Recently, the formal market in the polyester industry chain has been in full swing. Since the formal market started in late June, the price difference between the ethylene glycol 2109 and 2201 contracts has risen from a low of around -90 to 209, an increase of nearly 300. The basis is basically the same as on June 23 and is difficult to expand, resulting in a split in the basis spread.
Historically, a significant reduction in inventory will lead to significant fluctuations in the basis. The most obvious example is that in December 2019, after the inventory dropped to 400,000 tons, the basis The basis surged from 85 in early December to 1,000 on December 17. From December 2020 to March 2021, after the port inventory dropped to 600,000 tons, the basis surged from the lowest point in December -200 points to 475 points. But this time, when the port inventory fell below 600,000 tons again, we found that the basis fluctuation was far less than before. The reasons are mainly due to the following two points:
1 It is because the short selling volume has decreased, resulting in no counterparty.
The last round of basis strengthening was in early May, when the basis strengthened from around -70 to 105, a strength of 175 points, while the spread rose from -135 to -24 , strengthened by about 110 points; this round, the basis and spread have strengthened together. Judging from the fundamentals at that time, the downstream industry was in the traditional off-season, and after May Day, port inventory accumulated for two consecutive weeks. The amount of short selling in late May and late June was huge, especially the short selling in late June, which caused rival orders. After accumulating for two consecutive weeks, port inventory once again entered the destocking stage, falling from 577,000 tons on May 10 to 526,000 tons on May 24, causing short selling in late May to have to go to the market. Short filling causes the basis to strengthen.
At the same time, we have seen that since the coal chemical industry’s operating rate peaked in early May and then continued to decline, the coal-based contract volume of polyester factories has shrunk significantly. Therefore, polyester Factories were forced to purchase spot ethylene glycol on the market for stocking up, causing polyester factories to restock their inventories again. After polyester factories sweep goods from the market, other traders cannot buy goods to fill the shortfall, further raising the basis, thus producing a positive reinforcing effect.
Comparing the current situation, we believe that the similarity lies in the low inventory at the port: as of last Monday, the port inventory was 563,000 tons, similar to May, which is also the disk One of the main reasons why the price difference can widen. The difference is: the short selling volume was too large from May to June, and now polyester companies are basically bearish or bullish on the 2109 contract, so the short selling volume has been greatly reduced; in the absence of opponents, the , the basis is difficult to significantly strengthen.
Second, with the addition of new production capacity, the port’s pricing power has gradually weakened.
Compared with the increase in basis spread in May, two new market characteristics have emerged: First, new production capacity continues to be put into operation. From June to July, 1.8 million tons of Satellite Petrochemical, 800,000 tons of Zhejiang Petrochemical and 600,000 tons of Hubei Sanning were successively launched, increasing production capacity by nearly 20%. Second, both Satellite Petrochemical and Zhejiang Petrochemical bypassed ports with major downstream polyester manufacturers and signed contracts to form a point-to-point sales model. The quantity purchased by polyester factories in the spot market was significantly reduced. This situation has greatly reduced the willingness of spot bulls to hold goods, making it difficult for the basis to strengthen. Since late June, polyester factories’ ethylene glycol stocks have dropped to low levels. The main reason is that polyester factories believe that suppliers will provide them with sufficient raw materials when they are short of raw materials.
After this typhoon, we found that the raw material stocking of polyester factories is actually very tight. After logistics problems occur, polyester factories with low raw material stockings may even experience outages. Therefore, we can see that the stocking of polyester factories has begun to increase recently, from the lowest of 11.8 days to the level of nearly 13 days, and the basis has also strengthened slightly with the expansion of stocking.
In short, it can be seen from the decline in basis volatility in these rounds that the transfer of ethylene glycol pricing power has led to a significant reduction in futures basis volatility, and the upstream and downstream factories The adoption of a point-to-point purchase and sale model has significantly reduced the living space of futures merchants and traders. This year, trade volume has shrunk significantly, and some traders have even seen their trade volume halved. For investors, using basis difference to judge the degree of spot tightness or market conditions will inevitably lead to certain distortions. In the future, intra-month arbitrage will become an opportunity for market funds to pursue. </p
