Crude oil

OPEC will advance the production reduction meeting originally held from June 9 to 10 to June 4 this week, and will discuss whether to continue to extend the current production reduction scale, so that Middle East oil-producing countries can adjust the crude oil shipment in July according to the results of the meeting According to the UAE’s delivery notice for its long-term customers last Friday, shipments in July decreased by 5%, and in June the decline was 20%. This change shows that OPEC’s production cuts have decreased, but this notice is likely to be based on the original OPEC production reduction agreement. The previous agreement stipulated that the scale of OPEC production reduction will be reduced from 9.7 million barrels per day to 7.7 million barrels per day from July. The market is expected to revise the customer proposal after the meeting of this week. USE is expected to revise the amount of oil, but judging from the UAE’s response, the willingness of oil-producing countries to increase production is very strong. At present, the mainstream expectation in the market is only the short-term maintenance of the current scale of production cuts. With the gradual recovery of demand and the slow recovery of production in the short-term in countries such as the United States and Canada, OPEC's gradual increase in production is in its own interest. We believe that the current large probability of production reduction can only be maintained for one month. In terms of operation, it is advised to maintain the neutral strategy, and wait and see temporarily.

Iron Ore

The position on I2009 contract decreased by 25,522 lots and closed at ¥740 per ton, the position on I2101 contract decreased by 903 lots and closed at ¥670 per ton.

【Important Information】

1. In May, the enthusiasm for buying a house in Hangzhou was not reduced. In May, the supply of new houses in the urban area of Hangzhou (including Fuyang and Lin'an) reached 19,840 units. New house transactions were 15,341 units, up 19.7% year-on-year. A total of 10,490 units of second-hand housing were sold in May, 168 more than the 10,232 units in April, an increase of 2.5% month-on-month, almost the same as the trading volume in April 2018, and a year-on-year increase of 20% compared with May last year. The Spring of the second-hand house continues.

2. Recently, Qianxi County announced the scheduling of production suspension and restriction during the strengthening of air pollution prevention and control in June, involving 36 companies. Among them, Jinxi Iron & Steel’s 1#, 2#, 3#, 4#, 11# blast furnaces were shut down for 30 days in June, and the blast furnace production limit rate was 33%. In addition, limit rate of sintering is 20%, and that of shaft furnace is 43%.

3. According to IHS Markit's survey, Japan's May Manufacturing Purchasing Managers Index (PMI) fell from 41.9 in March to 38.4, the lowest since March 2009. South Korea's manufacturing PMI fell to 41.3 in May from 41.6 in April, the lowest since January 2009. The global epidemic blockade continues to crack down on demand and production, reducing the hope of a recent recovery from the new coronavirus crisis.

4. In terms of spot, the PB powder in Rizhao Port is ¥765 per ton, and the golden bubba powder in Rizhao Port is equivalent to ¥822 per ton.

【Trading Strategy】

1. Arbitrage: Under the influence of the Brazilian epidemic, the expectation that shipments will remain at a high level in the later period is still poor, and it is not ruled out that the epidemic will affect production again. However, it should be noted that the seasonal impulse of Australian shipments in June, and the proportion of Australia’s shipments to China also increased, and the increase in molten iron production has been obvious slowed down, driving the margin upward or weakening. The current basis of the 09 contract is already relatively narrow compared to that of 9-1. It is recommended that the position on 9-1 cash and carry arbitrage strategy be reduced.

2. It is recommended to close the position on the iron ore seagull options on 09 contract, buying I2009-C-690, selling I2009-C-750, and selling I2009-P-650.

PTA

The TA basis was still relatively strong, and the polyester production and sales improved.

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 went up and fluctuated. The main force contract of TF09 rose by 1.5 or 1.29% and closed at 118.1. The main force contract of JRU10 rose by 2.0 or 1.33% and closed at 152.1. The SHFE rubber fluctuated and was relatively strong. The main force contract of RU09 rose by 5 or 0.05% and closed at 10,320. and the main force contract of NR09 rose by 5 or 0.06% and closed at 8,795. The quoted price for Qingdao rubber rose by $5 to $20 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 $1,200 to $1,210 per ton. The CIF of SMR20 in August was $1,220 per ton. The CIF of mixed rubber from Thailand in October was $1,250 per ton.

Auto Weekly News: the local government will announce a package of "investing in future cars" with a total investment of 28 billion euros to revitalize the German automotive industry, including transportation infrastructure construction, 5G network infrastructure expansion, while hotly discussed car subsidies were not in the plan. It is reported that the plan will invest 1.9 billion euros to fund research and development of environmentally friendly driving and energy, including expansion of electric vehicle infrastructure, hydrogen energy and fuel cell technology. The construction of streets and highways will receive an investment of 2.5 billion euros. According to internal documents of the German Ministry of Finance, car purchase subsidies are not planned. Because German political parties cannot reach a consensus on new car purchase subsidies, they are not included.

Thailand has recently experienced increased rainfall, and effective rainfall has been observed in all major production areas. The average daily rainfall in May rose to 4.78mm, reaching 76% of the historical average, and the 90-day cumulative rainfall was flat year-on-year. As of mid-May, Japan's TOCOM delivery inventory decreased by 167 tons to 8,825 tons, of which 717 tons was into the warehouse and 884 tons was out of the warehouse.

Futures Operation Advice: The SHFE rubber fluctuated. As for the main RU09 contract, it is advised to pay attention to the support at the pressure at the high level last week.

(For reference only)