Iron ore: Futures and spot market prices showed different upward and downward trends, and sentiment led to an improvement in transactions.
Opinion and logic:
Yesterday, iron ore futures opened low and moved high. The most-active 09 contract closed at 1,233 yuan/ton, an increase of 0.28% from the previous day. Iron ore quotations in the physical port market presented a mix of gains and losses. Qingdao Port Pb fines closed at 1,462 yuan/ton, down 14 yuan/ton, and SSF reported 1,041 yuan/ton, up 2 yuan/ton. Port spot transactions totaled 1.225 million tons, an increase of 16.7% week-on-week, and overall transactions had improved. Yesterday, BHP Billiton issued an operating bulletin for the 2021 fiscal year. In fiscal 2021, iron ore production will increase by 2% compared to 2020. Vale released the second quarter production and sales report on the same day. The report showed that iron ore production in 2021 increased by 16 million tons year-on-year. In the second quarter, Vale's iron ore fines output reached 75.7 million tons. The output of pellets reached 8 million tons. Sales of fine ore and pellets reached 74.9 million tons in the same period, an increase of 14.2% from the first quarter.
Recently, China's domestic steel companies have gradually expanded the scope of production cuts. According to recent news, Jiangsu and Shandong will face the pressure of equalization control in the second half of the year due to the increase in production in the first half of the year and the lack of effective production restriction in July, resulting in further compression of monthly output. Iron ore, as an important charge, will also be affected to varying degrees according to the intensity of production restrictions. At present, the intensity of production restriction has not yet reached the desired target state, and the current situation can be met only by adjusting the amount of scrap steel. With the further strengthening of production restrictions, it may gradually affect the amount of iron ore. Therefore, the current actual demand for ore will not deteriorate rapidly, but the room for increase is limited.
On the whole, although mine production has increased, under the general environment of global economic recovery, overseas excessive demand for iron ore has also been released at the same time. The overall supply and demand are still in a tight balance, and high consumption supports the strong operation of iron ore prices. Looking ahead to the future, under the overall production restriction pattern, it is difficult for iron ore prices to have the strength to rise as the thread and hot-rolled coil end, and the price direction of iron ore depends on the strength 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 production restriction of crude steel is strong, iron ore inventory is expected to continue to accumulate, which will gradually turn the supply and demand pattern into oversupply. Therefore, we propose a unilateral strategy of short-term neutrality and tend to be bearish in the medium term, as well as a cross-species arbitrage strategy for initiating a long position of the nearby futures contract of the thread and hot-rolled coil and a short position of the distant futures contract of iron ore, but it needs to be adjusted in a timely manner in conjunction with the intensity of production restriction.
Unilateral: neutrally in the short term; tend to be bearish in the medium term (depends on the intensity of production restriction)
Cross-species: initiate a long position of the nearby futures contract of the thread and hot-rolled coil and a short position of the distant futures contract of iron ore
Spot-Futures Arbitrage: None
Concerns and risks:
1. The policy of restricting production production at the thread and hot-rolled coil end;
2. Domestic and overseas steel demand may weaken at the same time;
3. Iron ore shipping data, etc.
Rubber: Port inventory continued to decline slightly.
On July 20, the most-active RU contract closed at 12,920 (-580) yuan/ton, the price of mixed rubber reported 11,850 (-300) yuan/ton, and the basis of most-active contract stood at -295 yuan/ton (+80); the open interest of top 20 actively traded long positions was 101,230 (-5,235) lots, the short position was 147,323 (-4,764) lots, and the net short position was 46,093 (+471) lots.
On July 20, the most-active NR contract closed at 10,330 (-560) yuan/ton, the STR in Qingdao Free Trade Zone reported 1,645 (-10) US dollars/ton, the SMR stood at 1,635 (-20) US dollars/ton, and the SIR figure was 1,590 (-15) US dollars/ton. The basis of most-active contract reported -18 (+488) yuan/ton.
As of Jul 16: the total inventory of domestic exchanges was 190,615 (+2,457) lots, and the amount of warehouse receipts of exchanges was 178,150 (+3,600) lots.
Raw materials: Sheet rubber 48.39 (-1.9), cup lump 42 (-1.50), latex 42 (-1.5), RSS3 50.26 (-2.29).
As of Jul 15, the operating rate of domestic all-steel tire factories was 58.95% (+15.35%), and the operating rate of semi-steel tire factories was 55.84% (+11.33%).
