Iron ore: Recently, iron ore is moving with thread and hot-rolled coil, and investors should pay attention to policy changes for a long time.
Last week, the price of iron ore futures declined first and then rose. From the opening of 1,090.5 on Friday night trading to the closing of 994.5 on Wednesday, the price fell nearly 100 points. The market opened at 990 on Thursday, the intraday price continued to drop to 985 and then rebounded, and it closed at 1,063 on Friday. Compared with the previous week's figure of 1,096.5, it fell 33.5 yuan/ton, a weekly drop of 3.06%. In terms of spot, following the drop in futures prices, spot prices also fell by about 100-200 yuan last week. Last week, Qingdao Port's PB fine reported 1,322 yuan/ton, a week-on-week drop of 93 yuan/ton, the discounted price was 1,465 yuan/ton, and the basis of the most-active contract was 402. SSF reported 958 yuan/ton, a week-on-week drop of 112 yuan/ton, and a discount of 1,210 yuan/ton. The basis of the most-active contract was 147. The Platts 62% index reported at US$189.55/ton on the 28th, down US$10.45/ton from the previous week. Compared with futures prices, spot prices fell by a larger margin last week. The overall spot transactions last week were sluggish, and there was occasional increase in transaction enthusiasm during the middle of the week. With the passage of time and the rapid decline in prices, the pessimism has been released. The prices of raw materials and thread and hot-rolled coil have fallen simultaneously, making the profits of steel mills continue to be compressed.
On the supply side, last week Mysteel counted 33.324 million tons of global shipments. This was an increase of 22.3% from the previous week. The total shipment of iron ore in Australia and Brazil was 26.402 million tons, an increase of 16.9% from the previous week. Shipping in Australia recovered to 18.405 million tons, an increase of 9.7% week-on-week; shipments in Brazil were 7.997 million tons, an increase of 37.7% week-on-week. In terms of ores, Rio Tinto's shipment volume increased by 0.68 to 6.295 million tons week-on-week; BHP figure increased by 0.25 to 6.009 million tons week-on-week; FMG number increased by 0.63 to 3.944 million tons week-on-week; and VALE shipments increased from 2.035 to 6.233 million tons week-on-week. Shipment volume has increased significantly, and overall shipment volume has also increased compared with the same period last year.
In terms of demand, Mysteel surveyed 247 steel mills with a blast furnace operating rate of 80.99%, an increase of 0.78% from last week and a decrease of 10.03% from last year; the utilization rate of blast furnace ironmaking capacity was 91.41%, an increase of 0.23% from the previous week, and a year-on-year increase of 0.03%; the profit rate of steel mills was 85.28%, a week-on-week decrease of 4.76% and a year-on-year decrease of 7.36%; the average daily molten iron output was 2.4331 million tons, an increase of 6,100 tons from the previous week and an increase of 700 tons year-on-year. Mysteel surveyed 163 steel mills with a blast furnace operating rate of 62.43%, an increase of 0.28% week-on-week, a capacity utilization rate of 74.33%, a week-on-week increase of 0.35%, and a utilization rate excluding eliminated capacity of 80.92%, a decrease of 5.7% from the same period last year. The profit rate of steel mills was 74.46%, a decrease of 3.07 week-on-week. Due to restricted production policies and profit conditions, the steel mills’ blast furnace operating rate is at a relatively low level compared with the same period in previous years. The output of steel mills has increased slightly in the short term, but the trend is closely following changes in thread and hot-rolled coil.
In terms of inventory, Mysteel counted that the imported iron ore inventory of 45 ports across the country was 12.62216 million tons, an increase of 1.1156 million tons week-on-week; the average daily port congestion volume was 2.9009 million tons. Among which, Australian ores increased by 0.6778 at 65.3085 million tons, Brazilian ores increased by 0.3356 at 37.8485 million tons, trade ore increased by 2.438 to 64.41 million tons, pellets increased by 243.8, pellets increased by 0.1449 to 3.9087 million tons, concentrate ores increased by 0.6462 to 9.047 million tons, lump ore increased by 0.1072 million tons, and coarse fine increased by 0.5071 to 95.6727 million tons; the number of ships in port increased by 7 to 136. Iron ore inventory has increased, and the overall inventory is at a relatively low level over the same period, and there are large differences in various types of ores.
In terms of news, Premier Keqiang mentioned at the meeting of academicians of the two academies last Friday that it should focus on using market-based methods to solve prominent problems in economic operations such as rising commodity prices. On the same day, a Goldman Sachs research report concluded that after developed countries recovered from the epidemic, China lost its ability to dominate the commodity market. As soon as the news came out, market feedback became fierce.
