Thermal coal Spring Festival market is coming?

At the end of the fourth quarter of 2020, the strong trend of thermal coal prices is beyond everyone's imagination.

Prices will return to rationality

From a statistical point of view, since the listing of automatic coal futures, more than 700 yuan/ton has been a very small probability event and is at the tail of the normal distribution.

The main reason for the tight supply in the fourth quarter of 2020 was the greater impact of coal production in Inner Mongolia.

Since the fourth quarter of last year, the Inner Mongolia region has actively maintained supply and increased production.

On the demand side, the domestic economic situation is improving, which has driven the growth of energy consumption, but the proportion of coal in primary energy consumption has gradually declined, and the economic improvement has weakened the driving role of coal consumption growth.

The marginal situation of supply and demand has improved, the upward momentum of thermal coal has slowed down, and the deeply discounted futures prices have reflected that market sentiment has turned cautious.

Under normal circumstances, as the Spring Festival approaches, companies stop production and holidays increase, demand pressure is reduced, power plants’ daily coal consumption data will drop sharply, and inventory pressure will also improve.

It is worth noting that by reviewing historical market trends, it is found that the price trends at the end of the fourth quarter of 2020 are very similar to those at the beginning of 2018.

　　However, comparing the inventory situation, the current upstream state-owned key coal inventory, the Bohai Rim port coal inventory, and even the national key power plant coal inventory are better than the situation in January 2018, and the upstream, midstream and downstream inventory has increased or exceeded 10 million tons.
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In addition, the policy control to ensure supply and price stabilization has not changed, and the National Development and Reform Commission has successively introduced various measures to improve the supply and demand situation.
The policy attaches great importance to the supply of coal and electricity, and the price of thermal coal may be similar to the results of the policy control in 2018, and there will be a significant correction before the Spring Festival.

　　Time to short basis

　　According to the theory of holding costs of futures prices, futures prices should be equal to spot spot prices plus holding costs.
Holding costs include capital costs and quality inspection, transportation, storage costs, and delivery costs.
In theory, futures prices should be higher than Spot prices, but the reality is not the case.
By reviewing the trend of thermal coal basis, under normal circumstances, thermal coal futures prices are at a discount for a long time, and futures price premiums are relatively rare.

　　Previously, the contradiction between supply and demand was difficult to reconcile, and spot quotations jumped continuously.
It is understood from the spot market that the spot quotation of 5,500 kcal at the port has climbed to 870 yuan/ton, and even 900 yuan/ton.
While the current prices are rising wildly, the futures market is relatively restrained from expectations of price increases under the strong pressure of policy controls, and the basis is rapidly expanding.
According to the spot price of 870 yuan/ton on January 8, the basis of the May contract has expanded to 165.
6 yuan/ton, which is at a relatively high level.

　　But the current situation is different from 2016-2017, and the high basis is absolutely abnormal.
On the one hand, the supply-side reform has shifted from total capacity reduction to structural adjustment.
After the accelerated release of high-quality production capacity since 2019, the domestic coal supply capacity has been significantly strengthened; on the other hand, the thermal coal futures market is becoming more mature and self-delivering quality Since the requirements have been raised, it has become closer to the spot market, and the linkage between futures and cash has increased.
In addition, the increased activity of non-major contracts has prompted the trend of future prices to be closer to the current price, and unreasonable spreads are gradually eliminated.

　　From the perspective of the regularity of historical trends, taking the basis of the May contract as an example, the basis of the 30 trading days before and after the Spring Festival has shown a significant decline, and the return of the basis after the holiday will be a high probability event.
At present, the basis has been at the highest level since 2016.
You can consider shorting the basis and carry out reverse arbitrage.
A weaker basis is conducive to buyer hedging.
For spot companies, in order to prevent a sharp drop in spot prices, they can consider establishing long positions in the futures market to replace spot holdings.
In addition, in order to prevent prices from falling, companies can consider buying put options to avoid risks.

Transfer from: Futures Daily