Opinion: Under the sharp decline of crude oil overnight, the commodity market sentiment weakened, and the price of rubber returned to the downward trend yesterday. The newly announced port inventory continued to decline slightly. Thailand's raw material market prices continue to decline, and the current latex price has continued to hang upside down the price of cup lump. According to the current fundamentals, based on the recovery of the operating rate of domestic downstream tire factories and the year-on-year decline of domestic imported rubber, it may indicate that the downward space of cup lump is limited. In this way, the pattern of latex prices hanging upside down that of cup lump may not be sustainable. However, there will be some recovery in the later period, or resulting market prices continue to fall. In the later period, the main focus is on the rhythm of supply. When the market price is at a low level, due to the fact that supply and demand are weak, it is expected that the rubber price will fluctuate mainly at a low level.
Risk points: production may increase substantially, inventory may continue to accumulate, and demand may decrease substantially, etc.
Crude oil: relatively high open interest before expiration; bulls stepping may be an important reason for the market's plunge.
Yesterday was the expiration date of the August WTI crude oil contract. It is worth noting that the open interest of the August contract on July 19 was about 30,000 lots. And we have calculated that the open interest of the May to July contract in the day before the expiration is usually around 20,000 lots, which means that the open interest of the 2108 contract this time is 50% higher than the normal level. On the last trading day (July 20), the August contract still has more than 20,000 lots of open interest, while that of the normal month usually does not exceed 3,000 lots, so the delivery of this August contract can be regarded as a huge delivery. Therefore, we believe that this decline is more likely to be dominated by trading rather than fundamentals. That is, the short side in this delivery may be based on industrial background or hedging positions, while the long side may be based on speculative funds. However, the non-industry bulls on the August contract failed to roll over or leave the market early before the last trading day for some reason (it may be that they wanted to close their holding positions after the OPEC meeting), which caused the bulls stepping. This is also an important reason for the weakest performance of the August contract in this plunge.
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: Copper prices continue to maintain a volatile pattern.
Spot: According to SMM, the spot market continued yesterday's trend of opening higher and moving lower. In the morning market, Standard-Grade Copper still started to report a premium of 380 yuan/ton. Some holders still tried to lead the market's high premium pattern, but it was difficult to see positive results. Some high-value hedging buyers closed their holding positions in order to get profit, disintegrating the strong pattern of quotations, causing the price to quickly drop to a premium of 350-360 yuan/ton. After the second period, the transaction began to improve gradually due to the goods with a premium of 340 yuan/ton flowing out of the market. For High-Grade Copper, there were fewer imported brands, coupled with the Guixi Copper is under maintenance, the price of High-Grade Copper remains strong, with the premium quotation of 410-430 yuan/ton. Guixi Copper can even report a premium of 450 yuan/ton. For Hydro-Copper, due to the continuous inflow of imported brands, the overall spread between Standard-Grade Copper remained at around 100 yuan, with the premium quotation of 230-270 yuan/ton.
Opinion: Yesterday, the US dollar index closed up for the fourth consecutive day. However, after the price of copper fell the day before, buying interest in the downstream sector resumed, making the market's premium and discount quotations continue to be firm. Therefore, the copper price yesterday did not continue the previous decline, but showed a trend of rebounding from a low level. This shows that the current copper price is returning more to its fundamentals, and in the case of relatively limited fundamental changes, copper prices will still maintain a volatile pattern.
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. Policy risks may increase.
PTA: TA prices followed crude oil showing a cost-based downward trend.
Balance sheet outlook: PTA was postponed to August before re-entering the inventory accumulation cycle;; the inventory accumulation rate of PX from July to August was limited.
(1) Unilateral: TA processing fees are on the high side in the short term, and it is recommended to maintain a wait-and-see attitude for the time being.
(2) Intertemporal: The inflection point of the inventory accumulation was postponed again. The inventory accumulation time before the delivery of the 09 contract was relatively insufficient, and the warehouse receipts of factories were also gradually cancelled; For the 9-1 spread, it is recommended to take a wait-and-see attitude for the time being.
Risks: The implementation of the PTA plant maintenance plan, the strength of replenishment of terminal speculation, and the progress of Zhejiang Petrochemical's new PX device into use.
1. 单边：中性 2. 跨市：暂缓 3. 跨期：暂缓；4. 期权：暂缓
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