China Securities Journal: The Industry Calls for a Rational View of Price Increases

Updated on: April 28, 2016

Reported by Guan Ping, Journalist from China Securities Journal

Recent rebar futures prices rose sharply, with trading volume enlarged, the anxiety to market overheating transactions began to heat up. China Securities Journal interviewed a number of industry insiders, and found that in terms of multiple varieties of iron and steel industry chain steel, including rebar, iron ore, coke, etc., the sharp rise of price is value regained because the actual supply and demand is greatly improved, the active commodity futures market trend only shows big differences of views, and the "black" commodity futures investment boom at the same time, which also provides a good liquidity risk management for business entities.

In order to prevent transactions overheating, the three major commodity futures exchanges have taken timely measures, such as improve the margin ratio, transaction fees and other ways, to ensure the steady and normal operation of the market. The industry also calls for a rational view of the phenomenon of futures prices rising, and the healthy development of the futures market is conducive to better serve the real economy.

Misunderstood "rebar futures"

On April 21, Shanghai rebar futures trading volume hit a record high, part of we-media platform started to forward news "Rebar Volume Exceeds Volume of Shanghai and Shenzhen Stock Markets" within the circle of friends in WeChat, to illustrate rebar trading is so hot.

In response, a director of a futures company in Beijing said to China Securities Journal journalist that rebar futures trading volume hit a record high indeed, mainly because in the current real economy environment, enterprise has a larger enthusiasm and demand for the current yield of hedging, and also because it is the inevitable trend in the futures market, which is in gradually stable development and growth, but it should be pointed out that, because the futures is a margin trading system, its turnover is nominal value with leverage, instead of a real money transactions.

The director told the journalists: on April 21^st, rebar futures total turnover 23.972 million lots (bilateral), according to daily settlement price 2703 yuan/ton, nominal turnover of 323.982 billion yuan (unilateral). On the day, the exchange margin ratio is 7%, then the actual maximum amount of funds to be used amounted to 323.982 billion yuan x 7%=22.678 billion. As the stock market is in full-amount transaction, on the day, Shanghai and Shenzhen stock markets trading volume totaled 356.898 billion yuan. From the point of actual funds transaction, on the day, the funds of rebar futures is only 6.36% of Shanghai and Shenzhen stock markets. Considering the T + 0 trading system in the futures market, the same amount of money can be used repeatedly on the same day, so there is less money to actually participate in the transaction.

In addition, the view is that the sharp rise in steel futures is due to speculation by idle fund. But the head of Galaxy Futures said that by comparing the current price movements, we found that futures followed the rising spot prices, which meant that futures prices were driven by the actual supply-demand in market.

According to the futures data tracked by Galaxy Futures, from early to late April, Shanghai rebar (HRB400, 20mm) spot price rose from 1920 to 2940 yuan/ton, rose 1020 yuan/ton; hot rolled coils spot price rose from 2200 yuan to 3290 yuan, up 1090 yuan/ton. At the same time, RB1605 contract, from 1771 yuan/ton rose to 2755 yuan/ton, rose 984 yuan/ton; HRC 1605 contract price rose from 1973 to 3017 yuan/ton, rose 1044 yuan/ton. By comparing the current increase in the same period, the spot rose even more than futures. On the volatility in a single day, spot rebar and hot rolled coils once gain 550 yuan/ton on a single day, while biggest rise of the futures is 157 yuan/ton, by contrast, compared with the spot, futures volatility is more stable and steady.

"The potential dealers rush to open account to be engaged in futures market" is grandstanding

With the commodity futures trading heating up, from the media it began to circulate "The potential dealers rush to open account to be engaged in futures market", "The market stirs the heat of speculation". But according to the journalist from China Securities Journal, the news lack of factual basis.

Some insiders even said that the news was simply grandstanding, to attract attention, but in fact, it lacks authority of information and accuracy of the data.

China Securities Journal journalist investigated the number of account opening in Galaxy Futures, and found that in this year, compared with January and February, the total number of accounts increased by about 30% in March and April, and margins increased by 10-15%. Compared to March and April in 2015, the total number of accounts opened decreased by 19.84%, while the margin decreased by 9.76%.

From another perspective, the margin growth rate is far lower than the number of accounts, which means the number of current new accounts is mainly exaggerated by the media, with the purpose to attracting individual investors, which is not consistent with the hypocritical news.

A principal from Yongan Futures told the journalist from Chinese Securities Journal that in terms of the futures company's customers, there is no the phenomenon that individual investors queuing up to open an account. Of course, some dormant accounts, affected by market sentiment, resume futures trading. This is a normal phenomenon.

The industry calls for a rational view of price increase

Journalist from Chinese Securities Journal interviewed a number of futures companies, and found that it is the update in actual supply and demand that promotes the rise of futures in the iron and steel industry. In the long term, it is the demand of asset allocation in weak stagflation. In the medium term, it is the market of low inventory and low rate of operation, which overlays the demand for the seasonal peak replenishing warehouse. In short term, it is a quick correction to the pessimistic expectation. Therefore, some industry insiders appeal that the market should have a rational look at the price fluctuation phenomenon of the commodity such as rebar, iron ore.

Because of price fluctuation and active transactions, Dalian Commodity Exchange, Shanghai Futures Exchange, Zhengzhou Commodity Exchange have accordingly taken control measures to effectively curb the overheated trend of some varieties trading, prevent risk, ensure safe and stable operation of the market.

The insiders also said that as the futures market gradually matures, it began to be widely known to investors, and it can be regarded as an important part of the asset management allocation, at the same time, every futures industry organizations also have obligations and responsibilities to give a more comprehensive, systematic, in-depth knowledge and education to futures investors, to guide accurate recognition of futures investors, jointly maintain good running environment of the futures market.