Iron ore: The price of ferrous metals broadly declined, and iron ore cannot escape falling.
Last week, iron ore futures prices fluctuated sharply. The rebound in the first two days showed an upward trend, but in the second half of the week, the iron ore also fell rapidly following the continuous decline of thread and hot-rolled coil. Last Friday, the iron ore 2109 contract closed at 1,096.5 yuan/ton, a decrease of 76.5 yuan/ton from last Friday’s closing price, a weekly drop of 6.52%. In terms of spot, with the rapid fall of futures prices, spot prices also loosened slightly. Last week, Qingdao Port PB fine reported 1,415 yuan / ton, a week-on-week drop of 85 yuan / ton. The discounted price stood at 1,567 yuan/ton and the basis of the most-active contracts was 470. SSF reported 1,070 yuan/ton, a week-on-week drop of 70 yuan/ton, and a discount of 1,333 yuan/ton. The basis of its most-active contracts was 237. The Platts 62% index reported $200/ton on the 21st, down $9/ton. Compared with futures prices, spot prices were relatively firm. The market was active in the first half of the week. However, with the continuous decline of thread and hot-rolled coil, the profits of steel mills fell sharply, and iron ore also experienced the same decline.
On the supply side, according to Mysteel’s statistics, the total shipment of iron ore from Australia and Brazil was 22.583 million tons, a decrease of 2.236 million tons from the previous week. Affected by berth maintenance, Australia's shipment volume decreased by 257.6 tons from the previous week to 16.776 million tons. Brazil's shipment volume rebounded by 340 thousand tons from the previous week to 5.807 million tons. In terms of ores, Rio Tinto’s shipment volume decreased by 1.346 million tons from the previous week to 5.615 million tons. The volume of BHP and FMG shipments remained basically the same. The volume of VALE shipments increased by 49,000 tons from the previous week to 4.198 million tons. The shipment volume decreased slightly from last week, and the overall shipment was at a normal level during the same period.
In terms of demand, Mysteel surveyed 247 steel mills with a blast furnace operating rate of 80.21%, a decrease of 0.13% from last week and a decrease of 10.29% from last year; the utilization rate of blast furnace ironmaking capacity was 91.18%, an increase of 0.31% from the previous week, and a year-on-year increase of 0.23%. The profit rate of steel mills was 90.04%, the same week-on-week, and down 1.73% year-on-year; the average daily molten iron output was 2.427 million tons, an increase of 0.82 million tons from the previous week and an increase of 6,100 tons year-on-year. Mysteel surveyed 163 steel plants with a blast furnace operating rate of 62.15%, an increase of 0.14% week-on-week. The capacity utilization rate was 73.98%, an increase of 0.33% week-on-week, and the utilization rate excluding eliminated capacity was 80.54%, a decrease of 5.59% from the same period last year. The profit rate of steel mills was 78.53%, the same month-on-month. Due to the production restriction policy, the blast furnace operating rate of steel mills is at a relatively low level compared to the same period in previous years. The output of steel mills has increased slightly in the short term, but the trend is closely following thread and hot-rolled coil, and iron ore has fallen sharply in the short term.
In terms of inventory, Mysteel counted that the imported iron ore inventory of 45 ports across the country was 12,510.60, a month-on-month decrease of 22.3; the average daily port congestion volume was 291.37, a decrease of 9.76. In terms of varieties, Australian iron ore was 6,463.07, down 37.39; Brazilian figure was 3,751.29, down 0.23. Trade iron ore reported 6,197.20, an increase of 41.7; Pellet number was 405.36, with a fell of 17.8. Iron ore concentrates stood at 840.08, an increase of 39.33; Lump ore reported 1,748.60, with a fall of 45.54, and coarse fine increased 1.71 to 9,516.56. The number of ships in port down 5 from 129. Iron ore inventories continued to be de-stocked, and the overall inventory was at a relatively low level over the same period.
In terms of news, the State Council on the 19th reiterated its emphasis on ensuring the supply of commodities aiming at curbing unreasonable price increases. This is also the third time that the State Council has made targeted deployments for the rise of commodity prices in recent days. The news has severely dampened market sentiment. Although policy adjustments will be implemented next year, the continued increase in policies is constantly impacting market sentiment. In addition, on the 19th, DCE made amendments to the “Detailed Rules for the Iron Ore Futures Business of Dalian Commodity Exchange”. Article 5 of this article now adjusts the premiums and discounts of deliverable brands of iron ore futures. The premiums and discounts of PB fine, BRBF and Carajás fine brands are adjusted to 15 yuan/ton, and the premiums and discounts of other deliverable brands are 0 yuan/ton. The purpose of DCE is to keep the futures market price as close to the spot market price as possible, while avoiding affecting market expectations as much as possible, making the linkage between futures and spot prices closer, and protecting the smooth operation of iron ore futures.
