Glass: Monthly demand is worry-free and quarterly potential supply pressure still exists

2023-06-19 10:20:20

June-July is the relative off-season of glass spot, but it is also the time node when the market likes to tell stories in the second half of the year. After the glass fell about 500 points in May, the market has the will to repair. In this process, the market will be in a pattern of shock bottoming.

June-July

is the relative off-season of glass spot, but it is also the time node when the market likes to tell stories in the second half of the year. After the glass fell about 500 points in May, the market has the will to repair. In this process, the market will be in a pattern of shock bottoming.

It should be noted that whether glass can get out of the trend is often constrained by the trend of inventory changes. This is because the storage and transportation characteristics of glass cause most of the inventory to be concentrated in the factory warehouse, and whether the factory warehouse can be smoothly degraded still depends on the downstream demand performance. Judging from the fluctuation characteristics of apparent demand, June is still a demand bottom-seeking pattern, and inventory may continue to accumulate. In this case, it is expected that the price will be repeated, but the probability of June will see a stage low, which is worth paying attention to and laying out 09 contracts at low prices.

From a longer-term perspective, in the second half of the year, the potential supply of new ignition and resumption of production lines will exceed 10,000 tons per day. With spot profits remaining and futures prices stabilizing, it cannot be ruled out that the potential supply recovery will exert pressure on the price of 01 in the far month. As an off-season contract, 01 does not have the ability to pull up independently. Whether to consider unilateral short selling in the future depends on the ignition of the production line and the resumption of production, and the specific timing should be after a wave of pull up in the 09 contract.

To sum up, it is a relatively certain combination to participate in 9-1 in June. From July to August, with the continuous rise of demand, profits can be gradually realized. If there is a higher risk tolerance, the unilateral layout of 09 contracts can be considered. The

glass market in the first half of the year can be roughly divided into three parts:

January-February: before the Spring Festival, glass is in the seasonal off-season of spot, and the spot profits of natural gas and coal production lines are basically maintained below -200. However, before the Spring Festival, as the market generally had optimistic expectations for the future, the price remained at a relatively high level above 1700. The price of 05 futures rose by up to 30% from the bottom, and the basis difference remained around -180. After the Spring Festival, glass inventory accumulation reached a historical high of 82 million heavy boxes again, second only to the level of inventory accumulation caused by the epidemic in 2020, triggering a sharp reversal of market expectations. As there is still no verification of actual demand after the Spring Festival, the price of glass 05 futures fell from the highest 1762 to 1496 on February 14, and then fluctuated in a narrow range of 1500-1562.

From March to the middle of April: from March, the spot demand began to show signs of improvement in South China, and then spread to Central and East China. In terms of inventory performance, on March 3, inventory in North China, East China, Central China and South China all saw turning point, downstream replenishment sentiment began to improve, and inventory steadily decreased. But at this time, because the inventory is still high year-on-year, and the spot has not yet fully started, the market price will still have more repeated shocks. After the Qingming Festival on April 4, with the start of terminal replenishment demand, the national inventory has been rapidly degraded to below the same period last year, especially in Hubei and Shahe areas. 05 futures prices rose from around 1500 to nearly 2000 yuan, 5-9 spreads rose from -60 to 180, and spot profits of coal and natural gas production lines also rose to around 300. From late

April to May, on the supply side, with the obvious recovery of spot profits, a total of 3 new production lines were put into production and 10 cold repair production lines resumed production. In the future, 8 new production lines may still be put into production and 10 cold repair production lines resumed production. The expectation of supply and production will significantly suppress the far-month 09. On the demand side, the replenishment of the peak demand season in the first half of the year is over, facing the upcoming off-season in June. On the cost side, the price of soda ash, coal and other raw materials has dropped sharply, which makes the spot glass always maintain a certain profit level. To sum up, the forward price of glass in 09 fell sharply again, from the highest 1906 to the lowest 1394.

Summary: In the first half of the year, the transaction logic switched frequently, from the concern about high inventory after the Spring Festival to the recovery of demand after the Qingming Festival, to the recovery of transaction supply and the logic of cost collapse, which has now reached the vicinity of the cost line of natural gas. When the supply recovery is more certain in the future, we need to see a significant repair of demand before there may be a trend reversal, otherwise it will be more reflected in the rebound of the periodic repair of the basis driven by expectations.

Glass supply

In the first half of 2023, a total of 9 production lines and 5050 tons of daily melting volume entered the cold repair. In the first half of

2023, 4 production lines were ignited, with a total daily melt volume of 4,080 tons; 11 production lines resumed production, with a total daily melt volume of 8,100 tons.

In the second half of the year, it is expected that there will be 10 new production lines with a total capacity of 7,750 tons per day; it is expected that there will be 7 production lines that may resume production with a total capacity of 4,450 tons per day. Total 12200 tons of daily financial level.

