Viewpoint: After Glass Valuation Compression, 09 Contracts Need Not Be Overly Pessimistic

2023-05-26 14:42:08

It mainly analyzes and forecasts the reasons for the recent decline in glass prices and the future supply and demand pattern.

Since late

April, the domestic glass market has changed its previous strength, futures prices have continued to fall for nearly a month, and spot prices have also loosened since May. Recent

brought about by the downward

cost has recently shown a weak performance in domestic float glass prices, futures prices have continued to fall, and spot prices have loosened after rising. From April 20 to May 24, the domestic float glass futures contract FG2309 dropped by 371 yuan/ton to 1479 yuan/ton, a decline of 20.32%; FG2401 contract dropped by 378 yuan/ton to 1316 yuan/ton, a decline of 22.

The recent sharp weakening of glass futures prices is not unrelated to the price trend of raw materials and fuels. Float glass enterprises need to consume 0.4 per ton of float glass. Since April, the domestic spot market price of heavy soda ash has generally dropped by 800-1000 yuan/ton, the equivalent glass production cost has dropped by 160-200 yuan/ton, the spot profit has increased by 160-200 yuan/ton, and the spot valuation of glass with high valuation has risen passively. In addition to the impact of raw material soda ash prices, the recent glass fuel coal gas and petroleum coke prices also showed a downward trend, overseas thermal coal prices fell, import prices fell, domestic thermal coal spot prices are expected to fall strongly. Under the background of low risk preference in the

current financial market, the rise in profits and high valuation need to be matched by strong fundamentals, while the rise in profits brought about by the fall in the price of glass raw materials and fuels is not supported by fundamentals, so the sharp drop in upstream costs is transmitted to glass, which also makes the price of glass fall. It is not difficult to understand the recent rapid decline in glass futures prices and the loosening of spot prices. Since

March, the domestic spot price of glass has risen sharply, the price of raw materials and fuels has fallen, and the profit of spot production has turned from loss to profit and continued to expand. Longzhong information data show that from March 2 to May 18, the average production profit of domestic float glass spot rose from-86 yuan/ton to 636 yuan/ton, of which the production profit of coal-to-gas process rose from-146 yuan/ton to 499 yuan/ton, and that of petroleum coke process rose from 61 yuan/ton to 824 yuan/ton. The production profit of the process using natural gas as fuel increased from -172 yuan/ton to 585 yuan/ton. With the recovery of glass profit, the production line of cold repair in the early stage has resumed production one after another. Since April, there are 6 production lines for float glass ignition and 1 production line for cold repair. The melting capacity of the latest float glass in production day is 163080 T/D, which is about 7000 T/D higher than that at the end of February and 4000 T/D higher than that at the beginning of April. In the current context of high profits, the daily melting volume of glass is still expected to rise, and the support of the supply side to the price in the early stage is obviously weakened.

Because of the high cost of cold repair of float glass, once production starts, it will not be easy to cold repair, and the probability of short-term and medium-term exit is low after the production line of the recent resumption of production and ignition returns to the market. At present, the gross profit rate of glass spot is close to 30%, and the motive force for cold repair enterprises to resume production in the early stage is strong. According to the calculation of the peak daily melting capacity of 175000T/D in the past five years, the current potential daily melting capacity of domestic production is about 12000 T/D. Considering the cold repair of some old production lines, the daily melting capacity will increase by about 5000-10000 T/D in the year, and the supply growth rate will be about 3-6%.

Short-term demand is seasonally weak, and medium-term demand is not optimistic

. As a product of real estate completion, float glass has obvious seasonal characteristics. The "golden three silver four" after the Spring Festival and the "golden nine silver ten" before and after the National Day are the traditional peak demand seasons, while the high temperature and rainy summer and low temperature winter are the traditional off-season demand. In summer, the southern region enters the rainy season, and the construction site will be affected; in winter, the temperature in the northern region is low, and it snows and freezes in some areas, and the construction site will also be affected. Correspondingly, the middle and lower reaches of glass are usually stocked one month in advance, and the spot price of glass usually rises after the Spring Festival, and the price may rise to the second highest point of the year in February and March; the downward pressure of the price is greater in April and May, the price may rise to the highest point of the year in August and September, and the downward pressure of the price is greater in November and December.

