Crude oil

After some twists and turns, OPEC finally held a successful meeting last weekend. The Saudi-Russian conference alliance continued to lead the trend of production cuts. The coal production alliance decided to extend the current 9.7 million barrels/day production cut to July (due to the actual adjustment of 960 in Mexico). 10,000 barrels per day), and the oil-producing countries that did not achieve 100% between May and June will make up for additional production cuts from July to September. In addition, OPEC will monitor the market every month and adjust its future output policy. Although OPEC may increase production at any time in the future, according to the information passed by this meeting, we tend to reduce the current output reduction quota to September, yet the premise is that there is no cheating in the country, and the production-limiting alliance headed by Saudi Arabia has returned to the policy model of price-limiting and guaranteed prices.

Judging from the situation of the Saudi OSP announced on Sunday, Saudi Arabia has increased its sand premium for European and Mediterranean customers by 4.8 and 6.55 dollars per barrel respectively, but it has only increased by 1.4 dollars per barrel for Asian sand premium, which is significantly lower than the market expectation of 4 dollars per barrel. Judging from the discount adjustment, Saudi Arabia’s determination to maintain its Asian market share is still very obvious. It is expected that future exports to the European and American markets will decline significantly, but exports in Asia are expected to remain stable or decline slightly.

From the perspective of OPEC's actual output, according to Bloomberg statistics, total production in May fell by 5.8 million barrels/day to 24.6 million barrels/day, of which Saudi Arabia reduced production by 2.9 million barrels/day, which is basically consistent with the shipping schedule data. According to Kpler statistics, OPEC crude oil exports fell by 5.5 million barrels/day in May, of which Saudi exports decreased by 3 million barrels/day. Saudi Arabia’s output adjustment ability is surprising. The change in Saudi Arabia's output from March to May has exceeded the volatility of output data caused by the Abu Geiger attack in September last year. Looking forward, if the future production cuts are implemented well, the future OPEC output will continue to decline. However, the biggest variable currently comes from two aspects. One is the duration of the additional production cuts in the Gulf OPEC (Saudi Arabia, Kuwait, and the UAE), which is roughly 120 10,000 barrels per day. Starting in June, before the meeting last week, Saudi Arabia said that it would cancel this part of the production cuts in July; another uncertain factor is Libya. Although the geopolitical situation in Libya is still grim, its national oil company The Sarala oil field has been restarted. The current production in Libya is less than 100,000 barrels per day and the remaining capacity is more than 1 million barrels per day. Since the infrastructure has not been damaged, once the port is restarted, Libyan supply may recover quickly, while Libya Not in the current production cut agreement. Combining the judgments of the two, we believe that June may be the low point of OPEC output. Although cheating countries will increase production cuts, considering that Libya resumes production and the dynamic adjustment of Saudi Arabia’s output, it is unlikely that output will continue to fall sharply unless there is an unplanned supply interruption.

In addition, it should be noted that the current market transaction information is not entirely an OPEC production reduction meeting. The hurricane caused the production interruption in the Gulf of Mexico and the substantial increase in China’s crude oil imports in May, which is also the focus of market attention. However, we believe that these two factors are short-lived for the oil market. Historically, Mowan’s production will resume quickly after the hurricane transit. As for the fact that China’s imports have soared, we have analyzed in the previous weekly report that it was more from speculative restocking overbought (floor price-driven), rather than a strong recovery in terminal consumption. The continued increase in domestic crude oil inventories has brought many problems such as inflation and overstock on harbour. China’s current overbought status is not sustainable in the future. In terms of operation, it is advised to maintain the neutral strategy.

Iron Ore

The position on I2009 contract increased by 11,119 lots and closed at ¥760 per ton, the position on I2101 contract decreased by 1,935 lots and closed at ¥689 per ton.

