Crude oil

API crude oil inventories fall

There is still no clear answer to the question of the decline in European demand due to the epidemic. The data given by some research institutions are also very different, ranging from more than 1 million barrels/day to 2 million barrels/day. We believe that tracking the high-frequency demand can only be observed from alternative data dimensions such as the TomTom Traffic Congestion Index and Google Mobile Data. Currently, the traffic congestion index has just begun to decline from last year’s 70% quintile, although it is not obvious yet., we expect the decline to accelerate in the future. In addition, the recent sharp decline in diesel inventories in ARA region is not due to the improvement in European consumption, but the opening of the transatlantic diesel arbitrage window (due to the reduction of refinery production, the US diesel price is higher than Europe), the number of diesel arbitrage cargoes increased significantly from Europe to the US, while European domestic consumption will continue to weaken due to the closure of the city.

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 3rd, 2020, the position on I2101 contract decreased by 259 and closed at ¥799.5 per ton, the position on I2105 contract increased by 1008 and closed at ¥735.0 per ton.

【Important Information】

1. Mysteel: IRC’s production and sales report for the third quarter of 2020 shows that the company’s K&S mine industry produced 666,000 tons of iron ore in the third quarter, a decrease of 8.2% from the previous quarter and an increase of 7.7% year-on-year; the sales of iron ore in the third quarter was 652,000 tons, a month-on-month decrease of 9.1% and an increase of 8.3% year-on-year.

2. Brazilian steel ore producer Usiminas released a report on its operations for the third quarter of 2020. In terms of output: Usiminas’ iron ore output in the third quarter was 2.32 million tons, an increase of 15% from the previous quarter and a year-on-year increase of 3%. The increase in output was mainly due to the resumption of normal operations in the concentrator that was routinely overhauled last quarter. Sales: Usiminas sold 2.29 million tons of iron ore in the third quarter, an increase of 21% month-on-month and a year-on-year decrease of 7.3%. Among them, 23.5% of iron ore production is supplied to Usiminas' own steel mills, 67.9% of iron ore sales are exported to overseas markets, and the remaining 8.6% is sold in the Brazilian domestic market.

3. In terms of spot, the PB powder in Rizhao Port was ¥863 per ton, BRBF price was equivalent to ¥902 per ton, the best delivery Karara was equivalent to ¥857 per ton

【Trading Strategy】

1. Arbitrage: The port inventory in this week was about 2.06 million tons and the inventory continued to accumulate. Overall, the supply of iron ore exceeds demand, and the shipments from Australia and Brazil have increased month-on-month, and there is pressure on the spot in the later stage. In terms of valuation, the price of Karara is around ¥850. After the discount is repaired, the upward momentum is weak. On the futures side, iron ore is still suitable for short position in the black sector. At present, the demand is good, molten iron output is not decreasing, and the stock-to-sales ratio is still relatively low, the spot price fell slowly. In the short term, it is 01 iron ore will stay in the range between 750-800, if it falls below this range, we have to see the production decrease on molten iron production.

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

PTA

PTA: Another new production capacity of Xinfengming was put into production, and PTA basis weakened again.

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 remain weak

On November 3, the main RU contract closed at 15,095 (-160) yuan/ton, the price of mixed rubber was 11,650 (-175) yuan/ton, the basis of main contract was -445 yuan/ton (-90); the open interest of top 20 main long positions was 100,267 (+941) lots, the open interest of top 20 main short position 129,993 (+5475) lots, and the net short position was 29,726 (+4534).

On November 3, the main NR closing price of NR contract closed at 10,525 (+5) yuan/ton, the STR in Qingdao Free Trade Zone was 1,595 (-15) US dollars/ton, the SMR was 1,595 (-15) US dollars/ton, and the SIR was 1,590 (-20) US dollars/ton. The basis of main contract was 121 (-151) 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 (0), cup lump 38.85 (-2.05), latex 64.30 (-2.7), RSS3 68.36 (-4.96).

As of October 30, 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 price of raw materials in the main areas continued to decline. Yesterday, the price of raw materials in Thailand still fell sharply. The price of rubber continued to fall. People who hold the long positions continued to leave the market after the gain, resulting in a substantial decrease in the top 20 main long positions of SHFE rubber. The weakening of spot prices is even more pronounced. Yesterday the basis continued to be weak, which caused a short-term drag on the market. 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.