At present, the commodities with negative prices in the world are mainly from the energy sector, including electricity, natural gas and crude oil. Its common feature is that the cost of production equipment start and stop is high, and it is difficult to store and transport. When there is a large gap in the short-term demand side or a large increase in the supply side to form a pattern of oversupply, negative prices may occur. At this time, the manufacturer needs to pay a certain fee to the user for selling the goods.
Generally, the price of goods with negative price fluctuates a lot. In terms of the dispersion degree of the worlds major commodity futures prices from 2018 to now, among the top 10, there are seven varieties related to natural gas, electricity and oil, highly overlapping with those with negative prices (Figure 1).
uff082uff09 Sorting out the negative price of commodities in history
1. Negative electricity price.
The main reason of negative electricity price is that the supply exceeds the demand in a short period of time and it is difficult to adjust the supply. In the conventional power supply, except the gas turbine can be started and stopped flexibly, the cost of start and stop and regulation of coal power and nuclear power is high, the speed is slow, and the technology has a bottleneck. When the natural environment is suitable, the wind power, solar energy and other power generation capacity increase significantly, resulting in oversupply of the market. In order to avoid the economic loss caused by the start and stop of coal power generation, as long as the negative price cost is lower than the start and stop cost, the general choice is to pay back to get the right to continue to generate electricity. Take Germany as an example. In the past 20 years, Germany has vigorously promoted clean energy. In 2018, renewable energy accounted for 40.4% of public electricity consumption, and for the first time, it exceeded coal power generation by 38%. According to the European electricity exchange, in the past decade, Germany has seen a negative electricity price for dozens of hours every year (Figure 2). In October 2019, Germanys negative electricity price lasted for nearly 31 hours, and the wholesale electricity price per thousand degrees needed to be pasted back to consumers at $98.
2. Negative natural gas price.
Negative natural gas prices first appeared in the United States. The United States is the worlds largest producer of natural gas. Due to the continuous progress of fracturing and horizontal drilling technology, the market is oversupplied. Different from the global pricing of crude oil, natural gas is limited by transportation and does not have the ability of global circulation, so regional pricing is mainly adopted. On March 28, 2019, the price of natural gas at the waha hub in West Texas fell to a negative value for the first time in history (Figure 4). The producer needs to pay for the buyer to transport the natural gas. On April 3, the price of waha natural gas fell further to - 5.75 US dollars per million BTU, 8.42 US dollars per million BTU lower than the price of Henry center, the US natural gas benchmark. In early March 2020, the price of natural gas in waha fell again below - 0.5 USD / million BTU, the first time in this year.
The main reason for the negative gas price in vaha is that the natural gas in the area is the by-product of oil production - associated gas. When the oil production increases and the natural gas pipeline capacity is insufficient, in order to ensure the continuous production of oil, the producer would rather pay the user to transport the natural gas.
3. Negative crude oil price.
4. Negative onion price.
In 1955, onion futures became the most popular variety of CME in the United States, accounting for more than 20% of trading volume. Influenced by two traders kosuga and Siegels hoarding and price manipulation events, in March 1956, the price of onion 03 contract fell rapidly from $2 / 50LB to 15 cents / 50LB on the last trading day, even lower than the price of its packaging bag. Because of the negative price of onion in the market, the farmers have to pay a high price, which is used for the accumulation of onions, so a large number of farmers go bankrupt. This event directly led to the introduction of the onion Futures Act on August 29, 1958, which prohibited onion trading as a futures product. The bill is still in force today.
In addition, in the field of chemical industry, some by-products that are not easy to store and transport often have negative prices, such as liquid chlorine, by-product of chlor alkali industry, sulfuric acid, by-product of copper smelting, etc.
2u3001 Economic significance of negative commodity price
uff081uff09 Negative price is the proper attribute of commodity, not price failure
uff082uff09 Negative price helps to alleviate the oversupply and change the production and living mode on the demand side of commodities
Negative commodity price can form certain economic incentive to demand side. Taking electric power as an example, negative electricity price encourages users to change the mode of electricity consumption, carry out economic activities in the low valley of electricity consumption, and stimulate the demand of making money from electricity consumption and staggered consumption in the economic society. On the one hand, power plants do not need to build a large number of transmission and transformation assets for a short period of peak load, resulting in waste, reducing the inefficient investment of power grid and the cost of resource and environment use, and alleviating the oversupply. On the other hand, negative price provides another staggered production mode for energy intensive industrial enterprises, which helps to reduce the energy consumption cost of enterprises. From this point of view, the negative price mechanism plays a certain role in improving the overall efficiency of society.
