Re-exploring the "law" of steel market

For many years, every time China's steel prices have undergone major fluctuations, the price level of the steel prices has completely matched the supply and demand conditions...? It has been remembered that the phenomenon of "paradox", such as the simultaneous coexistence of "high stocks" and "high prices" in China's steel market, "inventory drop" and "price drop", "low profitability" and "high output" coexist, has frequently appeared.

In the past few days, iron ore prices have skyrocketed.

For a time, more ** or analysis, describe the market as "sudden", "bizarre", "hype", "do not understand"... In fact, it is not necessary to do so.

Because if we can really change the way of thinking and jump out of the paralysis of the traditional analysis model, we will not feel that this round of iron ore price soaring is "surprising," and even less does not mean that it does not conform to the "law"...

Do we look at the following "rules" in accordance with the "law"?

-- First, listen to the advice of well-respected Wall Street analyst and Bob Farrell, a respected one. He once put forward a well-known basic investment principle: “When all the experts and all the expectations are agreed upon - the opposite will happen.” If we look back at all the previous analysis of the iron ore “market outlook”, we can say almost All of them are “bad-mouthed”, and their main basis is almost the same. It is nothing more than a “difficult recovery of the world economy”, “a serious excess of China’s steel production capacity”, “increased investment in mining at home and abroad,” and “the future global iron ore production capacity will be released "The current domestic port stocks are overweight" and "some steel mills cut production and cut iron ore stockpiles" ... Yes, these are facts. However, we have seriously ignored another fact. That is: the famous "bar theory."

The theoretical model is this: There are 100 people who like to soak a bar. These people have to decide whether to go to the bar or stay at home every weekend. The capacity of the bar is limited, which means the seat is limited. If you go to more people, people who go to the bar will feel uncomfortable. At this point, they stay at home more comfortable than going to the bar. Assume that the bar has a capacity of 60 people. If someone predicts that there will be more than 60 people in the bar, his decision will not go. Otherwise, he will go. How do these 100 people decide whether to go or not? The information that each participant faces is only the number of people who went to the bar before. Therefore, they can only summarize the strategy of this action based on previous historical data.

Every participant in this game is faced with such a puzzle: if many people predict that the number of people going to exceed 60 and decide not to go, then the number of Bars will be very small, and these predictions made at this time are wrong. In return, if a large proportion of people predict that fewer than 60 people go to the bar, they will go to many people and exceed 60, and their predictions are wrong.

Therefore, a person who makes a correct prediction should be able to know how other people make predictions. However, the source of information that each person faces in this prediction is the same: past history and past data. At the same time, everyone cannot know how others make predictions. Therefore, the so-called correct prediction is almost impossible to exist ... iron ore, before almost the vast majority of people are expected to lower prices, and even "authorities" also proposed that a certain period of time will usher in the so-called "turning point", which makes even more so The market confidence of many steel mills and traders suffered a sharp setback and drastically reduced inventory, and they waited for an opportunity to “turn over”. When the market showed signs of positive expectations, the market would undoubtedly “flip” quickly, and this was once again fulfilled. Bo Farrell's famous assertion, it is not a bad thing to remember this sentence.

This round of rising ore prices tells us once again that sometimes, just relying on accumulated "historical data" to judge the market, it is not very comprehensive, or there is a certain bias.

- Secondly, look at the many "supremacy" phenomena of supply and demand that have repeatedly appeared in China's steel market. For many years, every time China's steel prices have undergone major fluctuations, the price level of the steel prices has completely matched the supply and demand conditions...? It has been remembered that the phenomenon of "paradox", such as the simultaneous coexistence of "high stocks" and "high prices" in China's steel market, "inventory drop" and "price drop", "low profitability" and "high output" coexist, has frequently appeared. Because in today's China, there are a large number of steel mills and steel traders (steel and iron ore) that attract worldwide attention. These "energy" production and circulation "groups" are enough to quickly enlarge the steel market. Non-terminal "needs" are also sufficient to quickly amplify the "atrophy" of non-real demand in the steel market, and iron ore trade has a similar approach.

We can also observe a set of data: In mid-2008, for example, the daily consumption and supply of oil around the world is almost the same, with an average of about 87 million barrels. There is a clear supply/demand balance or a slight oversupply, but the price of oil is from 70. The dollar barrel soared to 147 US dollars a barrel. In 2008 and 2009, the global total grain output was 2.16 billion tons, and the total consumption was 2.15 billion tons. At the end of the year, the amount of inventories that could not be finished at the end of the year was 340 million tons. This was also a clear small-scale oversupply, but the food prices rose sharply. The price of international premium rice is five times that of China... At the very least, these figures show that the price changes of certain products cannot be completely determined by simple supply and demand.

