Iron ore: The production restriction policy is becoming increasingly clear, and the supply and demand of iron ore is gradually tightening.
With the gradual implementation of crude steel production restriction policies in some regions last week, the raw material end such as iron ore was directly affected. As of the close of last Friday, the iron ore 2109 contract closed at 1,163 yuan/ton, a week-on-week drop of 19.5 yuan/ton, or 1.65%. In terms of spot, last Friday, Qingdao Port PB fines reported 1,470 yuan/ton, down 22 yuan/ton; Carajás iron ore fines (SFCJ) reported 1,799 yuan/ton, down 15 yuan/ton; SSF reported 1,040 yuan/ton, down 18 yuan/ton; Yangdi Fines reported 1,173 yuan/ton, down 20 yuan/ton; Platts 62% index reported 216.5 US dollars/ton, down 1.7 US dollars/ton. In terms of transactions, the average daily transaction of iron ore at the main port last week was 831,000 tons, a decrease of 7.6% from the previous week. Under the influence of production restrictions, steel mills are cautious in purchasing, and market transactions are sluggish.
In terms of supply, according to Mysteel statistics, the total shipment of iron ore from Australia and Brazil was 24.906 million tons, a decrease of 2.817 million tons from the previous week; the total shipment from Australia was 18.1 million tons, a decrease of 1.712 million tons from the previous week; of which 15.581 million tons were shipped from Australia to China, a reduction of 22,000 tons; Brazil’s total shipment volume was 6.806 million tons, a decrease of 1.105 million tons from the previous week. The overall shipment volume of oversea iron ore on the supply side decreased slightly, and there was no significant change on the iron ore supply side.
In terms of demand, Mysteel surveyed 247 steel mills with a blast furnace operating rate of 78.26%, an increase of 20.31% week-on-week and a year-on-year decrease of 12.37%; the blast furnace ironmaking capacity utilization was 86.00%, an increase of 4.99% week-on-week, and a year-on-year decrease of 7.08%; the profit rate of steel mills was 74.03%, a week-on-week increase of 2.60%, and a year-on-year decrease of 20.35%; the average daily molten iron output was 2.2892 million tons, a week-on-week increase of 132,900 tons and a year-on-year decrease of 188,500 tons.
In terms of inventory, according to Mysteel statistics, the national inventory of imported iron ore from 45 ports across China reported 124.576 million tons, an increase of 2.2274 million tons from the previous week; the average daily port congestion volume reported 2.8543 million tons and an increase of 272,000 tons. Among them, Australian ore reported 64.935 million tons, an increase of 1.542 million tons, Brazil’s figure was 34.188 million tons, an increase of 513,000 tons; trade ore reported 67.962 million tons, an increase of 1.941 million tons; pellets reported 3.862 million tons, a decrease of 80,300 tons; iron ore concentrate reported 9.027 million tons, an increase of 205,000 tons; lump ore reported 18.452 million tons, an increase of 352,000 tons; coarse iron powder reported 93.235 million tons, an increase of 1.751 million tons; there were 138 ships across ports, a decrease of 5.
On the whole, the domestic and international supply and demand of iron ore have been in a tight balance since the beginning of this year, supporting the strong operation of iron ore prices. As the production restriction policy in some regions becomes more and more clear, the national crude steel production restriction is expected to come back throughout the year. Once the production restriction starts, the supply of scrap steel will decrease simultaneously, and the molten iron needs to make up for the missing part of the scrap steel. The price direction of iron ore depends on the intensity of domestic production restrictions. If the intensity of production restriction is small, due to the current tight global supply and demand of iron ore, the price is likely to continue to run on the strong side. If the crude steel production restriction is stronger, iron ore inventory is expected to continue to accumulate, and the supply and demand pattern will gradually turn into an oversupply. In the future, iron ore prices are expected to run weakly, and we need to continue to follow up and pay attention to the production restriction policy.
Unilateral: Cautiously bullish in the short term
Spot-Futures Arbitrage: None
Concerns and risks:
1. The intensity and policy orientation of the production limit on the thread and hot-rolled coil end;
2. Low-season demand performance at the thread and hot-rolled coil end;
3. The epidemic situation may aggravate, etc.
Rubber: Disturbances on the supply side caused rubber prices to rebound from low levels.
The rubber futures price rebounded at a low level last week, mainly because the market shorts left after the non-standard spreads narrowed, which led to the weakening of market shorts. In the middle of last week, due to the resurgence of the epidemic in Ruili, Yunnan, strict control measures made the market worried that the amount of rubber imports into Yunnan will be blocked in the later period. Disturbances on the short-term supply side have made market prices stronger.
