Iron ore: active spot market transactions, resulting in new high price level
The overall market sentiment was strong last week, iron ore prices rose sharply, and futures prices hit a new high since listing. Last Friday, the iron ore 2109 contract closed at 1,237.5 yuan/ton, an increase of 149 yuan/ton from last Friday’s closing price, or a week-on-week increase of 13.7%. In terms of spot, due to the impact of futures, iron ore spot quotations have also generally risen. Last week, Qingdao Port’s PB fine reported 1,450 yuan/ton, a week-on-week increase of 162 yuan/ton, and a discount of 1,605 yuan/ton. The main contract basis was 379. The SSF reported 1,085 yuan/ton, an increase of 87 yuan/ton on a week-on-week basis, and a discount of 1,350 yuan/ton. The main contract basis was 123. In terms of spot transactions, the overall market activity was relatively high. Spot transactions at iron ore ports exceeded 2 million tons for two consecutive days.
On the supply side, according to Mysteel’s statistics, the total shipment of Australian and Brazilian iron ore was 24.516 million tons, a decrease of 216,000 tons from the previous week; the total shipment from Australia was 17.26 million tons, a decrease of 2.22 million tons from the previous week; of which 15.12 million tons were shipped from Australia to China, a week-on-week increase of 190,000 tons. Brazil’s total shipments were 7.256 million tons, an increase of 2.004 million tons from the previous week. The total global shipment volume was 32.753 million tons, an increase of 379,000 tons from the previous week. The total arrivals from 45 ports in China was 20.739 million tons, an increase of 2.242 million tons from the previous week; the total arrivals from the six northern ports was 10.95 million tons, an increase of 1.783 million tons from the previous week. The total arrival volume of China's 26 ports was 20.106 million tons, an increase of 2.131 million tons from the previous week. Affected by the extreme weather this week, the volume of iron ore shipments from Australia and Brazil has declined, but the arrivals of China’s 45 ports is still growing.
In terms of demand, according to Mysteel's survey of 247 steel mills, the operating rate of blast furnaces was 80.47%, an increase of 0.39% from last week and a decrease of 7.81% from the same period last year; the utilization rate of blast furnace ironmaking capacity was 90.59%, an increase of 0.66% from the previous week, and a year-on-year increase of 1.46%; The profit rate of steel mills was 90.04%, the same month-on-month, with an increase of 1.73% year-on-year; the average daily molten iron output was 2.4114 million tons, an increase of 17,600 tons from the previous week, an increase of 38,800 tons from the previous year; the operating rate of 163 steel mills’ blast furnaces was 62.02%, an increase of 0.14% from the previous week. The capacity utilization rate was 73.46%, which was basically the same week-on-week. The utilization rate excluding the eliminated capacity was 79.96%, which was 5.03% lower than the same period last year. The steel mill profit rate was 79.14%, which was the same week-on-week. It can be seen from the above data that the operating rate of steel mills’ blast furnaces has continued to rise, steel has entered the peak consumption season, and the overall demand is relatively strong, which also forms a certain support for the raw material end. Steel mills are still active in production driven by high profits. The demand for iron ore has performed well in stages.
In terms of inventory, according to Mysteel's statistics, last week, the country’s 45 ports imported iron ore inventory was 129,577,800 tons, a week-on-week drop of 689,100 tons, of which Australian number was 66.2304 million tons, a week-on-week drop of 15.48 million tons, and Brazilian figure was 38.8899 million tons, a week-on-week drop of 65,600 tons. Trade ore reported 61.818 million tons, a week-on-week decrease of 612,000 tons; pellets reported 4.491 million tons, a week-on-month decrease of 29,000 tons; refined fine stood at 8.6864 million tons, a week-on-week decrease of 205,000 tons; lump ore number was 17.891 million tons, and a week-on-week decrease was 835,000. Coarse fine figure was 98.509 million tons, an increase of 379,000 tons on a week-on-week basis. Inventories dropped slightly this week.
Generally speaking, due to the periodic fluctuations in supply and demand and the impact of frequent market news, the price of iron ore has risen sharply, but in the long run, domestic production restriction still limits iron ore demand, so the increase is not sustainable. In the short term, steel mills' enthusiasm for production, driven by high profits, has not slowed down. It has formed a certain degree of support for the raw material side. Coupled with the improvement of overseas epidemics and economic recovery, iron ore consumption remains relatively strong. However, in the medium and long term, the current iron ore price has been at a high level, and the production limitation policies in various regions have become increasingly strict. Once the scope of production restriction is expanded, the demand for iron ore will gradually weaken, and iron ore market is likely to enter a state of surplus. In the future, more attention should be paid to changes in the policy level. We recommend investors to neutrally hold the current position in the short term and to be bearish in the long term.
