, and on the other hand is the price increase of petrochemical and foreign suppliers. Even if it is barely rising, it is actually rising. In the plastic market, Miao Wei, Minister of industry and information technology, and Xiao Yaqing, director of the state owned assets supervision and Administration Commission, served as deputy leaders - such a strong lineup is a strange phenomenon: high inventories, but prices are still rising. Referring to the case of Ji Ruide misjudging the trend of crude oil according to the crude oil inventory in the Chen Jiulin incident in 2004, and the author's actual feelings in the price rebound trend in July this year, there are similarities between the two: high inventory does not mean that the price falls

in a market with more money than goods, the circulating inventory will be less than the actual inventory, showing that a considerable part of the high inventory is "safe". His safety is based on two reasons:

reason 1: the market inventory capacity remains expanded

most importers have increased their inventory, but due to the natural annual growth of the operating volume, this part of the inventory growth is tolerated by market operators. That is, traders' subjective sensitivity to the level of inventory decreases

reason 2: part of the inventory formation is the product of the hedging demand under the currency expectation

from the perspective of consumer behavior, under the inflation expectation, market participants have the hedging demand of exchanging goods with money, so in addition to the inventory under the actual transaction demand, there is also the inventory under the hedging demand

from the perspective of market sellers, if the funds are abundant and there is no need to realize, the inventory will be used as a profit reserve when the market price rises, and will not become the supply pressure of spot circulation

this "security" is even more powerful when futures exist: the operating capital of futures only needs 10% of the amount of goods, and the arbitrage space of futures and spot often appears, making profits simple. When there is abundant hot money in the market, as long as the capital chain keeps flowing, the demand for cash realization is lower

in this aspect, inventory and capital are one of the chains connecting macro and micro factors. Therefore, the "inventory" we see in our eyes is not the "inventory" of spot circulation. The actual inventory of spot circulation is the key factor to truly grasp the rise and fall of the market

strange phenomenon 2: futures pushing ability failure

since 2009, futures have become the price guide of the short-term spot market. At the same time, it has been observed that when the futures price is higher than the spot price of yuan/ton, arbitrage space will be formed, and futures will pull up the spot. However, the author began to find in mid October that the futures price of 11600 yuan/ton at that time did not drive the LLDPE price to rise synchronously to more than 11000 yuan/ton, nor did it effectively drive the cargo arriving in November to the level of 1350 dollars/ton. At that time, the apparent "arbitrage window" pushed environmental protection issues increasingly prominent, and the ability to raise spot prices "failed"

according to the author's analysis, the main reason for this phenomenon is the delivery operational risk caused by the high inventory of futures warehouses. According to the data disclosed by Dashang, as of the closing on the afternoon of October 28, 2010, the inventory for futures trading in the designated delivery warehouse of the exchange has reached 113000 tons, and the remaining storage capacity is not much. If we continue to operate, there may be a risk that there is no stock available for the warehousing of delivered goods in the future

therefore, in the case that the big commercial exchange does not continue to apply for new warehouses, it is risky to continue to "short", which reduces the enthusiasm of importers to buy at a high level

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