Behind the "six Lianyang" of Iron Ore-Shanghai Metals Market

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Behind the "six Lianyang" of Iron Ore

Translation 11:48:08AM May 23, 2019 Source:Futures daily newspaper

SMM News: since the middle and late April, steel inventory has slowed down, the market on forward demand pessimism increased, black industry chain futures prices of various varieties of a small pullback. But after Labour Day holiday, this year's eye-catching performance of iron ore once again led the rise, driving the plate of other varieties of futures prices up. So far, the Platts 62% index has exceeded US $100 / ton, a new high in nearly five years, and the main contract price of iron ore futures has exceeded 700 yuan / ton. Dalian iron ore futures index is now close to the front high position of the monthly line, some investors subjectively believe that iron ore or in the market "fear of high" correction, trying to short iron ore. However, the author believes that the iron ore price performance is still strong, short iron ore lack of basic support, the operation is very difficult.

The prosperity of the iron and steel industry remains high

Since the supply-side structural reform, the prosperity of the iron and steel industry has increased significantly, and the profit level has improved significantly. With the increase of investment in environmental protection equipment, the effective production capacity of domestic iron and steel has gradually increased. Under the stimulation of high profits, the daily average crude steel output has repeatedly reached new highs. According to the latest data from the National Bureau of Statistics, China's crude steel production totaled 314.96 million tons from January to April 2019, an increase of 10.1 per cent over the same period last year. High supply does not lead to abnormal inventory accumulation, reflecting the current better downstream demand for steel. While property regulation and control policies have made investors cautious about long-term demand for steel, steel prices have remained high on the back of high demand, showing no signs of falling. Profits prompted steel mills to continue to maintain a high operating rate, the steel industry Gaojing Gas Bureau in the face of iron ore prices to produce strong support.

Slow repair of supply gap

Iron ore supply is the focus of commodity markets this year. As a result of mainstream mine accidents in Brazil and Australia in the first quarter, the actual supply of iron ore was much lower than expected, the balance sheet changed fundamentally, supply and demand shifted rapidly from oversupply to tight supply and demand, and prices rose rapidly. On the face of it, mining accidents and Australian port weather are the direct drivers of the rise in iron ore prices. At a deeper level, price fluctuation comes from the continuous game between buyers and sellers of iron ore around equilibrium price in the process of rebalancing supply and demand, which is a long-term process. No one can give an accurate answer to the price impact of a 5 per cent supply change until the supply gap is fully repaired. Judging from the current price trend, the decline is mostly a repair to the excessive rise of the market.

High price will stimulate a large number of non-mainstream mines to resume production is the mainstream logic of short, but it can not be ignored that the rigidity of mine construction is very strong, and the resumption of production has a long time period. Iron ore export data from countries where non-mainstream mines such as Iran, India and Peru were located in the first quarter showed no significant increase in non-mainstream mine production. The supply gap in the second quarter is still dominated by mainstream mines, the repair speed of the gap is slow, and prices still have upward momentum. In addition, the shortage of mainstream mineral resources leads to a serious shortage of available delivery resources in the iron ore market, and futures prices may be stronger than spot prices in recent months.

Low inventories cause prices to rise sharply and fall slowly

Since the second quarter of 2018, the stock of domestic iron ore ports has continued to decline, and the variety resources with good liquidity are seriously insufficient. However, steel mills have not paid enough attention to the lack of preparation for raw materials in winter, and the purchasing volume of steel mills has not increased after the rapid rise in the center of gravity of iron ore prices. Judging from the absolute quantity of imported ore stocks from steel mills, the inventory level is much lower than last year. The supply and demand of iron ore is difficult to change in the short term, and the price fluctuates with the purchasing behavior of steel mills and market sentiment. Low inventory provides a margin of safety for the market to do more, resulting in sharp price rises and slow falls, more rises and less falls, and a gradual increase in the center of gravity.

To sum up, although there is persistent uncertainty in downstream demand, the fundamentals of iron ore are still optimistic from the point of view of the high outlook of the iron and steel industry, the slow repair of the supply gap, the continuous decline of port inventory, and the low inventory of steel mills. There is no basis for a sharp decline in the short term. There is no medium-and long-term logical support and safety margin for shorting iron ore, and entry is not recommended.

