Crude oil

Covid-19 in Europe continues to worsen, home isolation may restrict the consumption of gasoline and diesel

Covid-19 continues to rebound in European and American countries. Although the mortality rate is low, the total number of deaths has risen due to the large infection base. On October 21th, Ireland announced a six-week home quarantine order, Ireland is the first country in Europe to restart home quarantine. The country has also begun to close schools, bars and other public places, and at the same time impose curfews. We believe that such loose epidemic prevention measures are difficult to prevent the current worsening trend of the epidemic. It is expected that more European countries will restart home quarantine in the future. We need to pay attention to TomTom traffic index in the near future. Congestion index and other high-frequency travel data indicators, if other European countries also start to lock down cities, it is expected to have a downward pressure on the diesel cracking spread. (Europe is dominated by diesel vehicles) and it will also have a greater negative impact on the overall oil consumption in the fourth quarter.

In addition to Covid-19, the impact of the current weather is also worthy of attention. Some market views believe that winter will boost energy consumption. We think this logic is questionable. First of all, there is no final conclusion on whether the northern hemisphere will be cold this year, although the La Niña phenomenon is basically confirmed. However, the La Niña phenomenon is just the abnormal currents in ocean which is not directly related to the weather and temperature. La Niña is only a factor that affects the temperature, it also depends on the impact of other weather systems such as cold air masses. Secondly, the current heating oil consumption areas are mainly in Europe and America (mainly in the East of the United States), Japan also has some kerosene heating consumption, therefore it really depends on the temperature changes in Europe and America this winter. If only the temperature in Asia is colder, the boost to global oil heating consumption is very small. In addition, the most important thing is to consider the impact of epidemic on the transportation demand. After all, from the overall structure of consumption, the bulk of diesel consumption is still in the transportation field.

Strategy: Neutral and bearish relatively, reverse cash and carry arbitrage strategy on Brent, long the sixth lines and short the first line

Risk: supply disruption caused by geopolitical events and sustained sharp depreciation of the US dollar

Iron Ore

On October 23th, 2020, the position on I2101 contract decreased by 5862 and closed at ¥769.0 per ton, the position on I2105 contract increased by 7301 and closed at ¥715.5 per ton.

【Important Information】

1. Media news: British Liberty Steel Group (Liberty Steel) restarted the production of Indian steel manufacturer (Adhunik Metaliks Ltd) and Zion Steel Plant. It is reported that Liberty Steel acquired Adhunik Metaliks in February this year. Adhunik Steel Plant has sponge iron equipment, blast furnaces and electric arc furnaces with an annual capacity of 500,000 tons, ferroalloy plants and captive power plants.

2. According to the media reports, the Japan Iron and Steel Federation stated that Japan’s crude steel production in September fell by 19.3% year-on-year, the seventh consecutive month of decline. Due to the decreasing demand, Japan's two largest steel producers, Nippon Steel Corp and JFE Steel have briefly shut down several blast furnaces equipment. In mid-September, JFE Steel restarted its blast furnace in Fukuyama in western Japan in response to the recovery in downstream steel demand. In addition, Nippon Steel plans to restart a blast furnace in Kimitsu in eastern Japan in November.

3. In terms of spot, the PB powder in Rizhao Port was ¥865 per ton, golden bubba powder price was equivalent to ¥933 per ton,

【Trading Strategy】

1. Last week, due to the completion of some port berth maintenance, the overall delivery volume of iron ore in Australian and Brazil increased, the arrival volume remained at a high level, and the arrival of non-mainstream mines also remained at a relatively high level. The volume of dredging port continued to decline this week, and the volume in the port continued to maintain a trend of accumulation. Under the influence of limited production during the heating season and under the maintenance of the blast furnace, the average daily iron output decreased, the daily consumption of imported iron ore decreased, and the demand for iron ore was suppressed. With the seasonal decline of steel mill production, high inventories restrict the space for rising prices of finished materials, the prices of iron ore lack strong upward momentum, and there is still a greater pressure to reduce prices in later stages, but the range of discount is relatively large. It is expected to be weak and volatile. It is suggested to long 01 coking coal and short on 01 iron ore

2. Option strategy: It is advised to hold the short position on i2101-C-870. (For reference only)

PTA

PTA: The production and sales of polyester has slowed down, TA meets the expectation for new production

In October, we will continue to estimate the de-stocking, follow up by the implementation of the overhaul and the continuity of demand improvement. There is an expectation of rigid accumulation in November and December.

In terms of the unilateral strategy, it is advised to be neutral; for the strategy across varieties, the current TA pattern is long in short-term and short in long-term, in late October, there is a chance to continue the rebound; in addition, the accumulated warehouse concerns from November to December followed by the peak of seasonal terminal loaded, and the rebound gives space for varieties allocation; for strategy across period, it is advised to focus on the reverse cash and carry strategy opportunity after the next round of TA overhauls fulfilling and rebound of 1-5 spread. It is advised to focus on PTA factory inspection and fulfillment wishes, and the downstream restocking space and improvement of demand.

Natural Rubber

RU: October 23th, 2020, the main force contract of RU01u p by 55 or 0.37% and closed at 14,895. The main force contract of JRU03 up by 12.3 or 5.60% closed at 232.1. Yunnan WF closed at 13,850 to 14,250 yuan per ton. Hainan SCRWF closed at 14,250 to 14,300 yuan per ton, the secondary standard rubber closed at 12,300 to 12,400 yuan per ton, and Thailand’s RSS3 closed at 18,400 to 18,600 yuan per ton.

NR: The main force contract of NR12 up by 50 or 0.46% and closed at 10,975. The main force contract of TF01 up by 0.4 or 0.25% closed at 162.2. the price of Qingdao rubber in USD was narrowed. The spot or CIF of STR20 was $1,678 to $1,700 per ton. The CIF of SIR20 in October was $1,610 to $1,620 per ton. The CIF of mixed rubber from Thailand in December was $1,620 per ton to $1,630 per ton.

News from China Association of Automobile Manufacturers: Shihua Chen, general secretary of the Association of Automobile Manufacturers of China, said that it is expected that the decline in automobile production and sales this year may be about 4%. Our country’s auto industry has recovered better than expected, and the decline in production and sales in the first three quarters has narrowed to less than 7%. This is due to a series of policies to promote and stabilize auto consumption issued by the national and local governments, as well as the industry companies actively stabilize the industrial chain. The action has effectively ensured the rapid recovery of the auto market.

Futures Operation Advice: The volume of rainfall increased in Thailand recently, with an average daily rainfall of 11.26mm. As of last Friday: Shanghai Futures Exchange, RU inventory with a total amount of 244,000 tons, and the inventory futures was 222,000 tons. The difference between the two was 22,000 tons. The week-on-week deceleration was 34.2% and the year-on-year deceleration was 67.9%; the subtotal of NR inventory was 40,000 tons, the week-on-week ratio is narrowed. Tire production lines are spurred by expectations of price increases, and finished goods inventories have declined. For the main RU01 contract, it is suggested to long a slight position and set a stop loss at 14640 points. (For reference only)