Crude oil

Crude oil: Market sentiment tends to be optimistic, but the inflation risks should not be ignored

Last week, the overall crude oil sentiment tended to be more optimistic. From the perspective of investment banks and CFTC position data, it can be seen that the market is still optimistic about future oil prices. Last week, Goldman Sachs, Morgan Stanley and other major banks raised their oil price forecasts. Taking Goldman Sachs as an example, it previously predicted that Brent crude oil would rise to $65/barrel at the end of this year, and last week advanced its forecast to July. Judging from the core logic of the Goldman Sachs report, the core motivation for the revision still comes from the US fiscal stimulus policy and Biden's foreign policy. After the Democratic Party takes over both houses of Congress, it is expected that Biden’s fiscal stimulus policy will be smoother, thereby boosting the U.S. economy and gasoline consumption and due to congressional riots, Biden may focus more on domestic affairs in the early days of taking office. Thus postponing the time to re-reach a diplomatic agreement with Iran. However, we believe that the current inflation risk brought about by the rebound in oil prices cannot be ignored. From the perspective of the Fed, it does not hope that inflation will rise quickly. Previously, the Fed revised its monetary policy framework and used an average inflation level of 2% as a monetary policy observation. Indicators have already released some signals. However, the recent rapid rise in inflation and real interest rates have made the market expect stronger monetary policy tightening by the Federal Reserve. However, for the United States, due to the increase in debt caused by the epidemic, it does not hope that interest rates will rise sharply. Therefore, from the Fed’s point of view, it does not want to see inflation increased too fast. This means that for the United States, it does not want to see a sustained and substantial increase in oil prices. Then for the US government, if it wants to depress oil prices There are two potential paths. On the one hand, it is to sell strategic oil reserves (currently planned to be implemented), on the other hand, to re-establish diplomatic relations with Iran and Venezuela as soon as possible. Therefore, we believe that there are still many political methods in the United States that can suppress oil prices. Therefore, we should not ignore the risk of a rebound in inflation brought about by the current rapid rise in oil prices.
Strategy: Be cautious.

Risk: Iranian oil returns to the market, the U.S. dollar appreciates sharply, and the epidemic develops beyond expectations (For reference only)

Iron Ore
Iron Ore

The price of iron ore futures decreased, the position on I2105 contract closed at ¥1047.5 per ton, the spread of Iron 5-9 contract is 73.5. In terms of spot, the PB powder in Rizhao Port was ¥1,135 per ton, the discounted SSF price was ¥1190 per ton.

【Important News】

1. According to Mysteel's statistics, the imported iron ore inventory at 45 ports is 12,411,700 tons, an increase of 1,446,700 tons on a week-on-week basis, the average daily port volume of 2,965,500 tons decreased by 57,600 tons.
2. Mysteel surveyed 247 steel mills with a blast furnace operating rate of 84.24%, a week-on-week drop of 1.04%, which was flat year-on-year; blast furnace ironmaking capacity utilization was 91.24%, a month-on-month decrease of 0.53%, and a year-on-year increase of 5.69%; steel mill profitability was 87.45%, month-on-month A decrease of 2.16% and a year-on-year decrease of 6.06%; the average daily molten iron output was 2.4287 million tons, a month-on-month drop of 14,100 tons and an increase of 151,500 tons year-on-year.
3. The average operating rate of 71 electric arc furnace steel plants nationwide was 66.41%, an increase of 1.79% on a week-on-week basis and a year-on-year increase of 40.11%.

【Trading strategy】

1. At present, the total iron ore inventory at 45 ports is 124.11 million tons, compared with the 1.45 million tons accumulated in the last Thursday. Brazil has a larger accumulation of iron ore. From a regional perspective, except for the closure of the port, ships are not able to reach the port smoothly. In addition to the decline in port inventory, the rest have varying degrees of accumulation. Entering the first quarter, there was a seasonal decrease in supply from the fourth quarter. Concerned about the formation of the Western Australia hurricane and whether it has caused a drop in shipments. In addition, it is reported today that Vale and PDM ports are on fire, which may affect the shipment of calf powder, but the fire has been extinguished and the impact is expected to be limited. On the demand side, the average daily molten iron dropped by 1.41 to 2.4287 million tons and the average daily dredging port decreased by 5.8 to 2.965 million tons. The overall molten iron production level was acceptable. The current discounted spot warehouse receipts of iron ore are relatively large and the space below is limited. Under the circumstance that the demand for next year is still acceptable, it is suggested to hold the long positions on iron ore. (for reference only)
2. Arbitrage: Short on coke and long on mines.

