Continuous upward attack on the futures price of iron ore with multiple profits and multiple factors-Shanghai Metals Market

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Continuous upward attack on the futures price of iron ore with multiple profits and multiple factors

Translation 09:41:34AM May 21, 2019 Source:Securities Daily

SMM News: in the multi-profit multi-factor concentrated outbreak, iron ore futures prices ushered in a round of rise. As of May 20, the main iron ore futures contract 1909 closed at 711.5 yuan / ton, up 16:00, up 2.3%, with trading volume of nearly 2 million hands and 1.6359 million positions.

Analysts pointed out that the recent continuous rise in iron ore futures prices is due to the overall tight supply and demand at both ends of the supply and demand, the decline in inventories and the rise in import costs caused by exchange rate fluctuations, taking into account the fact that steel mills' profits depress demand for iron ore. Basis, import costs are favorable to promote, iron ore futures prices although there is still room, but the upper security is not enough, investors should be treated rationally.

Three factors cause the price to continue to rise

Since last week, the iron ore futures price has maintained a unilateral rising pattern, and the main contract 1909 has rebounded from its low price of RMB 1909 per ton. By the close of yesterday, it had held the RMB 710 / t barrier, closing at RMB 711.5 / t, up 16:00, or 2.3%. The trading volume is close to 2 million hands and the position is 1.6359 million hands.

Analysts pointed out that the current iron ore market supply and demand as a whole tight, mine supply uncertainty, Sino-US trade frictions, exchange rate depreciation and other factors leading to the rise in iron ore prices. Specifically, in January, a mine accident occurred in Vale, Brazil; in March, Australian mines were hit by Hurricane Veronica. Some market people said that the recent displacement of Vale GongoSoco mine complex structure, but also triggered the market to resume production of Vale pessimistic.

At the same time, China's iron ore stocks have fallen. In mid-May, iron ore stocks at Chinese ports stood at 133 million tons, down 6.7 per cent from the start of the year. In addition, the amount of iron ore arriving in Hong Kong fell 11.04% from 8.497 million tons at the beginning of the year to 7.559 million tons at the end of March, and then gradually recovered to the level of 10 million tons.

From the demand side, driven by the supply-side structural reform and the active downstream market, steel mills have continued to maintain relatively high profits since the beginning of this year, the operating rate has gradually rebounded, and the daily average output of hot metal has increased significantly. The total output of hot metal in April was 68.3 million tons. It was 4.9 per cent higher than in March. At the same time, steel mills imported iron ore stocks continued to decline. Since the end of 2018, the gross profit per ton of steel has increased from 256 yuan / ton to 622 yuan / ton in mid-April, and the operating rate has increased from 64% to 69%.

In addition, with the recent intensification of trade friction between China and the United States, the exchange rate of RMB depreciated by about 2.25% against the United States in May, which has also led to the increase of China's iron ore import cost to a certain extent.

The Platts index has risen to $100 a ton

Through carding, the reporter found that under the influence of the above changes in supply and demand, the spot price of iron ore ushered in a wave of rising prices. According to public data, from January 2 to May 17, the Platts index rose from $72.35 / ton to $100.4 / ton, an increase of 39%. The settlement price of iron ore swaps on the Singapore exchange rose 41 per cent from $69. 41 a tonne to $97. 76 a tonne. During the same period, Qingdao port Jinbuba powder rose from 481yuan / ton to 686yuan / ton, an increase of 43%, while the settlement price of China's main iron ore futures contract rose from 491.5 yuan / ton to 695.5 yuan / ton, an increase of 42%.

At the same time, in the first five months of 2019, the correlation of spot price of iron ore period is 0.97, and the spot price of iron ore period remains highly correlated. The trend of spot basis is also relatively stable, the main iron ore futures contract has always been lower than the spot price operation. In the first five months, the current base difference rose from 61.2 yuan / ton to 63.4 yuan / ton, a slight increase of 3.63%. Most of the time, it is between 40 yuan / ton and 80 yuan / ton, with an average of 62.5 yuan / ton. Over the same period, the price difference between the Platts index and the main contract is mostly between 80 yuan / ton and 120 yuan / ton, with an average of 95 yuan / ton.

In the sharp fluctuation of the international iron ore price since this year, the iron and steel industry chain enterprises actively participate in the futures market risk aversion. In the first four months of 2019, corporate customer positions accounted for 47 per cent, an increase of 10 percentage points over the same period last year. "although this year's Vale mine accident is a sudden event, but many enterprises ahead of schedule layout, to a certain extent reduced the adverse impact of the sharp rise in mining prices on steel mills." Li Jin, head of Tangshan Wanyang Trading Co., Ltd., said.

At present, China's iron ore futures have maintained the position of the world's largest iron ore derivatives market for many years, with trading volume and average daily position of 83.14 million and 770000 hands respectively in the first four months of 2019, providing sufficient liquidity for enterprises to participate in arbitrage. Since 2015, the arbitrage efficiency of iron ore futures in China has reached 80%, which provides an effective tool for industrial enterprises to avoid risks.

"with the effective play of futures functions, real enterprises pay more and more attention to futures price fluctuations. At present, many port iron ore traders will adjust spot pricing with reference to futures prices, and many customers are trying to carry out the basis point price model based on futures prices. It can be said that the degree of integration is deepening in the middle of the iron ore trade. " Cai Yongzheng, director of the share securities investment department of Nanjing Iron and Steel Co., Ltd., pointed out.

Another analyst pointed out that, considering that steel mill profits suppress iron ore demand, the basis, import costs are favorable to promote, iron ore futures prices although there is still room, but the upper security is not enough, investors should be treated rationally.