Key Words:  Iron ore  steel  steel prices  raw ore 

Behind the "six Lianyang" of Iron Ore

Translation 11:48:08AM May 23, 2019 Source:Futures daily newspaper

SMM News: since the middle and late April, steel inventory has slowed down, the market on forward demand pessimism increased, black industry chain futures prices of various varieties of a small pullback. But after Labour Day holiday, this year's eye-catching performance of iron ore once again led the rise, driving the plate of other varieties of futures prices up. So far, the Platts 62% index has exceeded US $100 / ton, a new high in nearly five years, and the main contract price of iron ore futures has exceeded 700 yuan / ton. Dalian iron ore futures index is now close to the front high position of the monthly line, some investors subjectively believe that iron ore or in the market "fear of high" correction, trying to short iron ore. However, the author believes that the iron ore price performance is still strong, short iron ore lack of basic support, the operation is very difficult.

The prosperity of the iron and steel industry remains high

Since the supply-side structural reform, the prosperity of the iron and steel industry has increased significantly, and the profit level has improved significantly. With the increase of investment in environmental protection equipment, the effective production capacity of domestic iron and steel has gradually increased. Under the stimulation of high profits, the daily average crude steel output has repeatedly reached new highs. According to the latest data from the National Bureau of Statistics, China's crude steel production totaled 314.96 million tons from January to April 2019, an increase of 10.1 per cent over the same period last year. High supply does not lead to abnormal inventory accumulation, reflecting the current better downstream demand for steel. While property regulation and control policies have made investors cautious about long-term demand for steel, steel prices have remained high on the back of high demand, showing no signs of falling. Profits prompted steel mills to continue to maintain a high operating rate, the steel industry Gaojing Gas Bureau in the face of iron ore prices to produce strong support.

Slow repair of supply gap

Iron ore supply is the focus of commodity markets this year. As a result of mainstream mine accidents in Brazil and Australia in the first quarter, the actual supply of iron ore was much lower than expected, the balance sheet changed fundamentally, supply and demand shifted rapidly from oversupply to tight supply and demand, and prices rose rapidly. On the face of it, mining accidents and Australian port weather are the direct drivers of the rise in iron ore prices. At a deeper level, price fluctuation comes from the continuous game between buyers and sellers of iron ore around equilibrium price in the process of rebalancing supply and demand, which is a long-term process. No one can give an accurate answer to the price impact of a 5 per cent supply change until the supply gap is fully repaired. Judging from the current price trend, the decline is mostly a repair to the excessive rise of the market.

High price will stimulate a large number of non-mainstream mines to resume production is the mainstream logic of short, but it can not be ignored that the rigidity of mine construction is very strong, and the resumption of production has a long time period. Iron ore export data from countries where non-mainstream mines such as Iran, India and Peru were located in the first quarter showed no significant increase in non-mainstream mine production. The supply gap in the second quarter is still dominated by mainstream mines, the repair speed of the gap is slow, and prices still have upward momentum. In addition, the shortage of mainstream mineral resources leads to a serious shortage of available delivery resources in the iron ore market, and futures prices may be stronger than spot prices in recent months.

Low inventories cause prices to rise sharply and fall slowly

Since the second quarter of 2018, the stock of domestic iron ore ports has continued to decline, and the variety resources with good liquidity are seriously insufficient. However, steel mills have not paid enough attention to the lack of preparation for raw materials in winter, and the purchasing volume of steel mills has not increased after the rapid rise in the center of gravity of iron ore prices. Judging from the absolute quantity of imported ore stocks from steel mills, the inventory level is much lower than last year. The supply and demand of iron ore is difficult to change in the short term, and the price fluctuates with the purchasing behavior of steel mills and market sentiment. Low inventory provides a margin of safety for the market to do more, resulting in sharp price rises and slow falls, more rises and less falls, and a gradual increase in the center of gravity.

To sum up, although there is persistent uncertainty in downstream demand, the fundamentals of iron ore are still optimistic from the point of view of the high outlook of the iron and steel industry, the slow repair of the supply gap, the continuous decline of port inventory, and the low inventory of steel mills. There is no basis for a sharp decline in the short term. There is no medium-and long-term logical support and safety margin for shorting iron ore, and entry is not recommended.

Key Words:  Iron ore  steel  steel prices  raw ore