Resuming the glass price trend for nearly half a year, the glass price operation is also in line with the seasonal law. In November 2022, the glass price fell to a low level in the year, and then the price fluctuated upward. After the Spring Festival, the price first declined and then rose, and then peaked in May. The downward pressure on the price was greater in June-July. Because futures have the function of price discovery, futures prices are usually ahead of spot prices, and the bottom time of glass futures prices in 2022 and the peak time of prices in 2023 are about one month ahead. Based on the expectation of declining demand and falling spot prices, the recent sharp decline in glass futures prices is also in line with the characteristics of market operation.

Of course, it is too simple to explain the game of the market only by the seasonal law of demand and price. Further analysis shows that the main logic of the recent market bearish glass is that besides the expectation of high valuation and profit rebound to increase supply, the impact of weak glass terminal industry and weak demand expectation can not be ignored. Influenced

by macro factors and the shortage of funds of real estate enterprises, the performance of the domestic real estate industry has been weak since 2023. In addition to the bright performance of the completion data, the construction, construction and sales area have all declined year on year. Statistics from the National Bureau of Statistics show that from January to April 2023, the housing construction area of domestic real estate development enterprises was 7712.71 million square meters, down 5.6% year-on-year; the new construction area was 312.2 million square meters, down 21.2% year-on-year; the sales area of commercial housing was 151.33 million square meters, down 3.6% year-on-year; The completed floor area is 23678 million square meters, an increase of 18. Under the background of the overall weakness of the current real estate market, the high growth of the completed floor area may be unsustainable. In the downstream of

domestic float glass, real estate demand accounts for about 80%. The demand for float glass is closely related to the real estate industry, especially the completed area, and the completed area is closely related to the construction area. Generally speaking, the growth rate of domestic completed area lags behind that of new construction area by 24-36 months, so it is necessary to use the growth rate of new construction area before 24-36 months to predict the growth rate of completed area. Using the cumulative growth rate of new construction area and the cumulative growth rate of completed area with a lag of 24, 30 and 36 months to fit, the results show that from February 2002 to April 2023, the new construction data with a lag of 24 months has the best fitting effect with the completed data. The correlation coefficient is significantly higher than that of the new construction data with a lag of 30 months and 36 months. Considering the important factors such as supply-side reform and the new coronavirus epidemic, the data from February 2016 to April 2023 and from February 2020 to April 2023 were analyzed respectively. Affected by the epidemic, the completion data and the new start-up data with a lag of 30 months had the best fitting effect. That is to say, force majeure factors such as the epidemic have led to a slight delay in the completion cycle of domestic housing in recent years compared with that before the epidemic. Using the new construction data with a lag of 27-30 months to predict, the peak of the year-on-year growth rate of domestic new construction area in February 2021 will lead to the peak of the cumulative year-on-year growth rate of domestic completed area in May-August 2023. In the fourth quarter of 2021, the cumulative year-on-year growth rate of domestic new construction area began to decline sharply, which will lead to a significant decline in the cumulative year-on-year growth rate of domestic completed area from November 2023 to February 2024, and maintain for more than a year.

Based on the above demand analysis, we can reasonably speculate that the cumulative growth rate of domestic completed area in the second quarter of 2023 will remain high, but the cumulative growth rate of completed area in the second half of the year will decline, the growth rate of completed area in the fourth quarter will decline significantly, and the growth rate of completed area in 2024 may change from negative to positive. Corresponding to glass demand, glass demand maintained a relatively high growth rate in the first half of 2023, but the growth rate declined in the second half of the year, and the growth rate of demand began to change from positive to negative in November. The recent decline of glass in the near month is less than that in the far month, which is the expectation of the decline of glass demand in the fourth quarter and next year.

