Rubber Options: Aggressive or conservative, which strategy has a large profit opportunity

- Jun 10, 2019-

A global rubber production capacity is still high


The report of the Natural Rubber Production Federation (ANRPC) at the end of April updated the expectations for rubber planting and production in 2019. In terms of planting, the new planting area of rubber forest reached its peak in 2012, and the total planting area reached a high of 12.2 million hectares in 2016. However, as the price of rubber has fallen year after year, the new planting area has also declined.


Although the new rubber planting area has declined slightly in the past two years, the total planting area of rubber forests is still high. According to ANRPC's expected data, the planting area of ANPPC's major member countries will remain at around 12 million hectares this year. In recent years, rubber planting has begun to increase in low-latitude regions of South America and Africa driven by interest. The global rubber planting area continues to grow, and global rubber production capacity is still at a relatively high level.


Judging from the expectation of ANRPC for the cutting area of member states, the open area in 2019 is expected to reach 928.99 million hectares, an increase of 2.48%. Despite the low price of rubber, the opening area that continued to rise in 2019 has sustained upward support for rubber production.


On the other hand, the impact of the El Niño phenomenon on future rubber production is still worthy of continued attention. In the years that the area of open cutting continued to grow, in 2016, overall production declined due to persistent high temperature and drought in Southeast Asia. In 2019, Southeast Asian countries may again explode similar climate problems, which will have certain impact on future rubber output.


According to the current data, the main member countries produced a total of 1,872,400 tons of rubber in the first two months, a decrease of 6.63% year-on-year. The impact of El Niño is evident. The first quarter is the off-season of rubber production. If the weather remains hot in the second and third quarters, the total output of major Southeast Asian countries is expected to decline this year.


Thailand, Indonesia and Malaysia are the major rubber exporters. In the past two years, rubber production has increased year by year. However, through the efforts of the three countries in 2018, the export volume has decreased to 10.125.59 million tons, a decrease of 2.88%.


The total amount of rubber exports in the three major producing countries this year has not increased significantly. In the future, according to the Tripartite Rubber Committee (ITRC) of Thailand, Indonesia and Malaysia, the “Restricted Export Tonnage Plan” will be issued from April to August. The export volume is expected to decrease by 240,000 tons, which is a signal to further limit rubber exports. It is predicted that the total rubber exports of the three major ANPC countries will continue to be around 10 million tons this year.


At the beginning of 2019, the National Rubber Research Organization (IRSG) predicted that global rubber demand would increase by 2.5% to about 30 million tons this year, of which natural rubber demand reached 14.2 million tons, an increase of 2.6%. From the data point of view, the growth rate of natural rubber demand has slowed down compared with last year.


The current terminal consumption situation partially confirms the expectations of the IRSG at the beginning of the year. Due to the poor sales of the two major consumer markets in China and the United States, the global automotive industry is currently welcoming a wave of “reductions”. As a major source of demand for rubber, tires have also encountered bottlenecks in this year's development. As a major producer, China has not only encountered many double-reverse policies that restrict exports, but its domestic tire industry has also stagnated.


In the case of a slowdown in supply and demand growth, ICSG expects that supply and demand will remain basically balanced this year. However, global inventories are still relatively high. Rubber is still in the destocking stage this year, and considering the higher production capacity of natural rubber, the upward pressure on rubber prices is still relatively large.


B domestic weather or key factors


In recent years, China has continued to pay attention to the self-sufficiency of rubber, so the planting area has remained at a high level. However, Yunnan and Hainan, the main rubber producing areas in China, have suffered from different degrees of drought this year. It is expected that domestic production will decrease under the current planting area.


From the perspective of imports, since the import volume reached the highest in 2017, the import volume of natural rubber has declined. One of the reasons is the decline in terminal consumption, and the other is that importers are more likely to mix due to tax avoidance and other reasons. Natural rubber is imported under the name of glue. Imports have further declined slightly this year. From January to April, imports of natural rubber totaled 650,000 tons, a decrease of 70,000 tons compared with the same period last year.


The domestic and international supply of synthetic rubber has increased relatively over the past few years. Among them, in terms of domestic production, China's synthetic rubber production growth rate ranked first in the world, and the cumulative output growth in 2018 increased again, reaching 7.1%.


In terms of imports, synthetic rubber has increased its import level to a new level due to importers' tax avoidance. In 2018, a total of 4.41 million tons of synthetic rubber was imported, of which the mixture of natural rubber and synthetic rubber reached 2.95 million tons. From January to April this year, the import of synthetic rubber was in good condition, and the import volume of synthetic rubber reached 1.47 million tons, an increase of about 8%.


On April 28th, the General Administration of Customs issued a notice on the classification of “mixed rubber”, requiring a thorough investigation of the mixture of natural rubber and synthetic rubber. It is no longer allowed to use synthetic rubber with only a small amount of synthetic rubber on the surface to synthesize rubber. The name of the import. On May 6 this year, the customs department discussed with the downstream tire manufacturers about the relevant issues of the notice document. After understanding the demand of the manufacturers to reduce taxes, they still insisted on the attitude of strictly following the notice. From a policy orientation point of view, there may be some boost to the price of natural rubber in the future.


