Crude oil

European lockdown may change the equilibrium price of oil in the fourth quarter

Oil prices continued to fall yesterday, and the European city lockdown caused further concerns in the market. Compared with the worst case in the second quarter, the current city lockdown is only implemented in European countries. The Americas, Asia-Pacific and other countries have not yet initiated lockdowns, so in terms of shocks on demand, the intensity is much smaller than in the second quarter. European demand accounted for 15% of total global demand. If we calculated according to the total demand of 95 million barrels/day, European oil demand is roughly 14.25 million barrels/day. Assuming a 30% drop in demand, the impact on demand is about 4.3 million barrels per day, from the perspective of the equilibrium point, this will change the pattern of supply in the fourth quarter and even oversupply situation may occur. In addition, Libya resumes production faster than market expectations, we believe that the market can only be balanced in the short term by relying on the power of OPEC and the production restriction alliance, for now, the production restriction alliance can only postpone the increase in production in January next year. However, it is difficult to continue to decrease the current production and the impact of policy is limited.

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 29th, 2020, the position on I2101 contract decreased by 1076 and closed at ¥802.5 per ton, the position on I2105 contract increased by 188 and closed at ¥742.5 per ton.

【Important Information】

1. SMM: A few days ago, Champion Iron, a company listed in Australia, said that its iron ore output increased in the end of September due to the industry of Bloom Lake in Quebec province, resumed full operation. Data show that as the end of September, the Bloom Lake industry produced 2.2 million tons of iron ore, all of which were high-grade quality of iron ore, the quantity was higher than the 2.1 million tons in the same period last year.

2. Development and Reform Commission: According to data from the General Administration of Customs, from January to September, our country’s total imports of iron ore and concentrates amounted to 86.462 million tons, a year-on-year increase of 10.8%. According to data from the China Iron and Steel Association, as of the end of September, the price of imported fines (62% grade) was US$119.96/ton, an increase of US$30.01/ton or 33.4% over the same period last year.

【Trading Strategy】

1. In terms of supply, some iron ore shipping berths in Australia and Brazil are under the maintenance. It will affect about 1.5 million tons of shipping volume in Australia, while the Brazilian shipping impact is relatively small. The number of shipments were generally stable and increased. The shipment number in Australia performed strongly, the shipments in Brazil are subject to large fluctuations, but the market expects its shipments to rebound. In terms of demand, the volume of dredging ports has decreased, the average daily iron ore output has fallen from the high level, and the daily consumption of imported iron ore has decreased. The demand has been suppressed under the pressure of limited production during the heating season, and the downstream steel mill industries are not willing to restock, 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

The sales and production of polyester are still weak, TA continues to fall

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

The most active traded NR contract fell by the lower limit of 6% to 11,280 yuan per ton. Affected by the epidemic and Libya's lifting of crude oil exports, the chemical sector weakened. Because TSR 20 and synthetic rubber have greater replace ability in tire rubber and are highly relevant to the petroleum chain, they have become the target of capital suppression. The market depth of TSR 20 is not high and liquidity is average. Compared with SHFE rubber, it is more susceptible to capital and emotion. In addition, from the perspective of global rubber production from November to December, it is the peak supply season. Exports of standard rubber in Southeast Asia may increase. The domestic SCRWF is mainly produced in Yunnan. Compared with standard rubber, the certainty of production reduction is stronger. There are also some investors who long the SHFE rubber and short the standard rubber to arbitrage. It is expected that the price of NR will be weaker due to weak oil prices and repeated epidemics.