Unilateral: Neutrally hold the current position in the short-term, and to be neutrally bearish in the long-run
Cross-species: go long position of thread or hot-rolled coil and short position of iron ore
Spot-Futures Arbitrage: None
Concerns and risks: the intensity of production restriction at the thread and hot-rolled coil end is not as good as expected, the demand for the thread and hot-rolled coil end is strong, and overseas pig iron production has exceeded expectations by a large margin.
Rubber: demand has been restricted, and non-standard spreads are widening
In the early stage of delivery, the prices of raw materials at home and abroad continued to rise, and the strong support of rubber costs combined with the warmer macro sentiment brought about the rebound momentum of rubber prices last week.
The total inventory of domestic exchanges as of May 7 was 178,182 tons (-10), and the amount of futures warehouse receipts was 176,140 tons (-100). In the early stage of domestic delivery, the overall output was limited, and the warehouse receipts and inventories were still at a low level. As of April 25, inventory in the Qingdao Free Trade Zone continued to fall slightly, and the decrease in arrivals at the port was greater than the decrease in downstream acquisitions, resulting in a net outbound status. Based on the fact that overseas production is small and the operating rate of domestic tire factories is still relatively high, it is expected that the port destocking can still be maintained until May.
In the two trading days after the holiday, the prices of all types of rubber rebounded slightly, driven by the overall warm market sentiment. As of last weekend, the rubber premium was 325 yuan/ton (+600) for synthetic rubber. In recent weeks, the price of natural rubber continued to rise and the price of synthetic rubber continued to return, bringing the price difference to a reversal.
In terms of downstream tire operating rate, as of May 6, the operating rate of all-steel tire companies was 51.93% (-21.03%), and the operating rate of semi-steel tire companies was 55.30 (-15.59%). The domestic May Day holiday brought some factory shutdowns, which are expected to resume next week.
Opinion: The current support for rubber prices mainly comes from the raw material side. Because it is currently in the early stage of delivery at home and abroad, the increase in output is limited. In particular, the full delivery of rubber trees in Xishuangbanna, Yunnan, affected by powdery mildew, will be postponed until mid-May. The current delivery rate is only about one-third of the same period in previous years. Rubber delivery in Hainan is normal, but most of the raw materials flow into thick latex. Therefore, the short-term growth rate of exchange warehouse receipts is slow, but it is expected to increase gradually. On the demand side, due to the domestic replacement market and the decline in exports, the operating rate has a downward trend. In the process of rising futures prices last week, the non-standard spreads widened again. In late May, we must pay attention to the pressure of supply release.
Risks: domestic supply increases sharply, demand continues to weaken due to the epidemic and other impacts, and funding may be tight.
Crude oil: temporary closure of the Colonial pipeline, boosting U.S. refined oil prices
Last weekend, the largest oil product pipeline operating company in the United States said that due to Internet hacker attacks on its IT software system, the company took the initiative to shut down all operating pipelines on May 7th, although on May 9th, the Colonial Pipeline The company restarted some branch pipelines and delivery terminals, but its main pipeline No. 1, 2, 3, and 4 are still shut down so far. The company said the pipeline will remain closed until the restart plan is completed.
The Colonial Refined Oil Pipeline is currently the largest refined oil pipeline in the United States. Its main purpose is to transport refined oil produced by the U.S. Gulf refinery to New York Port on the east coast of the United States. Currently, its line 1 transports approximately 1.2 million barrels of gasoline, line 2 transports about 1.5 million barrels of distillate per day, and the delivery place for U.S. refined oil futures is New York Harbor. Therefore, the temporary shutdown of the pipeline led to a reduction in the supply of refined oil in the east of the United States. This boosts U.S. refined oil futures prices, especially for contracts that are close to delivery in recent months. As of April 30, gasoline inventories in the PADD1 area on the east coast of the U.S. were 64.5 million barrels, which is at a historically low level. If the pipeline is suspended for a week, then Eastern US gasoline inventories will fall to a 5-year historical low of 52.4 million barrels. The current recovery of gasoline consumption in the United States is relatively stable. Considering that the United States will enter the peak of summer travel after the Memorial Day of the Martyrs, and the east of the United States is the largest gasoline consumer. If the low inventory status is maintained before consumption starts, it is expected that the current state of relatively high gasoline cracking spreads in the United States will remain. The current cracking price difference between US gasoline and Brent remains above US$20/barrel. In addition, if consumers are worried about the shortage of gasoline and the price increase, they may concentrate on filling up the fuel tank at the gas station, causing a short-term oil run. According to the agency's calculations, if 30 million cars change from 50% of the full fuel tank to full load 90%, the result is that 4 million barrels of refined oil will be extracted from the storage tanks of gas stations. During the two oil crises in 1973 and 1979, consumer runs is one of the important reasons that caused a shortage of refined oil at that time. However, we believe that the restart time of the Colonial pipeline is still the key. Since the physical facilities have not been shut down, and the shutdown of the software system is mainly preventive by the company, we do not believe that the collapse of the Colonial pipeline will remain longer. We believe that the possibility of shutdown for more than 1 week is low. If the Colonial pipeline is shut down for longer than expected, the east coast of the United States will increase the import of refined oil tankers from Europe and the U.S. Gulf region, which means that the region refined oil arbitrage window needs to be opened to cover shipping costs (including the additional costs caused by the Jones Act). But in general, we believe that the incident caused more impulse effects, which will not have a major impact on the current oil market structure. As global refineries gradually resume production from spring inspections, refined oil resources will be regional easing. There may be short-term shortages in the east of the United States, but in the medium term it can be compensated by increasing imports.
