According to the shape classification, steel products include excellent materials, flat steel, pipes and other steel products. The representative variety of outstanding talents is rebar, and the representative variety of flat products is hot coil. In 20 19, the output of crude steel in China was 996 million tons, including 250 million tons of rebar, accounting for 25%, and 237 million tons of hot coil, accounting for 23.7%.
Rebar, commonly known as steel bar, is rolled from billet and is mainly used in civil engineering construction such as houses, bridges and roads. Hot coil is made by rolling slab, which generally includes medium plate and wide steel strip, hot rolled thin and wide steel strip and hot rolled plate. The output of medium-thick and wide steel strip accounts for nearly two thirds, which is the subject matter of futures contract. Hot coil has the advantages of high strength, good toughness and easy processing and molding, and is widely used in manufacturing industries such as cold-rolled zinc plating, steel structure, automobiles, household appliances, machinery and ships.
Figure 1: the output changes of rebar and hot coil in recent years.
Data source: wind, mysteel, SDIC Anxin futures finishing.
Second, the characteristics of supply and demand
On the supply side, China's iron and steel enterprises are mainly concentrated in North China and East China. The production capacity of hot coil in North China is relatively high, and the production capacity of rebar in East China is relatively high, while some steel mills can produce both threads and hot coils. From the nature of enterprises, rebar private enterprises are mostly decentralized, and hot coil production enterprises are mainly large state-owned enterprises with high supply concentration.
On the demand side, the downstream of rebar is mainly based on real estate and infrastructure, mainly outdoor construction, which is greatly affected by weather factors. Every year, it is hot and rainy in summer, and the demand for frozen soil in the north is obviously weakened in winter. The downstream of hot coil is mainly manufacturing industry, which is basically completed in the factory building, and the seasonal characteristics of demand are not obvious.
In terms of import and export, China's steel products are mainly exported, and the import quantity is relatively small and stable. The direct export of rebar is less. In 20 19, the export volume was only 458,000 tons, accounting for a negligible proportion of the output. Some rebar is exported in the name of rebar. The export volume of hot coils is relatively large, with an export volume of 8.975 million tons in 20 19, accounting for 3.8% of the output.
In addition, there are a large number of rebar intermediate traders, and the market circulation ratio reaches 70-80%. Steel mills have a short pricing cycle and mainly refer to the spot price in the target market. The direct supply ratio of hot coils is high, the pricing cycle of steel mills is long, and the spot price elasticity is relatively low. From the inventory point of view, both the absolute quantity and fluctuation range of rebar are obviously larger than that of hot coil, and the impact of inventory on rebar price is relatively more prominent.
Figure 2: Total inventory of rebar (community warehouse+factory warehouse in 35 cities)
Source: mysteel, SDIC Anxin futures finishing
Figure 3: Total inventory of hot coils (33 city warehouses+factory warehouses)
Source: mysteel, SDIC Anxin futures finishing
Third, diffusion drive.
Iron and steel production process is divided into long process and short process. The long process includes blast furnace ironmaking, converter steelmaking and steel rolling. The main raw materials are iron ore and coke, and the short process is to heat scrap steel with electric furnace. At present, the supply of rebar in China is mainly based on long process, supplemented by short process. Mysteel's weekly output data shows that long process accounts for about 85%, while hot coil is all long process.
In terms of production cost, hot coil rolling is about 150 yuan/ton higher than rebar, but the alloy cost of rebar increases about 100 yuan/ton under the new national standard. Therefore, the cost of long-process hot coil is about 50 yuan/ton higher than that of rebar, and the spot price difference of coils fluctuates roughly with the cost difference as the anchor. When the price difference exceeds plus or minus 200 and remains for a period of time, steel mills with two production capacities will adjust the flow direction of molten iron, thus stabilizing the extreme price difference. Comparing the trend of yield difference and profit difference between Zhou Du hot coil and rebar investigated by mysteel, it is not difficult to find that they are highly correlated.
Figure 4: Comparison of yield difference and profit difference between hot coil and thread
Source: mysteel, SDIC Anxin futures finishing
The price difference between snails and snails is mainly driven by the following factors:
1, supply changes, affected by the supply-side reform to clean up the strip steel, the production capacity of 20 17 to 20 19 rebar has shrunk significantly, resulting in a significantly lower price difference between rebar and rebar. This situation has obviously improved since the end of 20 19. From April to August this year, the output of rebar was significantly higher than that of hot coil, which pushed the price difference between coil and snail to continue to rise. Recently, some steel mills began to switch production under the stimulation of profit difference, and the price difference decreased. In addition, due to the different production distribution of hot coil and rebar, the production restriction policies in different regions will also have a certain impact on the price difference. For example, limited production in Tangshan is generally more beneficial to hot coils.
Figure 5: Shanghai hot coil spot-Shanghai thread spot (real weight pricing)
Data source: wind, SDIC Anxin futures finishing.
2. The strength of demand is mainly reflected in the difference between construction industry and manufacturing industry. After the epidemic was controlled, the economy continued to improve, but the recovery of industries such as automobiles and household appliances was stronger than that of real estate and infrastructure, which was an important reason for the continuous strength of snail price difference from April to August. From the seasonal point of view, the rebar demand has a light peak season and the hot coil is relatively stable, so the rebar price difference in spring and autumn is relatively weak, and the rebar price difference in winter and summer is relatively strong. From the export point of view, hot coils are relatively greatly affected by overseas demand.
Figure 6: After the epidemic situation improved, the automobile industry recovered strongly.
Data source: wind, SDIC Anxin futures finishing.
3. Macro-emotions: Rebar has many participants, active market transactions, high linkage with the stock market and commodities, and the disk is greatly affected by macro-emotions. Therefore, the fluctuation range of rebar basis difference is relatively larger than that of hot coil, which also means that the price difference of spiral coil on disk surface will run along the unilateral direction of thread to some extent.
Fourth, trading strategy.
Generally speaking, the snail spread is driven by boundedness and is a very good hedge arbitrage target. When the spread runs between-200 and 200, we should pay attention to the opportunities brought by the changes of their fundamental strength. When the spread exceeds this range, we should grasp the opportunity of mean regression with the idea of statistical arbitrage. Because snail arbitrage is not risk-free arbitrage, with the change of supply and demand environment, the fluctuation range of price difference is constantly adjusted, so we should pay attention to risk control in operation.
Judging from the current driving factors, the supply-side steel mill changed from rebar to hot coil, and the demand-side hot coil slowed down, and the thread entered the peak season. The pattern of supply and demand is not conducive to the price difference between coils and snails. In the case that the overall steel price is weak and the profits of steel mills are meager, it is more likely that the snail price difference is close to the cost difference. 200 1 contract is mainly multi-line air coil, and when the price difference is below 50, we should pay attention to expanding opportunities.
Figure 7: Main Contract of Hot Coil-Main Contract of Rebar
Data source: wind, SDIC Anxin futures finishing.