Crude oil

The recent performance of US oil prices continues to be stronger than that of Brent oil. From a funds perspective, the recent increase in the net long positions of US oil funds is significantly greater than that of Brent oil, which is the most direct reason. From the latest position data released last week, the net long positions of the US oil funds increased to 360,000 lots, reaching a new high since June 2018, while the net long positions of Brent oil funds only increased to 170,000 lots. The two formed a clear split. The net long positions of US Oil Fund increased by nearly 260,000 lots from the low point, while the position of Brent oil increased by only 120,000 lots. Under the impetus of funds, US oil rose more than 80% in May, while Brent oil only increased by 30% about.

Why funds are more favored to do more US oil than Brent oil, we believe that the core logic is still the difference in the fundamentals of the two, especially the impact of production cuts on the two different degrees. WTI is an inland pipeline oil market. Cushing’s inventory is directly affected by local pipeline flow. Large-scale shut down operations in Canada, Bakken, and the Permian Basin directly led to a reduction in Cushing’s pipeline net inflows. For example, the crude oil export volume to the United States has dropped by about 1 million barrels per day in the past month, giving the market a strong expectation of destocking, and the problem of tight storage capacity has been eased. Therefore, under the previous deep contango structure, a large amount of funds participated direct unilateral buying or the cash and carry arbitrage strategy. Brent, as a cargo oil market, although Saudi Arabia, Russia and Norway have also announced substantial reductions in production, but it has been dragged down by a large number of crude oil floating tanks in the North Sea and the world. At present, the number of global floating warehouses is still more than 150 million barrels.

At present, the price difference between the two oils has narrowed to less than $3 per barrel. The US oil export arbitrage window is basically closed. In particular, the price advantage of US exports to Europe has ceased to exist. Under the influence of the price difference, it is not even ruled out that the US East or the US Gulf refinery will increase the crude oil of the Brent system such as West Africa or the North Sea. In addition, from the perspective of the number of Baker Hughes rigs and the number of fracturing units, there are obvious signs of bottoming in the near future, so when it is transmitted to production, it is likely to recover after bottoming in the third quarter of this year. China’s import volume has also recovered, so we believe that the current price difference between the two oils is basically at the limit level, and it is unlikely that it will continue to narrow or even become inverted.

In terms of operation, it is advised to maintain the neutral strategy, and wait and see temporarily.

Iron Ore

The position on I2009 contract increased by 13,103 lots and closed at ¥745 per ton, the position on I2101 contract decreased by 1,884 lots and closed at ¥673 per ton.

【Important Information】

1. According to the steel industry PMI surveyed and released by the China Iron and Steel Logistics Professional Committee, the steel PMI in May was 50.9%, an increase of 5 percentage points from the previous month. Among them, the new order index was 52.9%, an increase of 13 percentage points from the previous month. The index of new export orders was 31.9%, which was below 40% for the third consecutive month. The raw material inventory index was 41.2%, an increase of 2.9 percentage points from the previous month, and was below 50%.

2. Mysteel News, Brazilian Vale issued an announcement on the official website on May 29, Brazil time, saying that it had received news of the blockade of the Itabira mining area by the local labor bureau. But Vale immediately applied for a lawsuit that the blockade was invalid. The decision was approved by the Second Court to ensure that Vale operates normally in the Itabira mine.

3. On Saturday and Sunday, the ex-factory prices of ordinary carbon billet of some manufacturers in Tangshan, Hebei Province have increased by 30 yuan to 3,310 yuan per ton (20 yuan on Saturday and 10 yuan on Sunday), and 60 yuan per ton on a week-on-week basis. Construction steel prices have been inertially higher. Among them, North China has partially rallied and dropped, while most other markets have pushed up. Some steel mills in Shandong, Anhui and Jiangsu have raised their ex-factory prices by more than 30 yuan.

4. In terms of spot, the PB powder in Rizhao Port is ¥760 per ton, and the golden bubba powder in Rizhao Port is equivalent to ¥798 per ton.

【Trading Strategy】

1. Arbitrage: At present, the inventory to sales ratio of iron ore is low, and the spot is strong. The Brazilian is still expected to maintain high shipments in the later period under the situation. It doesn’t rule out that the epidemic situation will affect production again. The overall supply and demand expectations are still strong, but it should be noted that the seasonal impulse of Australian shipments in June, the growth rate of molten iron production has slowed significantly, and the margin of upward driving may be weakened. The iron ore 9-1 cash and carry arbitrage strategy can reduce the position appropriately.

2. It is recommended to buy the iron ore seagull options on 09 contract when the market retreats, that is, buy I2009-C-690, sell I2009-C-750, and sell I2009-P-650.

PTA

Upstream factories repurchased again, TA basis slightly strengthened.

The estimated balance sheet in June and July is still accumulating rapidly under the current high inventory background. Under the background of polyester export demand suppressed by the epidemic, it is necessary to lower the PTA processing fee to prompt PTA to reduce production to rebalance. In terms of operation, it is advised to wait and see for unilateral strategy; for the strategy across varieties, it is estimated that the accumulated inventory of PTA will continue in May and June, and its performance will be weak; for basis trading and strategy across period, it is advised to focus on the basis adjustment ability of mainstream factories in the short term, which may provide good opportunity for reverse cash and carry arbitrage. It is advised to focus on the risks of unilateral volatility of recent crude oil prices, the turning point of the epidemic situation in the external market, the possibility of non-profit maintenance under the high production concentration of the PTA plant and the downstream restock space.

Natural Rubber

Overseas rubber fluctuated weakly. The main force contract of TF09 fell by 0.6 or 0.34% and closed at 116.6. The main force contract of JRU10 fell by 0.6 or 0.40% and closed at 149.5. The SHFE rubber fluctuated. The main force contract of RU09 fell by 15 or 0.15% and closed at 10,150. and the main force contract of NR07 rose by 75 or 0.88% and closed at 8,600. The quoted price for Qingdao rubber rose by $5 to $10 per ton with scarce inquiries. The quoted price of RSS3 was $1,390 to $1,400 per ton. The spot price or CIF of STR20 was $1,180 to $1,190 per ton. The CIF of SMR20 in August was $1,195 per ton. The CIF of mixed rubber from Thailand in October was $1,225 per ton.

China Rubber Industry Association News: On May 27, the Ministry of Commerce and Industry of India initiated an anti-dumping investigation on the rubber additive PX-13 that was originated from or imported from China at the application of its domestic enterprise. This is the 12th anti-dumping case in India against China this year. It is understood that PX-13 is widely used in the production of rubber tires and non-tires.

Today is Pancasila Day in Indonesia and Children's Day in Cambodia. As of last Friday: The SHFE RU inventory subtotal is 238,000 tons, inventory futures is 233,000 tons, the difference between the two is 0.6 million tons, which is lower than the historical average of 17,000 tons; NR inventory subtotal is 68,000 tons, inventory futures is 67,000 tons, the difference between the two is 1,000 tons. The warehouse receipt growth rate is low.

Futures Operation Advice: The SHFE rubber fluctuated weakly. It is advised to pay attention to the support at the bottom last weekend.

(For reference only)