Black sector market under the guidance of "anti-involution"
Since July, black series varieties, especially coking coal futures prices, have experienced drastic fluctuations. The coking coal futures contract saw consecutive daily limit-ups in the first week and consecutive daily limit-downs in the following week. The author believes that policy expectations or policy changes are the main driving factors behind this wave of market movements, and policy changes will continue to be an important factor affecting prices in the near future.
Review of July Steel prices trend, with policy expectations or policy changes being the main driving forces behind the market.
On July 1, the sixth meeting of the Central Financial and Economic Affairs Commission was held. The meeting emphasized the need to regulate enterprises' low-price disorderly competition according to law and regulations and promote the orderly exit of backward production capacity. This statement was interpreted by some market participants as a signal to promote a new round of "supply-side structural reform." As a result, many industrial product prices rose, with coking coal becoming the leading variety in the black series.
In July, a notice from the Comprehensive Department of the National Energy Administration promoting coal supply stability and order circulated online. The notice stated that the National Energy Administration plans to organize coal mine production inspections soon in key coal-producing provinces (autonomous regions). This notice initially circulated only within a small range but still pushed coking coal futures and rebar futures prices to break upward.
On July 20, the Henan Department of Industry and Information Technology forwarded this notice from the National Energy Administration. The next day after the futures market opened, coking coal futures prices surged more than 7%, and rebar futures prices rose over 2%. On July 22, this forwarded notice spread widely in the market, with coking coal futures hitting daily limit-ups on that day and several subsequent trading days, while rebar futures prices rebounded above 3,300 yuan/ton.
On July 25, the Dalian Commodity Exchange issued a "Notice on Adjusting the Trading Limit of the JM2509 Coking Coal Futures Contract." This adjustment triggered a large number of long positions to be actively closed. During the night session that day, coking coal futures prices hit the daily limit-down, and rebar futures prices also followed with a correction. On July 30, the Politburo meeting was held, and the meeting communiqué removed the word "low price" from the previous Central Financial and Economic Commission meeting's phrase "regulate enterprises' low-price disorderly competition," changing it to "regulate enterprises' disorderly competition." This again attracted widespread market attention and clearly dampened the enthusiasm for buying. The next day, coking coal futures prices hit the daily limit-down, and rebar futures prices fell more than 4%.
It is obvious that from early July to the end of July, policy expectations and policy changes dominated the black series varieties' market, and similar situations may occur in August.
Currently, there are at least three policy changes worth paying attention to in August: first, on July 18, the Ministry of Industry and Information Technology expressed the intention to implement a new round of steel industry growth stabilization plans, and whether this plan will be released in August may directly affect rebar futures price trends; second, whether production restriction measures for steel and other industries will be implemented around Beijing before September 3 and the extent of such restrictions; third, the actual impact of coal mine production inspections on coking coal supply. There have been reports of multiple coal mines being fined or suspended for overproduction, which has become a major driver of the recent sharp rise in coking coal futures prices. These three policy changes may all be bullish for black series variety prices.
However, under the support of intensive policy benefits, it is also necessary to consider to what extent commodity prices have already reflected these bullish factors, coking coal prices may be undergoing a balance process between driving forces and valuation. Taking coking coal futures prices as an example, the lowest price in early June fell to 709 yuan/ton, which is only at the 11th percentile of the closing prices of the main coking coal futures contracts since 2015. In other words, since 2015, the probability of the main coking coal futures contract closing below 709 yuan/ton is only 11%, indicating a significantly low valuation level and thus a basis for price increase. Currently, coking coal futures prices are at 1,200 yuan/ton, at the 34th percentile of the main contract closing prices since 2015. Considering the downward shift in coking coal futures warehouse receipt costs, the current price is at the 64th percentile since 2015. Currently, rebar futures prices are at 3,200 yuan/ton, at the 25th percentile of the main contract closing prices since 2015. coke futures prices are at 1,600 yuan/ton, at the 22nd percentile of the main contract closing prices since 2015.
In comparison, rebar and coke futures prices still have relatively low valuation levels and are expected to receive support later; coking coal futures prices have already significantly recovered in valuation, and the upside space may be limited.
