Crude oil

Yesterday, Saudi Arabia announced that it will cut production by an additional 1 million barrels per day from June, and its exports may be less than 6 million barrels per day. We believe that there are two reasons behind Saudi Arabia’s additional production cuts: One is that under the background of the demand recovery in bottoming out and OPEC+ reaching a production limit agreement, Saudi Arabia intends to return to the role of market regulator of production limit and price protection. As can be seen from the Saudi OSP in June, the previous price war situation has obviously changed. The second is the domestic epidemic situation in Saudi Arabia is gradually getting worse, and Saudi Arabia's production cuts also help offset the weak domestic oil demand, thereby keeping exports low. Overall, Saudi Arabia's production in June may fall to a record low of 7.5 million barrels per day. We believe that Saudi Arabia’s additional production cuts will accelerate the speed of supply and demand rebalancing, but whether the current speed of supply and demand rebalancing can avoid the upper limit of storage capacity is still largely uncertain. In terms of futures operation, it is advised to maintain the neutral strategy and wait and see.

Iron ore

After the iron ore rebounded last week, the basis has narrowed significantly. At present, the spot in the port is equivalent to futures price at about ¥700, and the discount for the main contract is 9.5%. According to the shipping schedule, arrivals in this week and next week will reach the highest level since the year. It is estimated that the weekly arrivals will exceed 17.5 million tons, and the current weekly demand is about 17 million tons. Therefore, it is expected that the inventories in the port will stop falling and increase in the short term. The mid- to long-term supply and demand structure will remain unchanged from the point of view of gradually weakening after mid-May. The recent epidemic in Brazil is still developing rapidly, and we still need to pay attention to the unexpected impact on the supply side.

Natural Rubber

Overseas rubber fluctuated slightly. The main force contract of TF09 fell by 1.0 or 0.84% and closed at 117.4. The main force contract of JRU10 rose by 0.1 or 0.07% and closed at 152.8. The SHFE rubber fluctuated. The main force contract of RU09 rose by 40 or 0.39% and closed at 10,375, and the main force contract of NR06 rose by 20 or 0.23% and closed at 8,335. The quoted price for Qingdao rubber was stable with general inquiries. The quoted price of RSS3 was $1,400 per ton. The spot price or CIF of STR20 was $1,170 to $1,190 per ton. The CIF of SMR20 in August was $1,200 per ton. The CIF of mixed rubber from Thailand in August was $1,210 per ton.

Tireworld News: On May 5, Nokian Tire disclosed its first quarter earnings report for 2020. Under the influence of the epidemic, this tire company, which has always been known for profitability, suffered severely. In the first quarter, the company's sales were 279.8 million euros, a year-on-year decrease of 17.8%; its net profit was only 2.4 million euros, a year-on-year decrease of 98.8%. Divided by business type, in the first quarter, the company's some tire business sales increased and some decreased. Among them, the sales of the passenger tire business were 190 million euros, a year-on-year decrease of 24.7%. Affected by the epidemic, Nokian Tire withdrew its 2020 performance forecast in its financial report.

The upstream climate is normal. Rainfall in Thailand is average. The average daily rainfall of 2.73mm in the previous days was 43% of the normal value. In terms of synthetic rubber, butadiene sales were slightly stronger, but the styrene market sentiment was boosted, and the transaction prices rose cautiously. Both the automobile industry association and the passenger car association's April automobile production and sales data are acceptable. Among them, the output of commercial vehicles increased from a year-on-year decrease of 22.5% to an increase of 31.3%, and the output of passenger vehicles increased from a decrease of 44.7% to a decrease of 4.4%.

Futures Operation Advice: The SHFE rubber fluctuated like the trend of hot rolled coils. As for the long position of the main RU09 contract, it is advised to set a stop at the previous high level at 10,240.

(For reference only)