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PVC futures, that is, futures products with PVC as the underlying asset. PVC, or polyvinyl chloride, is a thermoplastic resin. It is one of the four basic building materials along with steel, wood, and cement, and one of the five general-purpose resins along with PP, PE, ABS, and PS. It is the largest organic chlorine-consuming product in the chlor-alkali industry.
From the perspective of the medium- and long-term fluctuations in the PVC market, the time period for completing a cycle should be around 3-4 years. From 1993 to the present, the PVC market has completed five cycles of prosperity, development, and recession. In 1994, the PVC market price was the highest and the industry was the most prosperous. Subsequently, the market fell rapidly, reaching a low point in 1996, and business operations fell into trouble; then a new round of prosperity began, and it returned to the second high point in the second half of 1997, and reached a historic low point in 1999. In the last two cycles of PVC, similar market trends have also been performed. From the end of 2005 to the beginning of 2006, after the market reached a low point, it has been in an upward channel, reaching its peak in the first half of 2008. In the second half of the year, the market reversed and reached a historic low at the end of 2008. Supported by costs, prices subsequently rebounded slightly.
At present, China's PVC industry is in its mature stage and has entered an era of high cost support. The life cycle of the industry includes four development stages: infancy, growth, maturity, and decline. According to the above cycle analysis, China's polyvinyl chloride industry is currently in its mature stage. From 2003 to 2005, the industry has achieved considerable development, demand has grown rapidly, technology has gradually become finalized, and production companies have obtained high profits. Driven by profits, the production and supply entities will inevitably increase significantly, and products will gradually develop in the direction of diversity, quality and low prices, which will intensify competition and make market demand increasingly saturated. Manufacturers must rely on additional production, improving production technology, reducing costs, and researching and developing new products to gain competitive advantages. A buyer's market is formed, the industry's profitability declines, and the development of new products and new uses of products becomes more difficult. The industry's entry barriers increase. This is a typical feature of the mature stage of the industry.
In the medium and long term, a PVC market price cycle is completed every 4 years or so, and the price shows a three-stage trend: first slowly and continuously rising, reaching the cycle high point and then quickly reaching the cycle low point, then rebounding slightly and continuing to be sluggish until the next cyclical rise. The three stages last for a period of time in a rough ratio of 5:1:2.
In the short term, the price cycle of nearly 4 years is expressed by daily price data. It is found that the daily price fluctuation trend basically follows the long-term price trend, and rarely goes out of multiple small fluctuation cycles on its own. The characteristics of short-term prices following long-term price fluctuations are very obvious, which is easy for investors and hedgers to make balanced predictions of prices, thereby increasing the success rate.
Correlation Analysis
PVC and LLDPE belong to the five major synthetic resin series, so it is necessary to analyze the price correlation between PVC and other synthetic resin commodities. From historical data, it can be seen that the price correlation between PP and PE is very good, and the trend between the two is very consistent, which is mainly due to the fact that they have the same raw materials. In the process of refining crude oil into finished oil, ethylene and propylene will be produced at the same time. They are the main raw materials of polyethylene and polypropylene respectively. 1 ton of polyethylene requires about 1 ton of ethylene, and the relationship between the amount of polypropylene and propylene is also 1:1. Therefore, the value of the two is basically the same in essence, so the market price is basically the same. Therefore, we only need to analyze the price correlation between PVC and one of the products of PE or PP.
There are more than 90 PVC manufacturers, which are distributed in 27 provinces, municipalities and autonomous regions. The average scale of production equipment is less than 100,000 tons/year, while the average scale of polyvinyl chloride equipment in the world is 150,000 to 200,000 tons/year, and the largest scale of equipment exceeds 1 million tons/year. Compared with developed countries, the gap is even greater. For example, the average plant scale in the United States is 300,000 tons/year, while the average PVC plant scale in Japan is 150,000 tons/year.
From the regional distribution of PVC production capacity, PVC production capacity is mainly concentrated in North China, Northwest China, Southwest China and other regions. North China, including Tianjin, Shandong and other provinces and cities, is the largest PVC production base, accounting for 42% of the national output, followed by East China, Central China, Northwest China, Southwest China and other regions. From the distribution of provinces and cities, Shandong is the province with the largest output, followed by Tianjin, Sichuan, Jiangsu, Henan, Xinjiang and other provinces. The output of the top 10 provinces and cities accounts for more than 75% of China's total output.
