Iron ore: The policy needs to be clarified, and the price fluctuates at a high level.
Opinion and logic:
Yesterday, the open interest of iron ore shrank and its market price fluctuated at a high level, closing at 1,168.5 yuan/ton, an increase of 31.5 yuan/ton, or 2.77%. The port spot transaction was 873,000 tons, and the forward spot transaction was 3.88 million tons. Qingdao Port PB fine reported 1,425 yuan/ton, an increase of 7 yuan/ton, SSF reported 1,040 yuan/ton, an increase of 2 yuan/ton, and the price difference between high and low-grade products was 415 yuan/ton.
Recently, the State Administration of Market Supervision has stated that it will attach great importance to closely tracking price trends, strengthening early warning analysis, regularly monitoring the price trends of commodities such as iron ore, steel, coal, and crude oil, forming weekly analysis reports, and implementing effective supervision in a targeted manner. The Ministry of Industry and Information Technology also stated that it will cooperate with relevant departments to resolutely crack down on hoarding, malicious speculation, and price gouging.
Overall, the fundamentals of iron ore are tightly balanced between supply and demand. The recent policy turbulence on prices has continued to be strong, and the volatility has increased. The short-term market changes to follow the policy direction have yet to be clarified. On the premise that the fundamentals is good, and until the deterministic policy of tightening or relaxing the production limit is introduced, it is expected that iron ore will continue to run strongly.
Unilateral: bullish in the short term
Cross-species: go long positions of iron ore and short positions of thread and hot-rolled coil
Spot-Futures Arbitrage: None
Concerns and risks:
1. Policies curb excessive speculation and suppress high prices of raw materials
2. decline in demand for thread and hot-rolled coil in the off-season
3. the epidemic might worsen.
Rubber: Domestic demand has fallen, and rubber prices have remained weak.
On June 2, the most-active RU contract closed at 13,165 (-180) yuan/ton, the price of mixed rubber reported 12,100 (-100) yuan/ton, and the basis of most-active contract stood at -490 yuan/ton (-20); the open interest of top 20 actively traded long positions was 129,521 (+6,440) lots, the short position was 182,950 (+6,629) lots, and the net short position was 53,429 (+189) lots.
On June 2, the most-active NR contract closed at 10,530 (-230) yuan/ton, the STR in Qingdao Free Trade Zone reported 1,695 (-10) US dollars/ton, the SMR stood at 1,665 (-20) US dollars/ton, and the SIR figure was 1,625 (-20) US dollars/ton. The basis of most-active contract reported -167 (+135) yuan/ton.
As of May 28: the total inventory of domestic exchanges was 179,866 (+910) lots, and the amount of warehouse receipts of exchanges was 176,460 (-210) lots.
Raw materials: Sheet rubber 62.66 (-2.61), cup lump 44.7 (0), latex 55 (-1.5), RSS3 65.37 (+0.15).
As of May 27, the operating rate of domestic all-steel tire factories was 55.36% (-7.16%), and the operating rate of semi-steel tire factories was 56.22% (-4.76%).
Opinion: Yesterday, the price of rubber remained weak. The trading logic of the current rubber price lies in the weakening of domestic demand on a week-on week basis and the drag of the downward price of overseas raw materials. As futures market prices continued to fall, the current RU non-standard spreads continued to narrow. The latest port inventory continues to decline, and this factor still has strong support for mixed rubber prices. However, the recent continuous weakening of downstream demand data may continue to suppress the level of tire factory operating rates, which will be detrimental to tire rubber prices. The operating rate of domestic downstream tire factories has continued to decline, and finished product inventories have also begun to accumulate, mainly due to the decline in tire export demand and the weakening of domestic replacement demand. Under the expectation of an increase in supply in the later period, the price of rubber maintains a weak trend.
Strategy: cautiously bearish
1. production increases sharply
2. inventory continues to accumulate
3. demand falls sharply
Crude oil: The Iranian nuclear agreement has not yet been reached, and oil prices continue to rise.
Due to the unsuccessful negotiations in the Iranian nuclear agreement and OPEC’s wait-and-see attitude, the current market has begun to enter the trading theme of "excessive tightening", that is, the supply and demand gap in the future oil market will continue to expand, and inventory de-stocking will accelerate. At present, the US crude oil market already has this feature. With the continued decline of US crude oil inventories, we expect that US crude oil exports will be restricted in the future, and the US supply and demand gap will eventually be transmitted to non-US markets. At present, demand in Europe and the United States continues to improve. Although the recovery of demand in the Asia-Pacific region is relatively lagging, as refineries gradually resume production from overhaul and large-scale refining and chemical projects are put into operation, the margin of crude oil procurement demand is expected to improve marginally. With the delay of Iranian oil returning to the market and OPEC has not yet released further output signals after August, refineries may replenish inventories in a panic sentiment, and the spot market is expected to be boosted.
Strategy: neutrally, tend to be bullish in the short term; go long positions of crude oil
Risk: The Iranian nuclear agreement is reached or a black swan appears in the epidemic.
Copper: Copper prices continue to fluctuate at a high level.
In terms of spot: According to SMM news, the downstream market still maintained a wait-and-see sentiment yesterday. Traders still bought spot and sold futures on the premise of monthly fluctuations, and holders continued to reluctantly sell in order to support prices. In the morning market, the monthly price difference was 270-300 yuan/ton, and traders were actively inquiring prices. Standard-Grade Copper first reported with no discount or premium, and the market transaction and buying were more active. Holders seized the opportunity to raise the premium to 10-20 yuan/ton, and the transaction was fair at a premium of 10 yuan/ton. As the monthly price difference narrowed to the 250-260 yuan/ton range after the second trading period, the number of liquidators increased, the transactions with a premium of 20 yuan/ton was significantly blocked, and trading activity was significantly reduced. Due to the limited supply of High-Grade Copper in the market, coupled with the lack of attention from the downstream, the overall preference is limited, resulting in the market quotation stabilizing at a premium of 30-50 yuan/ton, but the price difference of Standard-Grade Copper has narrowed significantly. The price difference between hydro-copper and Standard-Grade Copper continued to remain stable at around 80 yuan/ton, and the overall quotation stood at a discount of 80-60 yuan/ton.
Opinion: Yesterday, the US dollar index was once strong, which put copper prices under pressure in a short period of time. However, due to the recent continued strength of oil prices, both from the overall environment of industrial products and from the perspective of boosting inflation, they have given relatively good support to copper prices. And at present, it can be found that the sentiment of domestic holders supporting prices has reappeared. Although the spot transaction is still relatively sluggish, the holders are not willing to adjust the premiums and discounts in order to ship the goods. Therefore, under such circumstances, it is expected that copper prices will continue to fluctuate at a high level.
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 on external market and short positions on internal market
3. Inter-period: postpone
4. Options: sell at out-of-value put options
1. The Fed's monetary policy orientation
2. The trend of the US dollar index
3. Whether the demand in the second quarter can meet expectations
4. Policy risks may intensify.
PTA: The processing fee was adjusted back after the over-increasing.
Balance sheet outlook: Under the background of the implementation of TA overhaul, the balance sheet in June continued to be de-stocked; the apparent accumulation period is still to be July, and TA processing fees are still acceptable in the short term; the accumulation rate of PX inventory from June to July is limited, and it is expected that PX processing fee compression space is limited.
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.
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.
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