In fact, investors should also consider the impact of policy factors on the judgment of domestic real estate industry and glass terminal demand. In the second half of 2022, "uncompleted residential flats" incidents occurred in many places in China, and the policy of "guaranteed delivery" continued to be introduced, which led to a significant increase in the growth rate of domestic completed area in the first quarter of 2023. At present, the real estate industry as a whole is weak, the impact of the "guaranteed delivery" policy is still there, and the high growth rate of the completed area in the year is still a big probability event. The growth rate of the completed area in 2024 depends on the strength of the policy, the overall operation of the real estate industry and other factors, and whether there is a significant decline is still uncertain. In order to judge the demand for glass in the later stage, we should not only pay attention to the completed area of houses released by the government, but also focus on the sample order days of glass deep processing enterprises, and verify the macro and micro data to get a more reliable conclusion.

Summary and Prospect

This paper mainly analyzes the reasons for the recent decline in glass prices and the future supply and demand pattern. Since late April, the price of glass futures has fallen sharply, mainly due to the negative impact of the downward cost, the marginal weakening of supply-demand relationship and the expected decline in demand. On the cost side, the price of glass raw materials and fuels has fallen sharply recently, the production cost dropped by nearly 200 yuan/ton in May, and the cost support has weakened. On the supply side, the increase in glass profit led to an increase in supply, and the cold repair production line resumed production in the early stage, and the supply is still expected to increase in the second half of the year. On the demand side, affected by the rainy season in the southern region, the demand for glass has weakened seasonally in the near future, and affected by the decline of the growth rate of new construction area in 2021, the growth rate of completed area in May-August 2023 may show a turning point, and the growth rate of completed area in the fourth quarter may decline significantly.

Looking ahead, glass prices need not be overly pessimistic. Based on the calculation of the peak daily melting volume of 175,000 T/D in the past five years, the production capacity of the glass production lines currently in potential resumption of production in China is about 12,000 T/D. Taking into account the impact of cold repair on some aging production lines, the daily melting volume increment during the year is about 5,000- 10000 T/D, the supply growth rate is about 3-6%, and the supply increment is limited. Considering the real estate cycle and seasonal characteristics of glass demand, the growth rate of completion data is still high before September, and glass demand is expected to maintain a high growth rate from September to October, which is higher than supply growth rate. It is expected that the upstream inventory of domestic glass will accumulate slightly from May to July, and will be rapidly depleted from August to October. Based on this analysis, the fundamentals corresponding to the glass 09 contract are not pessimistic, and the September contract is difficult to fall below the cost price.After the spot price falls, inventory accumulation and market sentiment improve, the glass 09 contract still has a chance to rebound. It is suggested that investors treat FG2309 contracts with the idea of more shocks, and try more FG2309 contracts backed by 1350-1400 support, falling below 1300 stop loss. Downstream enterprises can buy hedging operations at a low level to lock in medium-term procurement costs. Later, we need to be alert to the risk of price decline caused by factors such as supply increase exceeding expectations and demand decline exceeding expectations.

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Correlation

It mainly analyzes and forecasts the reasons for the recent decline in glass prices and the future supply and demand pattern.

2023-05-26 14:42:08

The title is "Cement and Clinker Inventory Statistics". The statistics include the data of storage location (%), year-on-year storage location (percentage point) and month-on-month storage location (percentage point) of clinker and cement in different regions of the country on July 25. In terms of clinker, the data of different regions are different. The change value of year-on-year storage location in East China is considerable, and the change value of month-on-month storage location in Northeast China is relatively obvious. In terms of cement, the change value of year-on-year storage location in Southwest China is more prominent, and the change value of month-on-month storage location in Central and South China is relatively small.