In 2000, China's PVC production capacity was only 2.39 million tons. With the continuous and rapid growth of China's economy, the production of downstream products has been driven, thereby promoting the increase in demand for PVC. According to statistics, from 2000 to 2004, the average annual growth rate of China's PVC industry capacity was 18%. After 2004, China's PVC expansion has entered a climax, with a capacity growth rate of 28% from 2004 to 2008, making it the fastest growing variety among the five major general synthetic resins.
Demand side: downstream product production and demand peak and off-peak seasons. Peak demand seasons are spring and autumn every year: peak seasons for construction
Export changes: raw materials and finished products. The low threshold of the downstream industry has led to a large surplus of processing capacity, the peak season has faded, the production cycle has been advanced and extended, and the downstream processing industry has meager profits; vicious competition has led to a decline in product quality, and the prevalence of counterfeit and inferior products has affected the enthusiasm for use.
International crude oil fluctuations
Cost transmission: Crude oil is one of the main raw materials for PVC, crude oil-naphtha-ethylene-vinyl chloride-PVC
When the oil price is relatively stable or fluctuates slightly, it has little impact on the PVC market, and the impact on PVC costs is mainly reflected in ethylene (vinyl chloride)
Changes in cost advantage: Comparative advantage of oil price and calcium carbide price
Cost balance point: oil price of US$50/barrel VS calcium carbide 3,000 yuan/ton
Oil prices affect the mentality of market participants
3. Macroeconomic situation (building materials, real estate, and automobile markets) If the macroeconomic situation is good, the demand and consumption of PVC will be good, and the market price will be relatively ideal. Otherwise, it will be relatively poor.
Changes in national policies
Export tax rebates, processing trade restrictions, affecting exports
Import tariff reduction: 6.5%
Restricted use: water supply pipes, food packaging
Dumping and anti-dumping: PVC: September 2003, Taiwan, Japan, South Korea and the United States; Turkey in 2006, India in 2007, South Africa and Brazil in 2008
Products: plastic products such as pipes, profiles, packaging films, packaging bags, toys, and lighting
Financial policies: changes in interest rates and exchange rates
Economic stimulus policies
Rise of trade protectionism
Changes in raw material prices
(Calcium carbide, VCM/EDC) Changes in raw material prices will directly affect the costs of PVC spot manufacturers, and it is also a factor that has a relatively large impact on the price of PVC futures markets.
Export situation
In April, affected by the impact of low-priced product imports and export pressure, the export situation of China's petroleum and chemical industry remained very severe. According to the latest statistics, the export delivery value of the petroleum and chemical industry in April decreased by 23.2% year-on-year, and the decline has a tendency to expand.
Among them, China's imports of polyvinyl chloride (including pure powder, plasticized and unplasticized) in April 2009 were 217,200 tons, a significant increase of 116.12% year-on-year and a decrease of 6.89% month-on-month. Among them, the import volume of pure PVC powder was 197,600 tons, an increase of 155.63% year-on-year.
In contrast to imports, China's exports of polyvinyl chloride (including pure powder, plasticized and unplasticized) in April were 9,600 tons. China's PVC production in April was 706,000 tons, and the apparent consumption was about 893,700 tons. The import volume accounted for 24.3% of the apparent consumption in that month. The impact of imported PVC on the Chinese market is self-evident. Industry insiders believe that it is unlikely that the demand in the Chinese market will increase significantly in the short term, which has further increased the pressure on chemical foreign trade.