On the whole, the price of iron ore has fluctuated greatly this week due to the impact of thread and hot-rolled coil and policies, and the basis has been repaired to a certain extent. In the short term, although the unexpected correction in the past two weeks has caused abnormal market sentiment, coupled with the excellent shipment data of overseas ores, the market has released the bearish factors accordingly. However, it is still the peak season for steel consumption, and steel stocks are still at a low level. After nearly two weeks of decline, the North China long process steel mill still has a profit of about 200, so the steel mills are still enthusiastic about production. This forms a certain support for the raw material end. However, in the medium and long term, the current price of more than $180 of iron ore is still at a high level. In the context of the current dual-carbon goals and environmental protection, the promotion of production restriction policies may continue. The demand for iron ore is expected to weaken. In the follow-up, more attention should be paid to changes at the policy level and we predicts that the overall price will move with thread and hot-rolled coil.
Unilateral: the overall price will move with thread and hot-rolled coil in the short-term, and investors should pay attention to policies in the long term
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 exceeds expectations by a large margin.
Rubber: Both supply and demand are weak, and future prices fluctuate at a low level.
Last week, rubber futures prices fluctuated within a narrow range, with little fundamental contradiction, and generally followed market fluctuations.
The total inventory of domestic exchanges as of May 28 was 179,866 tons (+910), and the amount of futures warehouse receipts was 176,460 tons (-210). The overall domestic dry rubber production was limited, resulting in recent warehouse receipts and inventories that continued to be low year-on-year. As of May 23, the inventory in Qingdao Free Trade Zone continued to fall slightly, and the continued increase in downstream procurement led to continued inventory destocking last week. Later inventory changes may focus on the supply side.
According to Zhuochuang's understanding, the current overall delivery rate in Yunnan is only about 60%, which is relatively limited compared to previous years. The overall start of tire companies is weakening, and the demand for raw material purchases has decreased, and most of them are just-needed purchases. The domestic spot market as a whole is in the form of de-stocking, but the inventory of finished products of terminal enterprises has accumulated, thus forming a negative feedback on the raw material side. Therefore, the current overall market has large differences between longs and shorts, the industry's sentiment is confused, and mainstream transactions are general. The spot price of natural rubber in US dollars in Qingdao has risen, and the downstream operating rate is currently declining. The purchase enthusiasm is not high, and the overall transaction volume is limited. However, in terms of cargo, the spot is relatively advantageous, and the Qingdao area continues the state of destocking. The overall price of the external market has risen slightly. At present, the amount of new rubber released in Thailand's production areas is still not much. The purchase price of raw material rubber continued to rise during the week, and the US cargo market price has moved upward as a whole. At present, it is heard that the release of raw materials in foreign production areas is limited, and the supply chain is affected by high shipping costs and container supply problems. However, the overall domestic rigid demand has shown a slowdown in growth. In contrast, the European and American markets are picking up due to low raw material inventories and the recovery of terminal comprises’ needs, and the overall demand is strong. It is heard that overseas processing plants are currently exporting cargoes to Europe and the United States relatively active, and Indonesian and other rubber has increased to a premiums of Singapore futures market price. As of last weekend, the synthetic rubber premium was 600 yuan/ton (+675), and the recent downward trend in synthetic rubber prices has brought about a price difference reversal.
In terms of downstream tire operating rate, as of May 27, the operating rate of all-steel tire companies was 55.36% (-7.16%), and the operating rate of semi-steel tire companies was 56.22 (-4.76%). After the holiday, the operating rate continued to decline week-on-week, reflecting the recent weakening of demand, and rising ocean freight prices are gradually putting pressure on tire exports.
Opinion: At present, rubber presents a pattern of weak supply and demand. The supply side has been delivered at home and abroad, but the domestic delivery of the main production area in Yunnan has been delayed until late June, and the Hainan rubber has grabbed or reproduced the raw materials brought about by the continuous rebound in the price of concentrated rubber. Both of them have supported domestic raw material prices. The phenology of overseas countries is good, and the rubber release is normal. However, attention must be paid to the impact of the epidemic on the pace of short-term domestic imports. At the same time, the recovery of overseas demand has also increased the use of Indonesian rubber, which is conducive to alleviating domestic inventory pressure. The current trend of domestic port inventory destocking may continue for some time. However, from the perspective of the spread structure, the domestic non-standard spreads have not narrowed significantly. At the same time, the operating rate of domestic downstream tire factories continues to decline, and the weakening of the demand will also drag down the price of rubber. It is expected that the price of rubber will fluctuate mainly at a low level.