The total inventory of domestic exchanges as of July 9 was 188,158 tons (+3872), and the amount of futures warehouse receipts was 174,550 tons (-100). Recently, the price of rubber is still weak, and the non-standard spread is at a low to mid-to-low level, resulting in an insignificant increase in warehouse receipts. As of July 4, inventory in Qingdao Free Trade Zone continued to fall slightly, but the decline has slowed down.
According to Zhuo Chuang's understanding, the domestic spot market is weak at the rigid demand side, so it appears that the old full latex is rising with the market trend, while the mixed rubber is declining due to less market demand. Last weekend, some tire factories replenished their positions when facing relatively lower market prices, but the actual transactions weakened again, and the industry's mentality was generally bearish. Buying interest in the US spot market declined compared with the previous week, the trading volume was sluggish, and buying side was mostly holding the wait-and-see attitude. It is understood that the downstream had some purchase orders when the market fell in the previous week, but the overall purchase willingness was weak last week. U.S. cargoes are mostly dragged down by low raw materials and prices have generally weakened. In addition, weak domestic rigid demand has made it difficult for prices to rise. In addition, some tire factories mainly replenish their stocks when facing relatively lower market prices based on mixed spot (CNY), so the transactions in US dollar cargoes are sluggish. As of last weekend, the synthetic rubber reported a premium of -25 yuan/ton (+200), and the rebound in rubber prices last week narrowed the spread.
In terms of downstream tire operating rate, as of July 8, the operating rate of all-steel tire companies was 43.6% (-1.68%), and the operating rate of semi-steel tire companies was 44.51 (-0.24%). The operating rate last week did not pick up as expected, or it reflects the current weak demand.
Opinion: Under the disturbance of the supply side, the price of Shanghai rubber rebounded from a low level last week. If the strict control of the epidemic in Ruili, Yunnan takes a long time, it may bring about a phased reduction in imports, but only the delay in imports into China. In the medium term, the real impact is not significant. From the perspective of spreads, the non-standard spreads caused by the market rebound last week expanded again, reflecting that demand is still weak. And judging from the tire factory operating rate last week, it did not pick up as scheduled, reflecting the current deviation in raw material demand. From the perspective of later fundamentals, domestic production will gradually pick up, and major overseas production areas will also enter the peak season. In the short term, we may need to pay attention to the possibility of a slowdown in imports caused by the continuous increase in ocean freight. Domestic imports have dropped significantly in May, and if it continues to affect the reduction of domestic port stocks in the later period, it may bring about short-term price fluctuations. At present, demand is showing off-season characteristics, domestic demand is weakening from the previous week, and exports are still weak due to tight container conditions. Given the weak mid-term supply and demand expectations, the rubber price rebound is expected to be limited.
1. Domestic supply may increase sharply;
2. Demand continues to weaken due to the epidemic and other impacts;
3. Funds might become tight.
Crude oil: OPEC fails to increase production as scheduled, and the gap between supply and demand will intensify.
OPEC still failed to reach an agreement last week, resulting in the inability to increase production as scheduled in August. However, the market still misunderstood the results of the OPEC meeting. The current stalemate will not cause the OPEC alliance to fall apart, nor will it lead to a price war similar to last year, and the UAE will not withdraw from OPEC in the short term. OPEC is still negotiating internally, and there is still a high probability of increasing production from September in the future. First of all, the production restriction agreement reached in April last year is still valid. That is, its validity period will continue until March next year, but the upper limit of production quotas in various countries cannot be increased, so the production restriction agreement is still effective for the production constraints of various countries.
Secondly, the announcement of the Saudi OSP at the beginning of last week also confirms this point. The official discount for Saudi light crude oil has been revised to varying degrees for various export regions. This is in stark contrast to Saudi Arabia’s sharp reduction of OSP during the price war in April last year. Therefore, the current market situation is completely different from last year.
From the perspective of the outcome of the OPEC meeting in the future, we believe that there are several possibilities in the future:
1. The countries will reach an agreement, but the content of the agreement will be adjusted, such as separating the production increase plan and the extension of the production restriction plan. This is also an important requirement of the UAE, that is, it is not opposed to increasing production. However, if the production restriction agreement is to be extended, the UAE's production benchmark must be increased. This result may cause the current pace of increasing production by 400,000 barrels per day per month to remain unchanged, but the production restriction agreement will only last until the end of March next year.
2. Production quotas in various countries will be readjusted. Due to the disruption in the UAE, it is unlikely to adjust the UAE's production benchmark alone. It is expected that the quota ceilings of various countries will be adjusted. Such a result may lead to a monthly increase of more than 400,000 barrels per day, but the time limit for the production limit agreement may extend to the end of next year.