Strategy: cautiously bullish, none
Risk: Iran’s nuclear talks are accelerating, and oil sanctions are lifted earlier than expected
策略：1. 单边：谨慎看多 2. 跨市：暂缓 3. 跨期：跨期正套；4. 期权：卖出虚值看跌
关注点：1. 流动性收紧的风险 2. 国内交仓情况 3. 2季度去库不及预期
Copper: copper prices continue to soar in the first week after the holiday
Spot market: According to SMM news, the average price of SMM1# electrolytic copper in the week of May 7 was between 72,600 yuan/ton to 74,280 yuan/ton, and the average premium and discount price of flat copper was running at -70 yuan/ton to -30 yuan/ton from Monday to Thursday. Last week was the first week after the May Day holiday. However, because copper prices continued to show a strong trend, the situation that downstream fears of high prices being reluctant to purchase was very serious, resulting in no transactions for spot market.
Short-term view: Last week, domestic imported mine TC prices rebounded slightly by $0.09/ton to $32.48/ton. However, due to the South American epidemic, there seems to be a violent counterattack again, and the current high freight rates have also caused overseas sources of goods to flow into the country to be limited. In terms of demand, the second quarter is still the traditional peak season for domestic consumption. It is only because the current copper price continues to rise making that downstream purchases are very cautious. However, if prices fall afterwards, it may also stimulate downstream replenishment demand to a certain extent. This makes it relatively difficult for copper prices to fall temporarily. On the macro side, the current market inflation expectations continue to rise, which is more favorable to the prices of non-ferrous metals, including copper. Therefore, under such circumstances, we still maintain a relatively optimistic attitude towards copper prices. This week, we need to focus on the US April CPI data that reflects the level of inflation.
Medium- and long-term perspective: In the medium and long term, macroeconomically, there is a high probability that global central banks will continue to maintain the current ultra-loose monetary and fiscal policies, and the U.S. dollar is expected to remain weak. In terms of fundamentals, the CSPT team failed to finalize the floor price of copper concentrate processing fees in the second quarter of 2021, indicating that the market may have certain differences on the future supply of copper concentrate, but it is still hard to say that it is ample. On the demand side, China’s current control of the epidemic is still very successful, and the new energy and new infrastructure sector will continue to drive copper demand. The probability of destocking of the inventories in the next peak season will form a strong support for copper prices. We temporarily maintain the long-term bullish judgment of copper prices.
1. Unilateral: cautiously bullish
2. Inter-market: postpone
3. Inter-period: forward arbitrage
4. Options: sell at out-of-value put options
1. The risk of liquidity tightening
2. Domestic delivery situation
3. Destocking fell short of expectations in the second quarter
PTA: expectations of destocking continued in May, and the rising sentiment of the energy and chemical sector drives the rise of PTA
Balance sheet outlook: In April, the inventory was largely destocked, and in May it eased to a small to medium destocking, and the destocking rate has slowed down; and pay particular attention to whether the follow-up Yisheng will have more additional maintenance to increase the de-stocking; however, PX changed to a slight destocking expectation in May, focusing on the support of oil adjusting demand for PX.
Strategic recommendations: (1) Unilateral: cautiously bullish (2) Intertemporal: hold the current position, under the circumstance that the price difference of 9-1 has rebounded sharply recently, waiting for reverse arbitrage opportunities when high prices appear.
Risks: The implementation of the PTA plant maintenance plan in April, and the sustainability of the improvement in the supply and demand of aromatics due to the gasoline premium.