As of June 1, the daily melting volume of the glass production line was 163260 tons. According to the changes in the glass production line, as of June, the daily melting volume still had 3150 tons of room to rise, reaching 166,410 tons. If it is optimistically estimated that the daily melting volume of the production line may resume production in June and the new ignition production line will be 2250 tons, then by the end of June, the daily melting volume will reach 168,660 tons, 172815 tons per day compared with the end of June 2022, with a growth rate of -2. Compared with January-May, the cumulative growth rate of output is about -6%, and the output will have a more obvious recovery. As there are still potential new ignition and production lines of nearly 10000 tons of daily financing after July, the potential pressure of supply in the second half of the year still exists, and the final degree of supply recovery depends on spot profit performance.

In the first half of the year, the cold repair production line totaled 5650 tons, the new ignition production line 4080 tons, and the production line 8100 tons, with a total increase of about 7730 tons of daily melt.

In the second half of the year, it is expected that the new ignition production line will be 7750 tons and the production line will be 4450 tons. If the production line is ignited and resumed as scheduled, the daily financial 12200 will be increased by tons, which may bring greater supply pressure. There are 9 potential cold repair production lines, with a daily volume of about 6,300 tons. As the glass factory pays more attention to determining the timing of cold repair according to the spot profit, it is difficult to determine the probability of potential cold repair. According to the characteristics of previous years, cold repair is mostly arranged around the Spring Festival at the end of the year, which has a relatively small impact on the annual output.

As it still takes time to produce glass after the ignition of the production line in May, it is expected that there will still be potential for improvement in the later period, and the further increase in production will depend on the maintenance of spot profits. Due to the continuous ignition of new production lines in recent years, the capacity utilization rate has always been in a neutral and low position this year.

The inventory is 55.53 million heavy boxes, and the ratio of inventory to sales is 24 days, which is still on the high side. In the case of spot futures giving profits, there is still the possibility of inventory accumulation caused by the release of production lines in the future. At present, there is no particularly accurate way to calculate the real demand for

float glass. Whether through sales area, construction area or new construction area, it can only be used as a qualitative judgment, that is, the growth rate of demand is probably in a downward trend year on year. Through the understanding of the market view, the current annual growth rate of glass demand is about 1% -2% year-on-year. From the history of glass apparent demand, except for the large-scale shutdown of real estate enterprises in 2022, the growth rate of demand in the second half of the year is higher than that in the first half of the year.

From the historical seasonality of apparent demand for glass, we find that it basically shows a cyclical swing of 3-4 months, with a fluctuation range of more than 5%, which often exceeds the fluctuation of real demand in the context of short-term relative rigidity of glass supply, and becomes an important factor affecting the periodic price trend. From the perspective of

Restricted by the expectation of future income growth and debt level, the macro leverage ratio of residents is difficult to further improve, which will suppress the performance of real estate demand for a long time. Real estate sales in

this cycle have recovered, but the strength is weak, which is rooted in the fact that real estate sales depend on residents'current savings and medium and long-term credit willingness, which is the expectation of future income. New medium and long-term loans to households turned negative by more than 110 billion yuan in April after more than 600 billion yuan in March. The data is a month-on-month change indicator. Since its publication, it has only been negative in December 2020, February 2022 and April 2023, all after the epidemic, which fully demonstrates that residents prefer to repay loans in advance rather than add new credit under pessimistic expectations of future income and prospects. In April

2023, the sales area of real estate was 76.9 million square meters, with a year-on-year increase of -11.

In April 2023, the new construction of real estate was 70.99 million square meters, with a year-on-year increase of -28. Then in October 2023 at the latest, we will see a significant downward impact of new construction on demand. In April

2023, the construction area of real estate was 66.93 million square meters, with a year-on-year growth rate of -45.

In April 2023, the completed area of real estate was 42.5561 million square meters, with a year-on-year growth rate of 37.The completed area lags behind the new construction for about 36 months, and the completed area will increase significantly in 2023 due to the accumulated shutdown of real estate capital problems last year.

According to the monthly data of real estate transactions in 30 large and medium-sized cities, about 13.2 million square meters were traded in May, with a year-on-year growth rate of 24%. However, the follow-up high-frequency data show that the turnover has been weak, and the growth rate is expected to decline significantly in the second half of the year.

From the characteristics of glass monthly demand, we can see that under normal circumstances, the second half of the year is better than first half, and the fluctuation cycle of demand is generally 3-4 months. These basic characteristics are often important factors driving price changes.

Glass profit

spot profit is still at a high level. Among them, the profit of coal production line is 412 yuan, the profit of natural gas production line is 511 yuan, and the profit of petroleum coke production line is 805 yuan. The cost of

natural gas, power coal, soda ash and other major raw materials has dropped significantly, supporting the high profit level of glass. Higher profit levels may have positive incentives for potential supply.

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Correlation

June-July is the relative off-season of glass spot, but it is also the time node when the market likes to tell stories in the second half of the year. After the glass fell about 500 points in May, the market has the will to repair. In this process, the market will be in a pattern of shock bottoming.

2023-06-19 10:20:20