On the whole, due to the impact of the thread and hot-rolled coil end and policies this week, the price of iron ore has shown a sharp drop. In the short term, steel is still in the peak consumption season. Although the market has experienced a sharp correction than expected, the overall profit of steel mills is still in a relatively better level. Coupled with the unabated enthusiasm of steel mills, there has been certain support for the raw materials end. However, in the medium and long term, iron ore price is still at a high level. With various production restriction policies and dual-carbon targets, iron ore demand will gradually weaken, and iron ore is likely to enter a state of surplus. As the price of iron ore continues to rise, the fear of high price in the market continues to spread, and the risks are further increasing. In the future, more attention should be paid to changes in the policy. 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
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: The market price is at a low level, and the future price is expected to be repaired slightly.
Last week, the price of rubber futures first declined and then rose. In the first half of the week, as the market sentiment weakened, the price was close to the previous week's new low. Under the support of its own raw material prices, the price touched the bottom and then rebounded.
The total inventory of domestic exchanges as of May 21 is 178,956 tons (+524), and the amount of futures warehouse receipts is 176,670 tons (+430). The rubber trees in the main production area of Yunnan cannot be fully delivered now. The limited output of dry rubber has caused recent warehouse receipts and inventories to remain low. As of May 16, the inventory in the Qingdao Free Trade Zone continued to fall slightly, and the increase in downstream procurement led to the continued destocking of inventory last week. Due to the small overseas production, it is expected that the port destocking may still be maintained until the end of May.
Last week, the spot price rose first and then fell, and the center of price gravity shifted downward. According to Zhuo Chuang's understanding, the market still has expectations of a large supply of new rubber. In addition, the overall domestic sales and export markets of tire factories have slowed down. Although the finished product inventory has been digested at a certain degree, the overall level is still high. The weak raw material market makes the overall purchasing sentiment weak. Therefore, the trading sentiment of the spot market in the day is not good, and the tire terminal just needs to be purchased. The spot price of natural rubber in US dollars fell in Qingdao area, and the spot transactions in the market was scarce. There are two reasons: first, the pressure on downstream finished products inventory has increased, and companies have reduced the purchase of raw materials accordingly; second, most companies have insufficient confidence in the future price of natural rubber, so they maintain rigid demand purchases. The overall price center of the external market shifted downward. At present, the amount of new rubber released in Thailand's production areas is still not large, and the overall performance of the purchase price of raw rubber is firm. However, due to the weak performance of domestic and foreign futures during the week, the overall market sentiment was pessimistic, and the domestic tire terminal cargo purchase sentiment was not good; in addition, it was heard that the overseas market demand was just slowing down, and the Indian standard and other goods were not easy to deliver. As of the end of last week, the premium of synthetic rubber was -75 yuan/ton (+300), and the slight rebound in rubber prices last week narrowed the spread.
In terms of downstream tire operating rate, as of May 20, the operating rate of all-steel tire companies was 62.52% (-6.08%), and the operating rate of semi-steel tire companies was 60.98 (-3.75%). The operating rate continued to decline month-on-month after the holiday, reflecting the recent weakening of demand.
Opinion: The fall in rubber prices in the previous week led to an increase in the purchase of downstream parts, which continued the decline in domestic port inventories. In the later period, domestic demand has weakened compared with the previous week, and the inventory of finished products in factories has risen, or causing the short-term procurement demand to be still insufficient. With the gradual increase in overseas supply, the trend of continued decline in port inventory may be difficult to maintain unless overseas imports are delayed. At present, the entry of domestic index rubber has been delayed, bringing support to the supply. Following the previous decline, the non-standard spreads have also narrowed significantly. With the short-selling momentum of market prices has slowed down, there is a demand for rebounds in futures prices. Moreover, the current market price is still lower than the cost of domestic raw materials. It is expected that under the market sentiment, the rubber price is expected to be further repaired. We recommended investors to participate in the short-term.
Strategy: Cautiously bullish, and participate in the short term.
Risk points: Domestic supply increases sharply, demand continues to weaken due to the epidemic and other impacts, and funding would be tight.
Crude oil: The negotiations on the Iranian nuclear issue are progressing smoothly, but the room for oil prices to fall may be limited.