PVC futures and spot market relationship
It is conducive to optimizing the price formation mechanism of polyvinyl chloride, guiding the upstream and downstream enterprises of polyvinyl chloride to arrange production and operation reasonably, helping relevant government departments to grasp the market trend in a timely and accurate manner, take regulatory measures as soon as possible, and ensure the rational allocation of resources and the balance of supply and demand in the market. An important function of the futures market is the price discovery function. Because of the authenticity, predictability, continuity and authority of futures transactions, the futures prices formed through futures transactions can accurately, comprehensively and timely reflect the real supply and demand relationship of the PVC market and the trend of future commodity price changes. Therefore, the price discovery function of futures is conducive to improving the price formation mechanism of the PVC market. Production enterprises can grasp the market trend in a timely and accurate manner, reasonably adjust the production scale, avoid blind production and cause a large backlog of inventory, and achieve the stable and healthy development of enterprises. The state can also use the price formed in the futures market and the information on transactions and delivery as an important basis for formulating its petrochemical industry policy, meet the forward-looking requirements of the policy, and allocate resources more reasonably.
It will further improve China's synthetic resin futures variety system. As three varieties in the petrochemical industry chain system, fuel oil, LLDPE and PTA have been successfully listed and operated on the three major exchanges, which will accumulate valuable experience for the listing of other resin futures varieties. As the main variety of the five major synthetic resins, polyvinyl chloride is an important basic material in modern society. Its output and consumption rank first among the five major general resins. Its upstream products are closely linked to oil and coal, and its downstream products are linked to manufacturing, construction, agriculture, medical equipment, automobiles, etc. It has a wide range of applications. The various types of profiles and pipes required, as well as wires and cables, agricultural hoses, and medical tools are closely linked to people's lives and China's overall economic development. Therefore, the listing and trading of polyvinyl chloride futures will help improve China's synthetic resin futures variety system and promote the futures market to better serve the national economy. At the same time, this move will also help China compete for the pricing power of international petrochemical varieties and the right to speak in international business negotiations.
It is conducive to hedging for related enterprises. From the enterprise level, the role of PVC futures is more significant. The listing of PVC futures is conducive to petrochemical-related enterprises to avoid price fluctuation risks through hedging. It helps to regulate market supply and demand, slow down spot market price fluctuations, and reduce the price risks faced by enterprises. Through the price expectations of the futures market, it can effectively suppress the imbalance of market supply and demand and abnormal price fluctuations, reduce the price fluctuation risks faced by enterprises to a certain extent, and is conducive to the formation of a price reference system that immediately responds to market supply and demand conditions, providing good conditions for the development of enterprises. The futures market concentrates a large number of production, processing, trading companies and investors, and conducts open and fair bidding transactions, which is conducive to the formation of authoritative, fair, transparent and continuous prices. The futures settlement price is relatively transparent, and the long-term average settlement price is unlikely to be manipulated. Large enterprises focus on developing direct sales customers, so the forward pricing of direct sales customers can fully refer to the monthly and annual average prices of PVC futures.
Obtain the expected risk-free return Generally speaking, the gap between the futures price and the spot price should be equal to the commodity holding cost. If this gap significantly exceeds the holding cost, the window for arbitrage is opened. When arbitrage between futures and spot, investors sell the spot at a suitable price in the futures market. The higher the futures price is than the spot price, the more feasible the arbitrage will be. Finally, as long as the delivery is made at maturity, the expected profit can be obtained. When arbitrage is made between futures and spot, the price difference between futures and spot is greater than the arbitrage cost. For PVC futures, these costs mainly include:
(1) Commodity transportation fee, warehousing fee, inspection fee, storage fee, etc., among which the storage fee of PVC futures is RMB 1/ton. The warehousing fee is subject to a maximum limit according to market conditions. The inspection fee varies according to different inspection agencies, ranging from RMB 2,000/batch to RMB 3,000/batch;
(2) The capital cost of spot funds and futures margin. The margin ratio of PVC futures is 5% in general months and increases gradually from the month before the delivery month;
(3) Value-added tax;
(4) Delivery and transaction fees. The delivery fee of PVC futures is RMB 2/ton and the transaction fee is no more than RMB 6/lot. The price difference between futures and spot minus the above costs is the arbitrage income.