3. The parties cannot compromise, and OPEC is still unable to reach a new production increase plan, making the existing agreement continue. This result is most beneficial to oil prices.
We believe that the probability of the first possibility is still the highest, because the changes to the existing proposal are minimal, and it is much more troublesome to re-negotiate the production quotas of countries. Judging from the impact of OPEC’s failure to reach an agreement at this meeting, crude oil fundamentals in the third quarter of this year will be more advanced than previously expected. It is conservatively estimated that the supply and demand gap in the third quarter of this year will reach nearly 3 million barrels per day, which may be the largest supply and demand gap since 2009. Global inventories will be destocked more quickly. If OPEC stands still, the only thing that can improve the fundamentals is the return of Iranian oil to the market. But this can only happen in the fourth quarter of this year at the earliest, so the strong fundamental trend has not been reversed but has been further strengthened. We believe that the adjustment of oil prices is temporary, and the overall trend is still prone to rising but not falling.
Strategy: neutrally bullish; go long positions of INE crude oil and short positions of Brent or WTI futures
Risks: The Iranian nuclear agreement may be reached quickly or OPEC may increase production beyond expectations.
Copper: The central bank's RRR cut may have a certain supporting effect on the market in the short term.
According to SMM, the average price of SMM1# electrolytic copper in the week of July 9 was between 68,510 yuan/ton and 69,700 yuan/ton, and the average premium and discount price of Standard-Grade Copper was between 125 yuan/ton and 185 yuan/ton. In the first half of last week, the copper price was basically in a narrow range of fluctuations, but the premium and discount continued to show a low recovery state, showing that the holders still have a certain sentiment of supporting price, which may make the copper price still have a certain degree of support. Affected by the sudden announcement of a RRR cut by the central bank on Friday, copper prices showed a substantial increase.
Last week, it can be found that the TC price was still showing a continuous upward trend, and it had reached the level of US$47.08/ton. And the current price of by-product sulfuric acid has also maintained a strong upward trend, reaching a level of 649 yuan/ton. Therefore, the previous relatively meagre profits of refineries should be eased to a great extent. Therefore, as far as the supply side is concerned, the pressure on prices may increase. However, as far as the demand side is concerned, as prices fall this week, we can still see that the holders raise the premium and discount to support prices. This also shows that the demand that was suppressed in the previous second quarter due to high copper prices may recover to some extent in the early third quarter. Therefore, under the current circumstances, there is pressure on the upper limit of the copper price and support on the lower limit. From the perspective of fundamentals, copper prices are expected to remain dominated by shocks for the time being. However, as the central bank suddenly announced a 0.5% cut in the RRR last Friday, it may have a certain supporting effect on the market in the short term.
Medium and long term:
In the medium and long term, macroeconomically, the global central banks will continue to maintain the current ultra-loose monetary and fiscal policies in the short term. Although the U.S. dollar has moved strongly after the interest rate meeting, it is largely an overdraft for future economic growth. In terms of fundamentals, the current TC price continues to rise, coupled with the domestic rumor of tapering, so the supply side has a relatively negative impact on copper prices. 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. However, due to the current market interference from the rumors of the Federal Reserve tapering and the possible tightening of central bank liquidity around the world, in general, we recommend that investors maintain a relatively neutral attitude.
1. Unilateral: neutrally
2. Inter-market: postpone
3. Inter-period: postpone
4. Options: postpone
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 increase.
PTA: Yisheng's new equipment was put into production, and the processing fee dropped.
Balance sheet outlook: After all the new production capacity of new materials of Yisheng is put into use, the inflection point of PTA's inventory accumulation may be restored to around mid-to-late July. The accumulation rate of PX inventory in July is limited, and it is expected that the space for compression of PX processing fees is limited.
Strategic recommendations: (1) Unilateral: take a wait-and-see attitude; (2) Intertemporal: The open interest of the 09 contract has gradually decreased, and the speculative sentiment in the previous period has weakened. The market will gradually transition from a trading model in which the open interest of the 09 contract is larger than the volume of delivery warehouse order to a trading model when the inflection point of the accumulated inventory is expected to arrive in August. In terms of 9-1 spreads, the investment strategy suggests adopting reverse arbitrage when market prices are high.
Risks: The implementation of the PTA plant maintenance plan, the strength of replenishment of terminal speculation, and the sustainability of the improvement in the supply and demand of aromatics due to the gasoline premium.
1. 单边：中性 2. 跨市：暂缓 3. 跨期：暂缓；4. 期权：暂缓