Key Words:  Iron ore  futures  rising 

Continuous upward attack on the futures price of iron ore with multiple profits and multiple factors

Translation 09:41:34AM May 21, 2019 Source:Securities Daily

SMM News: in the multi-profit multi-factor concentrated outbreak, iron ore futures prices ushered in a round of rise. As of May 20, the main iron ore futures contract 1909 closed at 711.5 yuan / ton, up 16:00, up 2.3%, with trading volume of nearly 2 million hands and 1.6359 million positions.

Analysts pointed out that the recent continuous rise in iron ore futures prices is due to the overall tight supply and demand at both ends of the supply and demand, the decline in inventories and the rise in import costs caused by exchange rate fluctuations, taking into account the fact that steel mills' profits depress demand for iron ore. Basis, import costs are favorable to promote, iron ore futures prices although there is still room, but the upper security is not enough, investors should be treated rationally.

Three factors cause the price to continue to rise

Since last week, the iron ore futures price has maintained a unilateral rising pattern, and the main contract 1909 has rebounded from its low price of RMB 1909 per ton. By the close of yesterday, it had held the RMB 710 / t barrier, closing at RMB 711.5 / t, up 16:00, or 2.3%. The trading volume is close to 2 million hands and the position is 1.6359 million hands.

Analysts pointed out that the current iron ore market supply and demand as a whole tight, mine supply uncertainty, Sino-US trade frictions, exchange rate depreciation and other factors leading to the rise in iron ore prices. Specifically, in January, a mine accident occurred in Vale, Brazil; in March, Australian mines were hit by Hurricane Veronica. Some market people said that the recent displacement of Vale GongoSoco mine complex structure, but also triggered the market to resume production of Vale pessimistic.

At the same time, China's iron ore stocks have fallen. In mid-May, iron ore stocks at Chinese ports stood at 133 million tons, down 6.7 per cent from the start of the year. In addition, the amount of iron ore arriving in Hong Kong fell 11.04% from 8.497 million tons at the beginning of the year to 7.559 million tons at the end of March, and then gradually recovered to the level of 10 million tons.

From the demand side, driven by the supply-side structural reform and the active downstream market, steel mills have continued to maintain relatively high profits since the beginning of this year, the operating rate has gradually rebounded, and the daily average output of hot metal has increased significantly. The total output of hot metal in April was 68.3 million tons. It was 4.9 per cent higher than in March. At the same time, steel mills imported iron ore stocks continued to decline. Since the end of 2018, the gross profit per ton of steel has increased from 256 yuan / ton to 622 yuan / ton in mid-April, and the operating rate has increased from 64% to 69%.

In addition, with the recent intensification of trade friction between China and the United States, the exchange rate of RMB depreciated by about 2.25% against the United States in May, which has also led to the increase of China's iron ore import cost to a certain extent.

The Platts index has risen to $100 a ton

Through carding, the reporter found that under the influence of the above changes in supply and demand, the spot price of iron ore ushered in a wave of rising prices. According to public data, from January 2 to May 17, the Platts index rose from $72.35 / ton to $100.4 / ton, an increase of 39%. The settlement price of iron ore swaps on the Singapore exchange rose 41 per cent from $69. 41 a tonne to $97. 76 a tonne. During the same period, Qingdao port Jinbuba powder rose from 481yuan / ton to 686yuan / ton, an increase of 43%, while the settlement price of China's main iron ore futures contract rose from 491.5 yuan / ton to 695.5 yuan / ton, an increase of 42%.

At the same time, in the first five months of 2019, the correlation of spot price of iron ore period is 0.97, and the spot price of iron ore period remains highly correlated. The trend of spot basis is also relatively stable, the main iron ore futures contract has always been lower than the spot price operation. In the first five months, the current base difference rose from 61.2 yuan / ton to 63.4 yuan / ton, a slight increase of 3.63%. Most of the time, it is between 40 yuan / ton and 80 yuan / ton, with an average of 62.5 yuan / ton. Over the same period, the price difference between the Platts index and the main contract is mostly between 80 yuan / ton and 120 yuan / ton, with an average of 95 yuan / ton.

In the sharp fluctuation of the international iron ore price since this year, the iron and steel industry chain enterprises actively participate in the futures market risk aversion. In the first four months of 2019, corporate customer positions accounted for 47 per cent, an increase of 10 percentage points over the same period last year. "although this year's Vale mine accident is a sudden event, but many enterprises ahead of schedule layout, to a certain extent reduced the adverse impact of the sharp rise in mining prices on steel mills." Li Jin, head of Tangshan Wanyang Trading Co., Ltd., said.

At present, China's iron ore futures have maintained the position of the world's largest iron ore derivatives market for many years, with trading volume and average daily position of 83.14 million and 770000 hands respectively in the first four months of 2019, providing sufficient liquidity for enterprises to participate in arbitrage. Since 2015, the arbitrage efficiency of iron ore futures in China has reached 80%, which provides an effective tool for industrial enterprises to avoid risks.

"with the effective play of futures functions, real enterprises pay more and more attention to futures price fluctuations. At present, many port iron ore traders will adjust spot pricing with reference to futures prices, and many customers are trying to carry out the basis point price model based on futures prices. It can be said that the degree of integration is deepening in the middle of the iron ore trade. " Cai Yongzheng, director of the share securities investment department of Nanjing Iron and Steel Co., Ltd., pointed out.

Another analyst pointed out that, considering that steel mill profits suppress iron ore demand, the basis, import costs are favorable to promote, iron ore futures prices although there is still room, but the upper security is not enough, investors should be treated rationally.

Key Words:  Iron ore  futures  rising