3u3001 The influence of negative price of goods and relevant suggestions
uff081uff09 Under the imbalance of supply and demand, the negative price of bulk commodities may become the new normal, and be alert to the risk of large price fluctuation
Although negative electricity price and negative gas price are common, power and natural gas are regional pricing with little influence. WTI crude oil futures, as an important pricing benchmark of bulk commodities, has a negative price, which has a far-reaching impact, and will change the inherent concept of lower limit of commodity price in the economic society. One possibility is that negative prices improve the commodity price discovery mechanism and will be accepted by more markets in the future like negative interest rates. In the case of economic downturn and strong uncertainty in the future caused by the epidemic, the probability of negative price of commodities may be increased, especially those in the energy and chemical fields that are not easy to transport and in short stock. At present, heavy oil prices in the United States, Canada and other places continue to be negative, and Morgan Stanley predicts that European natural gas prices may fall to a negative value this year. The negative price mechanism of futures increases the range of price fluctuation, so we need to be alert to the risk of sustained and substantial fluctuation of domestic and international commodity prices.
uff082uff09 With the global energy industry clearing up rapidly, Chinas capital market should vigorously support the transformation and upgrading of relevant enterprises, resource integration and risk management
uff083uff09 Negative oil price forces overseas futures market participants to speed up the improvement of risk control ability, and Chinas futures industry will face greater competition challenges
uff084uff09 Overseas exchanges may expand the range of futures supporting negative prices
The US has always adhered to an open and inclusive regulatory environment for futures market innovation. The Commodity Futures Modernization Act of 2000 gives more innovation authority to exchanges. CFTCs regulatory philosophy is that, in line with the commodity trading law and the rules and regulations of CFTC, the regulatory should maintain forward-looking thinking and innovation awareness, and the market should follow the principle of risk taking investment. For example, in December 2017, when the legal status of virtual currency is not clear, relevant regulations are still exploring, and the SEC holds a completely negative attitude, CME and other three exchanges listed bitcoin futures through the self certification process, which has been greatly disputed by the market. However, the CFTC firmly supports this and believes that bitcoin futures is a market innovation under the compliance framework. In view of this, we judge that first, CFTCs post intervention will pay more attention to insider trading, market manipulation and other illegal acts in this event, rather than stop the exchange to support negative pricing. Second, more exchanges may support negative pricing in the future. For example, ice exchange has announced that it will modify the pricing mode of some oil contracts to support negative prices. CME may also expand the 51 oil derivatives (Annex 2) supporting negative prices in the April 3 announcement to other commodity categories, such as natural gas, which is widely speculated by the market.
China has taken the lead in entering the stage of economic recovery and accelerated the resumption of production. The first suggestion is to seize the opportunity, further optimize the system of ine crude oil futures, facilitate the participation of domestic and foreign investors, enhance the depth and vitality of the market, promote more domestic and foreign enterprises to use ine crude oil futures for pricing and risk management, and enhance their influence. Second, accelerate the R & D and listing of oil related futures options, and provide more risk management tools for entities. The official account is the WeChat public No. China Financial Research Institute, and the CSI Financial Research Institute is the Policy Research Institute of the China Securities Regulatory Commission. The original title is analysis and suggestions on the negative price of commodities in history (this article comes from surging news. For more original information, please download the surging news app). This source: surging news editor in charge: Zhang Meipeng nf2100
China has taken the lead in entering the stage of economic recovery and accelerated the resumption of production. The first suggestion is to seize the opportunity, further optimize the system of ine crude oil futures, facilitate the participation of domestic and foreign investors, enhance the depth and vitality of the market, promote more domestic and foreign enterprises to use ine crude oil futures for pricing and risk management, and enhance their influence. Second, accelerate the R & D and listing of oil related futures options, and provide more risk management tools for entities.
The official account is the WeChat public No. China Financial Research Institute, and the CSI Financial Research Institute is the Policy Research Institute of the China Securities Regulatory Commission. Analysis and suggestions on the negative price of commodities in History)
(this article is from surging news. For more original information, please download surging news app)