The Dalian Commodity Exchange's Standard Warehouse Receipt Management Measures stipulate that "For domestically produced polyvinyl chloride that applies for registration of standard warehouse receipts, the date of application for registration shall not exceed 120 (inclusive) natural days from the date of production of the commodity; for overseas-produced polyvinyl chloride that applies for registration of standard warehouse receipts, the date of application for registration shall not exceed 120 (inclusive) natural days from the import date of the commodity on the "Import Goods Declaration Form" (or the import date of the "Entry Goods Registration List"). The cancellation time for PVC futures warehouse receipts is the end of March each year. Investors need to pay attention to this when conducting spot-futures arbitrage operations. Spot-futures arbitrage is completed through delivery. During the process, no matter how the spot and futures prices change, the expected returns can be obtained, with little risk and stable returns. In actual operations, investors can also wait for the spread between futures and spot prices. Return, close futures contracts and sell spot goods at the same time, save arbitrage costs such as delivery fees and storage fees, and obtain more profits.
Get relatively stable returns with low risk Due to the existence of storage fees, the price of forward contracts will be higher than that of near-term contracts. However, due to various supply and demand factors, this price difference is not stable. Sometimes the price difference is too large, and sometimes the price of near-term contracts will be higher than that of forward contracts, thus providing arbitrage opportunities. When cross-month arbitrage, investors buy a contract of a certain month in the same market and sell the same contract of another month. When the price difference between the two months' contracts returns to normal levels, the positions are closed for profit. This is an arbitrage method with very low risks and relatively stable returns. Cross-month arbitrage has nothing to do with the absolute price of futures contracts, but is related to the price difference and price difference changes between contracts of different months. When investors operate, they should understand the relationship between the price difference of contracts in different months and the storage fees during this period. Generally speaking, the price difference between the near-month contract and the far-month contract should be roughly equivalent to the storage fees of commodities in the same period (the storage fee for PVC futures is 1 yuan/ton). Too large or too small a price difference will provide arbitrage opportunities. During the operation, if the price of the forward contract is greater than the price of the near-term contract, investors can buy the near-term contract and sell the forward contract. If the price of the forward contract is less than the price of the near-term contract, investors can consider buying the forward contract and selling the near-term contract.
Look for profit opportunities in related chemical products
Cross-product arbitrage refers to making profits by taking advantage of changes in price differences between different futures products. To conduct cross-product arbitrage, there must be a relatively strong correlation between futures contracts. The stronger the correlation, the better. , the effect of cross-product arbitrage will be better, and the risk in the arbitrage process will be smaller. PVC and LLDPE are both synthetic resin products, and there is a certain arbitrage relationship. LLDPE is produced with ethylene as raw material, and 1 unit of ethylene can produce 1 unit of LLDPE. When ethylene is used as raw material to produce PVC, ethylene accounts for about 60% of the production cost of PVC, and 1 unit of ethylene can produce 2 units of PVC. Investors can use this output relationship as a reference for operations when conducting cross-product arbitrage.
Expand profit space through cross-market arbitrage
Generally speaking, the price ratio between futures prices and forward prices in various markets will be relatively stable. If this price ratio changes due to some temporary factors, cross-market arbitrage opportunities will arise. When cross-market arbitrage, investors can buy (or sell) a certain month contract in one market, and sell (or buy) the same or similar variety contract of the same month in another market. When the price ratio of these contracts tends to be normal, close the position and obtain profits.
Currently, China Guangdong Plastics Exchange, Zhejiang Plastics City Online Trading Market and China Plastics Electronic Trading Market are all conducting PVC forward electronic trading. The trading target of Dalian Commodity Exchange PVC futures contracts is first-class products that meet the requirements of national standard GB/T5761-2006. This level of PVC also meets the delivery quality standards of various electronic trading markets. Cross-market arbitrage can be carried out between PVC futures contracts and forward contracts of these electronic trading markets. In addition, the delivery location of PVC futures is set in East China and South China, and various electronic trading markets also have delivery warehouses in these regions, which provides convenient conditions for investors to combine cross-market arbitrage and spot arbitrage through physical delivery between futures markets and electronic trading markets.
