Iron ore: long position and short position play against each other, while iron ore market fluctuates.
Opinion and logic:
Yesterday, the spot price of iron ore was stable, and the overall futures were stable and strong. The main contract rose first and fell in the afternoon, finally closing at 1,337 yuan/ton, which was an increase of 30.5 yuan/ton or 2.3% from the closing price of the previous trading day, with open interest increasing 8,516 lots. In terms of spot, the price of imported iron ore at Qingdao Port was temporarily stable on the 12th. PB fine at Qingdao Port was reported at 1,640 yuan/ton, a slight increase of 10 yuan/ton. The overall spot market fluctuated within a narrow range. The market sentiment was mainly cautious and participants were holding their current positions. The overall transaction was average.
This week, various steel mills have successively introduced product price adjustment policies for June. The prices of various steel products have been adjusted to varying degrees. Steel prices are still rising, which also supports the raw materials. On the other hand, as the profits of steel mills increase, in order to increase the output of molten iron, steel is more inclined to use high-grade ore, which makes the price difference between different quality ores continue to expand. Moreover, steel mills are still active in production driven by high profits, and the demand for iron ore has performed well in stages. On the 11th, DCE issued the "Announcement on Soliciting Opinions on Iron Ore Futures Contracts and Relevant Rules Amendments". The announcement made adjustments to iron ore delivery quality indicators, brand premiums and discounts, and delivery methods.
On the 12th, the central bank data showed that the balance of broad money (M2) was 226.21 trillion yuan, a year-on-year increase of 8.1%, and the growth rate was 1.3 percentage points lower than the end of the previous month, and 3 percentage points lower than the same period last year; the increase in social financing in April was 1.85 trillion yuan, 1.25 trillion yuan less than the same period last year, and 179.7 billion yuan more than the same period in 2019. Wang Yiming, a member of the Central Bank’s Monetary Policy Committee, said that although the growth rate of M2 and social financing has fallen from last year’s high base, it has continued to be at a reasonable level on average over two years, reflecting the continuity, stability, and availability of persistent monetary policy.
On the whole, steel is in the peak season of consumption, and the overall demand is relatively strong. Driven by high profits, steel mills are still highly motivated to produce, forming a certain degree of support for the raw material side. The uncertainty of Sino-Australian relations has triggered recent market concerns about the supply of iron ore, which has also promoted the rise of iron ore to a certain extent. However, in the medium and long term, the price of iron ore is currently at a high level, and under the background of "carbon peak" and environmental protection of production restrictions, the production limitation policies in various regions have become more stringent. Once the policy of restricting production is implemented, iron ore demand will gradually weaken, and iron ore is likely to enter a state of surplus. Therefore, as the absolute price of iron ore continues to increase, the risk is further intensified. Therefore, the position needs to be controlled, and more attention should be paid to changes in the policy level in the future. We recommend market participants to neutrally hold their current positions in the short term and to be bearish in the long run.
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
Options: but at out-of-value 09 put options or sell at out-of-value 09 call options
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: The number of arrivals in the port is small, and the port inventory continues to decline.
On May 12, the most-active RU contract closed at 14,290 (+125) yuan/ton, the price of mixed rubber was 12,525 (+125) yuan/ton, the basis of most-active contract was -740 yuan/ton (-175); the open interest of top 20 actively traded long positions was 109,059 (+2,932) lots and the short position was 173,271 (+7,499) lots, net short position was 64,212 (+4,567).
On May 12, the most-active NR contract closed at 11,525 (+125) yuan/ton, the STR in Qingdao Free Trade Zone was 1,670 (-5) US dollars/ton, the SMR was 1,637.5 (-12.5) US dollars/ton, and the SIR was 1,605 (-10) US dollars/ton. The basis of most-active contract was -370 (-49) yuan/ton.
As of May 7: the total inventory of the exchange was 178,182 (-10) lots, and the warehouse receipts of the exchange were 176,140 (-100) lots.
Raw materials: Sheet rubber 61.5 (0), cup lump 47 (0), latex 65.5 (0), RSS3 68.35 (-0.37).
As of May 6, the domestic all-steel tire operating rate was 51.93% (-21.03%), and the domestic semi-steel tire operating rate was 55.30% (-15.59%).