PTA

PTA: The port inventory destocks, but the arrival volume at the port in January increased
The balance did not change much in January, with the mainland leaning on warehouses, while the ports departed from warehouses. From the perspective of changes in total inventory, it is still a strong product in the chemical sector. In terms of the unilateral strategy, it is advised to be cautions on the long position, arbitrage opportunity is ready. For cross products: The methanol/PP inventory ratio dropped from January to February and the MTO price gap continued to shrink. For the risk, the decline in the negative rate of polyester year ago and the continued improvement of the supply and demand of aromatics by gasoline premium

Natural Rubber
Rubber: Supply-side provides the support, future prices supposed to increased.
Last week, the price of rubber fell first and then rose. The overall price fluctuated upward. In the first half of the week, concerns about the spread of the domestic epidemic in a small area and the rebound of the US dollar index led to a drop in the price of rubber. The price rises again. The total inventory of domestic exchanges was 173,832 tons (+230) and the amount of futures warehouse receipts was 163,870 tons (+2000). The domestic production was completely stopped and the increase in warehouse receipts continued to slow down recently. As of January 10, inventory in Qingdao Free Trade Zone maintained a slight downward trend, mainly due to the raw material stocking demand of some domestic tire factories. The focus of spot market prices continued to move up last week. According to Zhuo Chuang's understanding, the release of new rubber supply in the main producing areas is relatively stable, and the release of raw materials in some areas is limited due to the impact of weather and public health incidents. However, it is heard that the current sales of Vietnamese dollar disks are not very active and the sellers are holding the disks and reluctant to sell. The tire factories start construction stably, basically maintained at the level of 6-7, and it is heard that the production rhythm will basically be maintained before the end of the month. As the price of raw materials at the beginning of the week has stabilized, terminal factories have increased their enthusiasm for stocking on dips, and the overall transaction of RMB mixed spot is relatively active. The weekly average price of USD rubber in Qingdao Free Trade Zone increased from the previous month. Recently, Shanghai rubber has declined and the Chinese New Year is approaching and the downstream buying atmosphere has improved, especially when mixed plastic offers are active and transactions have increased.
Viewpoint: The year-on-year supply increase in the main producing areas and the high ocean freight have caused delays in domestic cargoes, slowed the pace of arrivals and the strong supply-side provides the support. Last week, the replenishment of some raw materials at the tire factory also brought about a rebound in the outbound rate of domestic port inventory and the overall inventory still maintained a downward trend, which supported the dark rubber. The Fed’s continued easing of its tune also makes it difficult to reverse the pace of overseas monetary easing in the short term, which is conducive to commodity prices. It is expected that under an active market atmosphere, the price of rubber is expected to continue to rise, and it is recommended to hold the long position.
Strategy: Be cautious

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

Copper

Copper

LME copper prices closed at $7934/ton, down by $150/ton, a decrease of 1.86% and increased 2701 lots to 310,000 lots

【Important Information】

1. Biden urged immediate action on the $1.9 trillion economic stimulus plan, but some relief projects in the proposal were opposed by many Republicans. Goldman Sachs expects that the size of the stimulus that Congress will approve in the short term is expected to be $1.1 trillion. Economists expect a new round of large-scale fiscal stimulus to boost U.S. economic growth this year.
2. Biden will be sworn in as the 46th President of the United States on January 20. All states in the U.S. are standing by. The FBI says six states face major threats of armed demonstrations.
3. In 2021, copper downstream processing materials companies are affected by the epidemic control policies in various regions. In late January, the company's non-local employees have expressed their willingness to take leave and go home. A few cable companies said that they would base on the structure of the proportion of employees in and out of the country. It may stop production at the end of January and arrange a holiday. Other downstream copper processing materials companies generally arrange holidays at the end of January and early February. The holiday time has been slightly extended. Among them, Hebei is affected by the epidemic and the enterprises in high-risk areas have already suspended production. The holiday time had to be earlier than in previous years and the copper rod factory that Jiangxi supplied to it was dragged down by it and the shipment was not good or the holiday will be arranged at the end of January one after another. There is no obvious change. Overall, some companies in Hebei, Jiangxi, and Shanghai may arrange for employees to take vacations in advance and the vacation time in other regions has not changed much compared with previous years. (National statutory holiday: February 11-February 17)
【Trading Strategy】

1. After Biden's stimulus policy was implemented last Friday, the market has shown up in the short term. Starting from January 26, copper downstream enterprises will have holidays one after another. After February, there will be concentrated holidays. The copper market may start to block warehouses from the end of January to the beginning of February. As consumption gradually stops, copper prices may adjust in the short term. Pay attention to the 58,000 yuan/ton support below.
2. Arbitrage: There will be some problems when importing copper to the port from January to February. The Chilean terminal is affected by waves and the container capacity is suppressed by the epidemic and the spot is still tight. The epidemic in Malaysia has worsened and the import of recycled copper is also facing tightening. The seasonal accumulation in the first quarter of this year may not be as good as in previous years, and it is not recommended to consider monthly reverse arbitrage. After consumption resumes after the Spring Festival, arbitrage can be considered.
3.Options: Short on cross market option: CU2102-C-60000 and CU2102-P-54000 (For reference only)