A successful enterprise does not depend on how much profit it makes, but on the ability to effectively control risks, especially in the context of the financial crisis that has severely impacted the real economy. For the PVC industry, whether it is its upstream manufacturers, intermediate traders or downstream consumer companies, there are inevitably production risks, price risks, marketing risks, policy environment risks, etc. in spot operations. In addition, since the Chinese PVC industry itself has a large market capacity and sufficient competition, production and processing are dispersed, and the scale of enterprises is relatively small compared to the world average, the competitiveness risks of industry-related spot enterprises in the future are particularly prominent. According to professionals, PVC production has entered an era of high cost support, and mergers and reorganizations between enterprises are the main direction of large-scale development of the industry in the future. In this context, which companies can stand out and become the "leader" of industry development depends on the company's ability to control risks on the road to future development.
For PVC manufacturers, they must prepare upstream production raw materials before producing products. At this time, the production cost of PVC is actually fixed, but there are many uncertain factors in the future selling price of PVC. Once the price of PVC falls, it will bring great losses to the company. After the listing of PVC futures, while preparing the raw material inventory for planned production, the company can sell the corresponding position in the futures market to lock in the profits of this batch of planned production. Since the prices of PVC and calcium carbide are highly correlated (it is estimated that the price ratio of PVC/calcium carbide is around 2.3), manufacturers can even convert their purchased calcium carbide inventory into PVC positions for hedging.
For example, a carbide-based PVC manufacturer currently has 2,000 tons of PVC in stock. In March, it purchased another 10,500 tons of carbide in order to complete its production plan of 5,000 tons of PVC three months later. The company's hedging plan can be carried out as follows:
(1) Calculate the open position: The current inventory is 2,000 tons of PVC, plus the production plan of 5,000 tons, a total of 7,000 tons of PVC. In addition, 1 ton of PVC consumes about 1.5 tons of carbide, and 5,000 tons of PVC consumes 7,500 tons of carbide. However, the factory has purchased 15,000 tons of carbide, and there are still 3,000 tons of carbide at risk, which is equivalent to about 2,000 tons of PVC. Therefore, the total open position of this manufacturer should be 9,000 tons if calculated in terms of PVC, which should be 1,800 lots (1 lot = 5 tons) in terms of futures.
(2) Market operation: While buying calcium carbide raw materials in the spot market, sell PVC futures for delivery after March in the futures market. During this period, the production enterprise continuously buys corresponding PVC futures in the futures market to close the position according to the continuous sales of PVC spot, until all the spot is sold and all the futures are settled in the delivery month. Since the profit is locked in at the beginning, the company's established income will not be affected regardless of whether the market price rises or falls.
The above operation is the simplest operation method. Different companies can choose to hedge a certain proportion according to their ability to bear risks in order to maximize their profits. In addition, according to the market price trend, if there is a clear upward trend, you can close the futures first and then sell the spot. If there is a clear downward trend, you can sell the spot first and then close the futures. This can further expand the profit.
The operation of trading companies is basically to obtain the maximum profit from price fluctuations, but they also bear the greatest risk in the entire industrial chain. When prices rise, the source of upstream stock cannot be guaranteed, and when prices fall, the risk of default by downstream consignees cannot be controlled, especially for PVC trading companies. Industry competition is intensifying, market transparency is increasing, and business operations are becoming increasingly difficult. In this case, trading companies can only combine spot trading with futures and treat the futures market as an excellent "supplier" and a loyal "downstream customer" to be able to handle the bull and bear markets of the industry with ease.
For example, a plastic trading company has long been engaged in trading activities of various resin series such as LLDPE, PP, and PVC. After a rapid rise in April, May, and June in 2008, the spot price of LLDPE hit new highs, reaching as high as 16,000 yuan/ton, and the rise was almost crazy. They estimated that under the increasingly severe impact of the global financial tsunami, the price bubble of LLDPE was huge, and there would be a sharp drop after the surge. The futures price before June was always much higher than the spot price. The company sold all LLDPE stocks in the September contract for hedging, and also collected spot in the market for risk-free arbitrage in the 0809 contract. After entering July, the LLDPE price began to plummet, and they increased their sales efforts, selling spot first and then closing futures. In September, the unsold LLDPE was delivered in the futures market according to the maximum delivery volume of 1,000 lots, totaling 5,000 tons of Canadian-produced 0218D and 0218B. According to the company's financial calculations afterwards, if the 5,000 tons of spot were sold in October, it would lose at least 20 million yuan. PVC and LLDPE belong to the same synthetic resin series, and there are intersections with many LLDPE traders. After the launch of PVC futures, traders can also hedge PVC stocks in a similar way to obtain as much profit as possible.