Risk points: Domestic supply increases sharply, demand continues to weaken due to the impact of the epidemic, and funding might be tight.
Crude oil: The uncertainty of the negotiations has increased, and the return of Iranian oil may be delayed.
Last week’s US-Iranian nuclear talks presented a difference again. At present, the US and Iran still have differences on some key issues. US Secretary of State Brinken said that he did not see Iran’s willingness to comply with the Iran nuclear agreement. The current negotiations seem to be deadlocked. We believe that if the Iranian nuclear negotiations cannot be completed before the Iranian election on June 18, the time for Iranian oil to return to the market may be delayed. Previously, we expected an agreement to be reached in May and that sanctions would be lifted from Iran in July to increase oil exports. However, it is currently possible to postpone the agreement until September and to lift sanctions to increase exports in November. In addition, Iran’s general election is very likely to elect a hardline president, which may bring new uncertainty to future Iranian nuclear negotiations. From the market perspective last week, the sharp increase in oil prices to cover the previous gap also shows the market's concerns about the uncertainty of the negotiations.
We believe that the main impacts of the delay of Iranian oil’s return to the market until the fourth quarter are: 1. The spot market will tighten. Iran’s current crude oil condensate stocks of nearly 70 million barrels cannot be released. In the next three months, with the arrival of the peak of summer travel in the northern hemisphere, refinery replenishment will increase significantly. Those refineries that plan to purchase Iranian crude may have to increase the purchase of spot crude oil; 2. OPEC’s production restriction strategy may be adjusted. The current OPEC production increase plan will continue until July. Its output has gradually increased from 25 million barrels/day to 27 million barrels/day. If Iranian oil is delayed in returning to the market, OPEC can have greater flexibility in the operation of increasing production space. We believe that after the oil price reaches US$75 to US$80/barrel, OPEC will significantly increase production, especially when the OECD oil inventory is close to the pre-epidemic level; 3. The elasticity of global crude oil supply will be further restricted. Countries other than OPEC lack the ability to substantially increase production in the short term, which means that if there is a sudden supply interruption, the probability of an upward risk in oil prices will increase significantly, and the geopolitical premium is expected to return to the crude oil market.
Strategy: neutrally, none
Copper: In the second half of last week, the downstream just-needed purchases resumed.
According to SMM, the average price of SMM1# electrolytic copper in the week of May 28 was between 71,370 yuan/ton and 73,390 yuan/ton, and the average premium and discount price of Standard-Grade Copper was between -135 and 115 yuan/ton. Last week, after more than a week of adjustment, the commodities showed the strength to rebound again, and the long positions pushed up the price again. The downstream was afraid that the previous rebound momentum would continue afterwards. On Friday, they stopped staying on the sidelines and continued to buy in moderation. On the contrary, it is the traders who are frustrated in the transaction, who are in a dilemma. Under the background of stable discounts, they dare not buy spot and sell futures. In the spot market, amidst the apparent decline in inventories last week, the discounts remained stable. The supplier's willingness to reluctantly sell and keep prices is obvious, while the demander continues to struggle.
Last week, the domestic imported ore TC price continued to rise by US$0.78/ton to US$35.70/ton. The tight supply at the mines seems to continue to ease. In addition, the continued high price of sulfuric acid also makes the refinery profitable. In addition, the recent domestic relevant policy guidance also aims to curb the sharp rise in commodity prices, so the recent copper price trend may continue to show a relatively tangled state. However, because the US dollar is still in a relatively weak pattern at present, and rising inflation expectations are also positive for copper prices. Therefore, it is expected that although copper prices may not necessarily surge as sharply as before, they are expected to maintain a strong volatility pattern.
Medium and long term:
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: go long positions of external market and short positions of internal market
3. Inter-period: postpone
4. Options: sell at out-of-value put options
1. The risk of tightening liquidity
2. Domestic delivery situation
3. The destocking in the second quarter fell short of expectations
PTA: In June, Hengli's maintenance plan was implemented, and the factory reduced the contract volume.
Balance sheet outlook: Under the background of TA inspection and repairs, the balance sheet was in a slight destocking state in June; the obvious accumulation period is still to be July; TA processing fee is still relatively high in the short-term; PX june/july accumulation rate is limited, it is expected that PX processing fee compression space is limited.
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.
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：多外盘 空内盘 3. 跨期：暂缓；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