The fourth round of negotiations on the new Iranian nuclear agreement went smoothly last week. Rouhani said that the main framework of the Iranian nuclear agreement has basically been reached, but some details of the agreement still need to be finalized. The market expects that the two parties will reach an agreement and clarify the timetable for lifting Iran’s oil export sanctions in the fifth round of negotiations this week. We believe that the main impacts of the lifting of Iran’s oil sanctions are as follows: 1. The time when the sanctions are lifted. Judging from the progress of the current negotiations, the probability of reaching an agreement before the Iranian presidential election on June 18 has increased significantly, but it is not entirely certain. If the two sides still fail to negotiate in the final stage, it means that the next round of negotiations on the Iranian nuclear agreement will need to wait until the Iranian government is replaced. Previously, the market generally expected that Iranian oil would begin to flow into the market as early as July (after the IAEA completed the inspection of Iran), but if the Iran nuclear agreement fails to reach an agreement this time, the return of Iranian oil to the market may be delayed until the fourth quarter of this year. 2. How big is the impact of the lifting of Iran’s oil sanctions? According to the current situation, if the sanctions on Iran’s trade, shipping, and finance are lifted, the bottleneck of Iran’s oil exports will be lifted. At present, Iran has nearly 2 million barrels of remaining production capacity and approximately 36 million barrels of crude oil inventory (which may include a small portion of refined oil). The first to hit the market will be the nearly 40 million barrels of crude oil inventory, which is equivalent to converting the original non-circulating stocks into tradable stocks, putting pressure on the spot market. The second is the increase in production. According to the effect of the last round of sanctions, Iran’s oil production has also increased relatively quickly, and it is expected that production will be fully resumed within three months. At the same time, a new Iranian crude oil pipeline (1 million barrels per day) has been put into production. After the sanctions are lifted, Iran's oil export capacity and efficiency will be improved.
However, we believe that Iranian oil has a limited negative impact on the oil market. The main reasons are: 1. Since the beginning of the year, Iranian oil smuggled exports have increased to more than 1 million barrels per day, which means the negative part has been Price in; 2. The market has long expected Iranian oil to return to the market. The current main uncertainty lies in the return time and the initial increase in exports; 3. From the perspective of the balance sheet, the incremental supply brought by Iranian oil can be digested when demand continues to recover. According to the forecasts of major institutions, demand will increase by 3 million barrels per day from the second to third quarters of this year. In addition to the existing supply and demand gap in the first quarter, the return of Iranian oil to the market will not cause oversupply in the market, but it may slow down the inventory decline; 4. Recently, there are some positive signs on the oil demand side. For example, we have seen a rapid recovery in European demand from various demand indicators. The current traffic congestion index has recovered to more than 80%, and China’s oil buying interest has recovered. Rongsheng’s large crude oil tenders and local refinery purchases have also begun to increase. It is expected that the second batch of crude oil import quotas will also be issued in the near future. Although Indian demand has recently dropped significantly and has dragged down the demand recovery process in South Asian countries, the demand recovery trend of other parts of the world is still significant. Therefore, we cannot ignore the bullish fundamentals of crude oil itself because of the bad news brought about by the progress of the Iranian nuclear talks. Generally speaking, we believe that the return of Iranian oil to the market is only a one-time small impact on the market, but only the progress of demand recovery can be the key to determine oil price trends.
Strategy: neutrally, none.
Copper: As prices fell, downstream buying interest slightly recovered.
According to SMM news, the average price of SMM1# electrolytic copper in the week of May 21 was between 72,475 and 75,700 yuan/ton, and the average premium and discount price of flat copper was between -200 and 105 yuan/ton. Last week, copper prices fell sharply, and during the price fall, there were no obvious signs of supporting prices from holders. However, the downstream buying interest has slightly recovered. In general, the spot transaction volume in the second half of the week has recovered somewhat from last week.
Last week, the TC price of domestic imported ore continued to rise by $1.52/ton to $34.92/ton. The tight supply of ores seems to continue to ease. The operating rate of domestic refineries has also shown a relatively high level due to the recent sustained surge in sulfuric acid prices. From a supply point of view, it is actually not very favorable for copper prices. On the demand side, it is indeed the peak season for traditional demand. However, due to the continuous high copper price before, the downstream price recognition is extremely low, resulting in relatively light purchases. However, when copper prices fell last week, demand showed some signs of recovery. Therefore, the peak season's rigid demand will also form a certain supporting effect on the copper price. And at present, from a macro perspective, although the minutes of the Fed’s meeting mentioned that there may be discussions on reducing the scale of debt purchases, the current attitude of attaching importance to economic growth and temporarily tolerating high inflation in the short-term is expected to still make the Fed in the short-term not to immediately adjust the current monetary policy. Therefore, this is still a relatively favorable factor for copper, which has relatively strong financial attributes.
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 tightening liquidity
2. Domestic delivery situation
3. Destocking in the second quarter fell short of expectations.
PTA: Prices rebounded again after falling back, and the re-launch of new equipment was postponed.
Balance sheet outlook: Filament is gradually overhauled, and demand will be lowered from May to June; The market shifts to a small destocking in May, the destocking rate slowed down, and processing fees are expected to weaken; PX supply is still tight in May-June, pay attention to the support of oil adjustment demand for PX.
Strategic recommendations: (1) Unilateral: hold the current position (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, the strength of the negative feedback of the maintenance of polyester filament, and the sustainability of the improvement in the supply and demand of aromatics due to the gasoline premium.
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
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