Plastic processing companies usually adopt the order production model, but it may take some time for them to start purchasing raw materials for production after receiving the order. Therefore, they usually face the risk of rising raw material prices during the period, or the risk of falling prices of purchased inventory goods. If plastic processing companies buy hedging operations in the futures market at the same time as receiving orders, they can lock in the purchase cost in advance. Still taking LLDPE processing companies as an example, at the end of 2008, an agricultural film company that uses LLDPE as its main raw material commissioned an international agency to import 10,000 tons of imported LLDPE that arrived in February and March, with prices ranging from 7,600 yuan/ton to 8,500 yuan/ton. After the Spring Festival, the futures market took the lead in launching a wave of rising prices, and the price of LLDPE quickly rose from 8,400 yuan/ton to 9,200-9,300 yuan/ton! Due to low demand, slow price increases and sluggish sales in the spot market, when the 0903 contract of LLDPE futures was 9,200 to 9,300 yuan/ton, the spot could only be sold at 8,800 yuan/ton, and many low-priced imported goods had not yet arrived at the port, and the expected price increase pressure was very high. In this case, the agricultural film company sold the 0903 contract and the 0905 contract in the futures market to short-sell the imported raw materials for hedging. With the highest cost of 8,500 yuan/ton, it can still lock in a profit of 700 to 800 yuan/ton. After February 10, the price of the 0905 contract fell sharply, even nearly 1,000 yuan/ton lower than the spot price of the same period. Although the price of agricultural film also plummeted at this time, the company successfully avoided the risk of falling raw material inventory prices due to futures hedging in the raw material position. PVC processing companies also face the risk of rising raw material prices and falling product prices. They can also use the PVC futures market to hedge the inventory that has been purchased. According to the processing progress and the amount of products sold, we continue to buy and close positions in the futures market until all stocks are digested.
China has overcapacity in PVC. Figure 3 shows the PVC production from 2002 to 2011. As can be seen from the chart, PVC production has been growing overall, with the output in 2011 reaching 12.952 million tons. Table 1 shows the monthly production data of PVC in 2012. From January to October 2012, the cumulative production was 11.1095 million tons, a year-on-year increase of 1.93%. However, compared with the huge production capacity base, the overall operating rate of the industry is still hovering around 60%.
Statistical data show that from January to October in China, the cumulative area of new housing construction was 146,792.195 million square meters, a year-on-year decrease of 8.5%; the cumulative construction area was 538,149.2035 million square meters, a year-on-year increase of 13.3%, but the growth rate has been falling in the first ten months; the sales area of commercial housing decreased by 1.1% year-on-year. It can be seen that the demand for PVC in the real estate industry has shrunk.
Since the listing of PVC futures, the market has developed rapidly and is in good condition, showing five major characteristics: First, the transaction is active and the market scale is developing rapidly. Since the listing of PVC futures, the average monthly increase has reached 273%, which is the most successful of the three petrochemical varieties listed in China in recent years. The average trading volume in the first five months of listing was 29 times and 11 times that of LLDPE and PTA, respectively, and the average position at the end of the month was 18 times and 4 times that of LLDPE and PTA, respectively.
Second, the delivery is smooth and the brand effect is outstanding. On September 16 this year, PVC futures successfully completed the first delivery, with a total of 18,400 lots and 92,200 tons delivered. There were 31 members participating in the delivery, 51 industrial customers, and the delivery was smooth without any default. PVC futures delivery adopts the "quality inspection + recommended brand" system. The recommended brand is favored by the receiving enterprises, which improves the efficiency and integrity of the market.
Third, the number of customers has increased rapidly, and corporate customers have participated enthusiastically. In 5 months, the number of participating customers exceeded 40,000, reaching the level of LLDPE which has been listed and traded for nearly two years. Among them, the participation of corporate customers is very high. As of the end of September, corporate positions accounted for 62.69% of the total PVC positions, exceeding many mature varieties.
Fourth, the futures and spot p
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