【Important Information】

1. According to customs statistics, China imported 87.026 million tons of iron ore in May, a year-on-year increase of 3.276 million tons, an increase of 3.9%, a decrease of 8.686 million tons from the previous month, and an average daily decrease of 12.0%.
2. Brazil’s Third District Court on Friday has ordered Vale to suspend production at the Itabira complex (conceição, Cauê and Periquito). This move will affect Vale’s output by at least 10%. Vale did not lower its annual output forecast in the official response (still maintaining 310 million to 330 million tons unchanged). According to the company, the potential losses of the epidemic have been taken into account before, and there is no need to revise production guidance.
3. The US Bureau of Labor Statistics (BLS) released May non-agricultural employment data. The US unemployment rate in May was 13.3%, better than the forecast of 19.8%. However, the Bureau of Statistics later stated that the unemployment rate data had errors in the statistical process, and the true unemployment rate in May after correcting the errors was at least 16%, which is about 3% higher than the currently released data.

4. In terms of spot, the PB powder in Rizhao Port is ¥765 per ton last Friday and ¥785 per ton last weekend. The golden bubba powder in Rizhao Port is equivalent to ¥817 per ton.

【Trading Strategy】

1. Arbitrage: Vale suspended production at the Itabira Integrated Mine. The output of the mine in 2019 was about 36 million tons, and the output in the first quarter of this year was about 6 million tons. The supply of Vale was tightened again during the low shipment from January to April. There is uncertainty about whether the production stoppage time in the mining area and the subsequent epidemic situation will also affect the production in other mining areas. Although coking is also limited in production and capacity reduction is expected, the supply of iron ore is concentrated and the uncertainty is greater. It is recommended to stop the loss by longing the 2101 contract of coke and shorting the 2101 contract of iron ore.

2. The production shutdown time of the Vale mining area is difficult to determine, and the current high level is volatile. It is recommended to wait and see and maintain the option strategy. (For reference only)

PTA

Upstream factories did not continue to repurchase, and the polyester production and sales turned weak in the second half of the week.

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 strong. The main force contract of TF09 rose by 4.1 or 3.45% and closed at 122.8. The main force contract of JRU10 rose by 5.1 or 3.30% and closed at 159.5. The SHFE rubber consolidated at a high level. The main force contract of RU09 rose by 20 or 0.19% and closed at 10,665, and the main force contract of NR09 rose by 90 or 1.00% and closed at 9,080.

The quoted price for Qingdao rubber in USD rose by $20-40 per ton with general inquiries. The quoted price of RSS3 was $1,400 to $1,420 per ton. The spot price or CIF of STR20 was $1,285 to $1,290 per ton. The CIF of SMR20 in August was $1,260 per ton. The CIF of mixed rubber from Thailand in October was $1,285-1290 per ton.

Rubber Vision: Supadetch ongsakul, deputy secretary general of the Thai Rubber Association, recently said that according to the development strategy of Thailand Rubber for 20 years (2017-2036), Thailand plans to reduce the rubber planting area from 3.7 million hectares in 2016 to 2.94 million hectares by 2036. Although the planting area decrease, the rubber production per unit area will increase from 1440kg/ha/year to 2250kg/ha/year. Thailand also plans to increase the domestic consumption of natural rubber, from the current natural rubber output of 13.6% to 35%.

The enthusiasm for tapping in Xishuangbanna, Yunnan is not high. The glue is reported to 9500-10000 yuan/ton, and the water-adhesive rubber block is 300-500 yuan/ton. The growth rate of RU warehouse receipts in Shanghai Futures Exchange has always remained low: as of last week, the subtotal of RU inventory was 238,000 tons, and the stock futures were 232,000 tons. The difference between the two was 6,000 tons, which was lower than the historical average of 18,000 tons.

Futures Operation Advice: The SHFE rubber consolidated at a high level., similar to cotton. As for the main RU09 contract, since it’s running relatively strongly, it is advised to pay attention to sell RU2009-P-10500. (For reference only)