Judging from the overall rubber supply level in the first four months, the increase in the supply of synthetic rubber has led to a certain increase in the actual domestic rubber supply. However, after the release of the relevant notice of the hybrid rubber, it is necessary to pay close attention to the customs import data of natural rubber and synthetic rubber in the future.


C downstream consumption is not good


The growth rate of the domestic tire industry has gradually slowed down, and the cumulative production growth last year was only 1%. In 2019, the tire industry was affected by factors such as policies and overcapacity. For the first time in 20 years, production declined. From January to April this year, the cumulative production of tires decreased by 3.6% year-on-year.


Domestic tire exports have been greatly affected by the double-counter policy of the United States at the end of last year and the United States at the beginning of this year. This year, the export volume of all-steel and semi-steel tires has been reduced to varying degrees. The export data of the overall tires performed well temporarily. In the first four months of this year, the cumulative export of tires was 158.11 million, a year-on-year increase of 2.49%.


At present, the export data has not been disclosed this month. It is expected that the short-term domestic tire export volume will still maintain a certain growth, but the future export volume to the US tires is not optimistic. Overall, this year's tire production and export situation is not good, the tire industry has ushered in the biggest challenge in the past decade.


In 2018, the domestic automobile industry entered a cold winter. The cumulative production and sales volume in the whole year showed different degrees of decline, and various automobile brands also experienced large-scale layoffs in China. The decline in automobile production and sales this year is still continuing. The production and sales volume in the first four months decreased by 10.98% and 12.12% respectively. The overall downturn in the automotive industry is not conducive to the production and sales of domestic tires.


As a whole, the global supply capacity is sufficient, and the downstream demand is general. The overall supply and demand for the whole year is still relatively balanced. Due to high inventory and high production capacity, the upward pressure on rubber prices will be higher in the future. However, since May, weather and customs policies are driving the price of rubber to oscillate. In the short term, the future price of rubber will continue to rise.


In summary, our overall judgment is long-term short-term, but there may be a risk of a short-term sharp rise. Future weather, domestic mixed rubber imports, tire export data and domestic downstream policies in major Southeast Asian countries will be the main factors for the sharp changes in rubber prices, which need to be closely monitored.


D option strategy analysis


According to the long-term short-selling, but there may be a short-term sharp rise in judgment, based on the closing price of the market on May 31, the relevant strategies are designed as follows:


Conservative strategy: Based on the short-term future market, there is a certain probability of rising. You can consider holding the currency for a while, waiting for the weather changes in Southeast Asia and China's mixed rubber import data. If the weather turns better and the domestic rubber import data declines less, then you can consider selling the call option above the target RU1909 contract and earn time value on the rallies.


Aggressive strategy: You can use the put option to build a proportional spread strategy. After a small bearish, you can still obtain a small amount of income after the target price rises, and avoid the short-term sharp rise risk.


The strategy consists of buying a RU1909 put option with a strike price of 11,750 yuan/ton and selling a RU1909 put option with a three-handed strike price of 10,750 yuan/ton. The plan is held for a long period of time (1 month - 2 months). ). According to the closing price of the night market on May 31, the closing price of RU1909 is 11,940 yuan / ton, the price of RU1909P11750 is 483 yuan / ton, the price of RU1909P10750 is 184 yuan / ton, the net royalty income generated by each combination of the ratio spread strategy It is about 690 yuan. Investors can adjust the strike price corresponding to the put put option according to their risk preference.


The main purpose of constructing a put option spread spread strategy is to earn time value, and the return is higher when the underlying price falls slightly. Even if the price of the target rises sharply, a small amount of stable income can be obtained, and the overall profit opportunity is relatively large.


Through the strategy closing profit curve under different time and price, it can be seen that when the price falls slightly, the maturity gain is obviously enhanced, and even if the target price rises sharply, it can still obtain a fixed income of 690 yuan when it expires. Overall, the longer the holding of the strategy portfolio, the greater the probability of gaining revenue. Although the maximum risk is controllable, if the price drops sharply in the short term, there will still be a large loss. The breakeven point of the strategy is around 10,250 yuan/ton. Therefore, when the price falls below 10,750 yuan, it needs to be based on the event and Quotes may be considered for liquidation.


In terms of margin, when the target price drops sharply, the margin used by this strategy will increase. It is estimated that the maximum capital occupation during each strategy operation period is 45,000 yuan. In terms of income, if the target price rises or remains unchanged, the annualized yield is about 6.13%. If the target price falls slightly to 11,500 yuan/ton, the annualized yield is about 28.36%.


Risk warning: Selling options have a large margin for the margin, and there is a risk of chasing when the price of the target falls sharply in the short term. When the price falls below 11,250 yuan/ton, please pay attention to your own use of funds. If the price falls below RMB 10,750/ton in the short term, it is necessary to consider the possibility of liquidation according to the actual situation.