Therefore, iron ore traders, domestic or international, and no matter what level, can quickly and acutely rely on the “macroeconomic expectations” signal at that time (although they have not really entered the stage of incremental demand for real consumption), or Raising prices alone, or grouping “pulling up” prices, is a completely indispensable market operation or marketing method from the point of view of a fully free-competing market, but only to see who can grasp the opportunities.

This round of rising ore prices remind us once again that sometimes we only rely on the "supply and demand theory" to judge the market. It is not very comprehensive and there are even greater differences.

- Third, we must clearly discern the wisdom and environment of the bosses of the recent iron and steel enterprises in China. At present, the reality of the Chinese steel industry is that since 2011, the entire industry has continued to face the grim situation of low prices and high costs, resulting in a further decline in the economic efficiency of iron and steel enterprises, from the loss of the main steel production industry to an industrial loss, showing an entry For the first time since the beginning of the new century, the whole industry has suffered losses; corporate funds have been tight, bank loans have increased, and financial expenses have risen sharply; steel companies have become increasingly strained; ** costs have risen; only as of January-November 2012, China Iron & Steel Association member company sales revenue The year-on-year decrease was 5.37%, bank loans increased by 6.58% year-on-year, and financial expenses increased by 24.38% year-on-year. At the same time, as of the end of November 2012, the asset-liability ratio of member companies had climbed to 68.67%, an increase of nearly 1.64 percentage points year-on-year; Tax burdens and unreasonable local charges have further aggravated the burden on enterprises. As tax rates for mineral resources and other taxes have increased, corporate tax burdens have increased. Some places have advanced taxation to steel companies to ensure that tax revenues have not decreased; at the same time, some places have become unreasonable. Charges have also caused a heavy burden on businesses, making businesses miserable. .

Recently, in the face of soaring iron ore prices, many of our analyses or interpretations have attributed an important reason for the sharp increase in the price of this round of iron ore to excessive destocking by steel mills or traders (reducing iron ore inventory significantly Quantities), and when macroeconomic policies are expected to be slightly better or the steel market is expected to be slightly more active, all parties quickly fill up the stocks and encourage iron ore price hikes... Indeed, objectively this factor exists, but its depth Attribution is not here.

Is the steel factory boss really so "mentally handicapped"? I really don't know if I keep more stocks when the mine price is low (at least, it will not result in a lot of destocking which will result in certain risks)? Didn't it really know that ultra-low stocks of raw materials may pose risks? Is it really unclear whether steel production has the characteristics of continuity?...? For those steel company bosses who have experienced the "big twists and turns" of China's steel market, they will not be so "mentally handicapped."

In fact, a large number of steel mills or a considerable number of traders have had very limited funds for a period of time. They have been forced to over-stock in the face of a long period of extremely depressed markets, sharp declines in corporate profits, and even serious losses. Change, and by no means steel mills or traders are blindly cutting back on normal stocks.

This round of rising ore prices also taught us that outside analysts are not more "savvy" than the bosses in the bureau. They should never arbitrarily underestimate the wisdom of steel mills and traders. If ** or analysts still cannot really penetrate the market. The bottom layer is in contact with the actual situation, does not really understand and understand the truth of steel mills and traders, and does not make up for the narrowness and shortcomings of analysts who are only accustomed to the “telephone negotiation” market, and will continue to feel the rise in this round of ore prices. "Do not understand."

In addition, we must look at the absolute “scarcity” attribute unique to resource commodities such as iron ore. As we all know, before the end of the iron ore "long association" price mechanism before 2009, the discussion and evaluation of the "discourse power" of iron ore has never been interrupted. However, these arguments cannot and will not change the inherent characteristics of iron ore as a commodity with special attributes. In fact, the current soaring price of iron ore is not a matter of whether or not the “right to speak” can be controlled, but rather it is an objective market condition that must not be accepted by people’s will, and it acts on this. The most fundamental factors in the outcome are: First, unique needs; second, monopoly of resources; thirdly, the nature of goods, and the influence of exchange rates and changes in the international situation.

