Crude oil

The production-restricted alliance considers delaying a quarterly increase in production

Yesterday, oil prices fell first and then rose. Due to the decline in demand and the rapid increase in Libya’s production, the possibility of the production limitation is increasing. Yesterday news reported that Rosneft and the Minister of Russian Energy discussed the possibility of extending the production cut. We think that this is OPEC or Russia’s usual plan to stabilize the market’s expectations to boost oil prices through speeches, and then internally discuss whether to postpone it. We believe that the market has now realized the plan for postpone the output increase (postponed by one quarter), so if the future plan fail to to be fulfilled, it will have a negative impact on the market. The market expectation management of the production alliance is not successful. The future will still depend on the JMMC meeting at the end of November. In addition, the Ministry of Commerce yesterday announced a crude oil import quota for next year, an increase of 20% year-on-year. This is mainly due to the commissioning of private large-scale refining (Rongsheng Phase II and Shenghong). However, the core issue is still the export of refined oil and the increase in domestic demand for refined oil. The demand increases for oil is weak, if the export of refined oil cannot continue to grow, domestic refineries will accelerate their involution, thereby restrict the growth of operating rates and the growth of crude oil imports.

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 November 2nd, 2020, the position on I2101 contract increased by 4259 and closed at ¥791.5 per ton, the position on I2105 contract increased by 688 and closed at ¥732.5 per ton.

【Important Information】

1. Mysteel: According to statistics from the World Steel Association, in the first three quarters of 2020, 38 countries and regions (accounting for 99% of global blast furnace pig iron production in 2018) produced 967 million tons of blast furnace pig iron, a year-on-year decrease of 2.1%, of which September output was 109 million Tons, an increase of 1.6% year-on-year. In the first three quarters, 12 countries (accounting for 85% of global direct reduced iron production in 2018) had direct reduced iron production of 61.985 million tons, a year-on-year decrease of 10.1%, of which September output was 6.84 million tons, a year-on-year decrease of 10.4%.

2. Media reported that Metso Outotec recently signed a contract with Beijing Shougang International Engineering Technology Co., Ltd. to provide new technologies for Zhongtian Iron and Steel Industry to be built in Nantong, China. The core of the plant is Metso's mobile hardening furnace with a grate area of 432 square meters. The specific amount of this contract has not been disclosed, and the contract has been included in Metso's order for the third quarter of 2020.

3. In terms of spot, the PB powder in Rizhao Port was ¥860 per ton, BRBF price was equivalent to ¥915 per ton, the best delivery Karara was equivalent to ¥854 per ton

【Trading Strategy】

1. Arbitrage: This week, a new shipment data shows that with the completion of port maintenance at the shipping berth, the shipment volume from Australia and Brazil has increased, returning to the mid-to-high level, and the overall shipment volume has exceeded the volume in the same period in history. In the autumn and winter, the policy of environmental protection and production restrictions in the northern region are tightened, the operating rate of steel plants is limited, the willingness of downstream steel mills to replenish storage is not strong, and the demand is weak. In terms of ports, the average daily port volume has declined, port inventories continue to maintain a trend of accumulation, and structural problems of the port still exist. The inventory of pellets and lump ore is high, and the inventory of coarse powder is low. 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: Yisheng's inspection and repairs are fulfilled, and the production and sales of filaments are normal

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

Rubber: Raw materials have dropped significantly, and rubber prices continue to fall

On November 2, the main RU contrract closed at 15,255 (-425) yuan/ton, the price of mixed rubber was 11,825 (-525) yuan/ton, the basis of main contract was -355 yuan/ton (-200); the open interest of top 20 main long positions was 99,326 (- 6381) lots, the open interest of top 20 main short position 124,518 (-2010) lots, and the net short position was 25,192 (+4371).

On November 2, the main NR closing price of NR contract closed at 10,520 (-345) yuan/ton, the STR in Qingdao Free Trade Zone was 1,610 (-145) US dollars/ton, the SMR was 1,610 (-130) US dollars/ton, and the SIR was 1,610 (-90) US dollars/ton. The basis of main contract was 275 (-289) yuan/ton.

As of October 30: the total inventory of the exchange was 247,910 (+3985) lots, and the warehouse receipts of exchange were 221,030 (-490) lots.

Raw materials: sheet rubber 71.19 (-2.36), cup lump 40.90 (-3.8), latex 67 (-7.5), RSS3 73.32 (-6.69).

As of October 29, the domestic all-steel tire operating rate was 75.3% (-0.02%), and the domestic semi-steel tire operating rate was 71.01% (+0.2%).

Viewpoint: The epidemic situation in Europe and the United States has intensified, overseas capital markets and crude oil have plummeted, which has led to a weakening of the market atmosphere. Affected by the sharp drop in market prices, raw material prices in Thailand’s main producing areas also experienced a significant drop yesterday. The drop in spot prices was even more pronounced, leading to a weaker basis. This week the US general election brings greater risks of macro uncertainty, and it is advisable to wait and see in the short term. In the later period, the main focus is on the recovery of production and the fluctuation of raw material prices in the production areas. The short-term support for SHFE rubber is mainly from the warehouse receipt cost of the latex raw materials in the main production area in Yunnan. The current support is still strong, and the TSR 20 is weaker, mainly because the restart of Europe has a greater impact on its downstream tire demand.

Strategy: Neutral

Risks: a substantial increase in production, continued accumulation of inventories, a substantial decrease in demand, etc.