Opinion: The rubber price rebounded slightly yesterday, mainly driven by the surrounding sentiment. The main production areas in Yunnan Province have a low output of dry rubber, which has caused raw material prices to continue to rise. However, the main production area in Hainan is under normal delivery and the raw materials are relatively abundant, and the current raw material prices are lower than in Yunnan. The price of raw materials in Thailand fluctuates slightly, and the overall cost support is still strong, which limits the downside space of rubber in the short term. There are signs of weakening on the demand side. The operating rate of domestic tire factories has declined slightly, and the inventory of tire factories and terminal dealers has rebounded, which may reflect the weak demand. However, due to the greater impact of short-term supply, the latest domestic port inventory continues the downward trend. After June, when production at home and abroad begins to be released, the trend of destocking at domestic ports can be reversed. There is no more new positive support for rubber, and more fluctuations might be witnessed in the short term.
Risks: production increases significantly, inventory continues to accumulate, and demand falls sharply, etc.
Crude oil: EIA crude oil inventories declined slightly, and the IEA monthly report is still optimistic.
Although from the perspective of the balance sheet, the growth rate of supply in the second and third quarters was lower than the growth rate of demand, the oil market still maintained destocking, and the fundamental outlook remained optimistic. However, judging from the current spot market, it is still in a relatively weak state. As the buying interest in China has not fully recovered, and the current arbitrage activities in the east and west regions have been reduced (the India epidemic and the Brent Dubai spread is too wide), the resources in the west region are relatively surplus. At present, both US crude oil exports and West African crude oil have increased their sales to European refineries. This has made Brent's monthly difference structure significantly weaker in the near future even in the context of the Forties oilfield overhaul. The spot market is the foundation of the futures market, so when the spot market is relatively weak, the growth of the futures market will also be restrained. We believe that two forces are still needed to balance the market in the future: on the one hand, is the return of buying interest in China, and on the other hand, is the decline in US crude oil exports. But at present, there are no relevant signs in the market.
1. 单边：谨慎看多 2. 跨市：内外盘反套 3. 跨期：暂缓；4. 期权：卖出看跌
1. 美联储货币政策导向 2.美元指数走势 3. 2季度需求是否能达预期
Copper: CPI data is positive, and inflation expectations have been fulfilled to a certain extent.
Spot market: According to SMM, there were only 3 trading days left before delivery yesterday. After the market margin narrowed slightly yesterday, it returned to contango at 290-320 yuan/ton today, attracting market trade buyers to buy spot and sell futures. Traders dominate the market, and trading activity has increased slightly. Flat copper started to report at a discount of 90 yuan/ton in the morning session. The psychological price gap between buyers and sellers is too large, and the price is difficult to accept. In addition, the market has returned to high levels, and the holders want to adjust the price of shipments and quickly adjusted the price to a discount of 110-100 yuan/ton, but it is still difficult to see a large number of transactions, and some can even be sold at a discount of 120 yuan/ton. After the second period, as the market basis once expanded to around the contango of 330 yuan/ton, some buying orders were attracted, narrowing the discount level. The overall quotation of the market has returned to a discount of 100 yuan/ton, and it is even difficult to find a source of a discount of 110 yuan/ton. The overall quotation of good copper continued to be firm due to the impact of closing delivery date. Brands that did not have a 110 yuan/ton delivery subsidy, such as ENM, also maintained a discount of 40 yuan/ton. Wet-process copper maintains a relatively scarce supply, and the overall quotation is still relatively strong and maintained at a discount of 160-140 yuan/ton. However, because the overall price-performance ratio is not as good as Olen, PASAR and other brands, the market favor is limited, and the actual transactions are few.
Opinion: Yesterday, the April CPI data released by the United States recorded 4.2%, which was significantly higher than the previous value and market expectations, but this has largely fulfilled the previous market's inflation expectations. This makes non-ferrous products, including copper, which benefited from the positive feedback of inflation expectations, showed a slight decline. The market outlook needs to focus on the Fed’s description of the current monetary policy orientation. However, the current orientation of loose monetary policy is not expected to change immediately. In terms of fundamentals, we also need to focus on whether downstream procurement can recover to a certain extent when prices fall. As the current second quarter is still in the traditional peak consumption season, for the current copper varieties, the recommendation to buy when price is low is still maintained for the time being.
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. However, if the destocking in the second quarter falls short of expectations, the increase in copper prices may be weaker than previously expected.
1. Unilateral: cautiously bullish
2. Inter-market: reverse arbitrage of internal and external markets
3. Inter-period: postpone
4. Options: sell at out-of-value put options
1. Fed's monetary policy orientation
2. Dollar index trend
3. Whether the demand in the second quarter meet expectations
PTA: The rise in the energy and chemical sector drove the PTA to rebound.
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 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: under the circumstance that the price difference of 9-1 has rebounded sharply recently, waiting for reverse arbitrage opportunities when high gaps 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.