The increase in iron ore prices in this round depends, to a large extent, on the high monopoly of resources by suppliers of iron ore in the world. If we have to say that we have lost the right to "speak," we must say that "resource monopoly discourse power", if it continues to extend, should also include "high-tech monopoly rights" and so on. At present, major iron ore mines such as Brazil's Vale, Hammersley, Australia and BHP Billiton, control 80% of the world's iron ore resources. In order to obtain excess profits, iron ore suppliers have a strong conspiracy price.

The current rise in iron ore prices depends to a large extent on the unique “product attributes” of iron ore. As far as general commodities are concerned, we all say that “prices are high and there must be great fluctuations.” If we look at the “broad spectrum” theory, this kind of law does exist, and “the price of iron ore is soaring, there must be a big drop”. Will exist. However, we must pay special attention to the fact that mineral products are different from general processed products, mineral products have unique non-renewable attributes of resource products, and global iron ore geological resources increase as the amount of discovered mineral deposits increases. The storage capacity will gradually decrease, especially in today's world, scrap steel has not yet been able to occupy all of metal smelting (currently only about 10% in China), and there is no other low-cost new type of large-scale industrial production that can completely replace the characteristics of steel materials. Before the material was born, the price curve of resource products such as iron ore will be long-term upward (although it will decline during the period, but it will be temporarily affected by the periodic fluctuations in the economic cycle).

This round of rising ore prices tell us once again: For commodities, especially iron ore, due to its own unique attributes (here, we have not yet addressed the financial attributes of iron ore, because investment products are controlled by the law of risk and return, It will not be completely subject to the relationship of supply and demand. This topic is not discussed.) We cannot fully consider it as a general process commodity to judge its price fluctuations. We must especially see the resource properties of iron ore, even In a certain historical period in the future, its unique demand characteristics and monopoly characteristics will have an important underlying role in supporting its price. If it is seen from a long-term perspective, this will not be too much affected by the other types of commodities. Temporary economic cycle effects.

- In the end, it should be abandoning the market "hype" is a traditional old concept of abnormal behavior. For the current skyrocketing iron ore prices, there is no shortage of more people who have a "headline": "hype." Indeed, this round of rising ore prices, of course, include “hype” factors, but we must change the long-standing ethos of “hype”, and we must have a deeper understanding of the real market. We should be clear that "hype" under the market mechanism is a normal state. At the same time, under the condition of market economy, "speculation" is also a frequently occurring economic behavior and an active response to market risks. It can even be said that in market economic activities, it is difficult to win in the market competition if you do not understand, cannot, or do not "hype" and "speculate".

In fact, the “market speculation” marketing approach driven by the “economic management” principle of the market economy is normal as long as it does not violate current laws and regulations. As steel traders and iron ore traders, it is entirely an independent and independent marketing method and strategy for traders to determine when to “go” in what price and how much to "throw" at what price. , And traders know more about their own marketing actions than anyone else, but they all want to grab more opportunities and make more money in the "out of opportunity". However, when there is no major change in demand, there is indeed a certain “speculation” risk in prices that rely on “hype”; in reality, it depends on who can properly grasp the point of profit or loss of “hype” or “speculation”. .

This round of rising ore prices tell us once again: In fact, the "hype" and "speculation" behavior models are inherent in the "market economy" itself. Under normal circumstances, after the downturn in the steel market, especially after a long period of silence, as long as there is an “excuse” that even a little bit can stimulate steel prices or rising ore prices, both steel mills and traders will be extremely quick. Catching up and taking advantage of opportunities to pull up steel prices or ore prices, not to mention under the "super-large background" of the current "new urbanization" development strategy ... such objective objective "supporting the city" opportunity, any business The main body of marketing that aims at profit-sharing will naturally “make full use of” and “properly hype”. It seems that there is nothing worthy of excessive “finding”... In the past, the old “market view” of traditional tradition should indeed be completely transformed. Now.

......

The increase in the price of this round of iron ore gave us many thoughts and gave us new insight into the “law” of the market.

In 2013, the new year began. In the face of the complex and ever-changing steel market and mining market, the traditional, rigid logic of “inventory” or “supply and demand” could no longer fully reflect complex, changeable, and fast-changing The real market has gone so far; sometimes when we based on the painstakingly accumulated historical data (objectively, some data is not accurate) to judge the current Chinese market, it suddenly found that it was not very efficacious.

Faced with the sharp increase in the price of this round of iron ore, we must remember that the real market is not subject to regulations.

Isn't it?

The steel market under a truly market-based mechanism in China was only about 20 years ago. It was only more than two years before China completely separated from the annual international iron ore pricing mechanism. What is a real market and how to more fully understand the market and how More calmly adapting to the market really needs to be rethought.