SMM News: since the second quarter, iron ore has experienced two rounds of rise, the first round occurred in May, when the rise was driven by the contradiction between the total supply and demand of iron ore. At that time, due to the resumption of domestic production, the rapid upward production of steel mills and the outbreak of domestic iron ore demand, superimposed VALE shipments in the first quarter were significantly lower than expected, and the contradiction between supply and demand intensified. In May, iron ore port inventories fell by more than 6 million tons a month, triggering a sharp rise in prices. And this total contradiction has shown obvious signs of easing since June. On the one hand, foreign mine shipments showed obvious volume in June. Since June, the average shipping volume between Australia and Pakistan has been 23.9 million tons, an increase of more than 18% over the January-May average of 20.2 million tons. Moreover, persistently high mineral prices have also led to a recovery in global supply. From January to June, China's iron ore imports reached an all-time high of 547 million tons. On the other hand, after entering June, the growth rate of domestic iron ore demand slowed down, hot metal production ended 18 weeks of continuous increase, and high levels began to occur in mid-June.
The result of the continuous marginal easing of supply and demand since June is the continuous rebound in port inventories. This week, iron ore port inventories reached 113 million tons, a month-on-month increase of 2.7769 million tons, the largest weekly increase of the year. It is the fifth consecutive week of month-on-month increase in recent weeks. Port inventories have rebounded 7 million tons from the low in mid-June, and there is still further upward pressure on inventories in the later period. It can be considered that the contradiction in the total amount of iron ore has been alleviated significantly in the near future.
Since July, iron ore has begun a new rally, on the one hand, from the premium brought about by the improvement in systemic risk appetite across the market after the stock market rally in July, and on the other hand, from the structural contradictions of iron ore itself. The structural contradiction stems from the continuous elimination of the stock of Chinese-grade Australian powder represented by PB powder, which leads to a stronger relative price, while Chinese-grade Australian powder, as the main pricing benchmark for spot index and futures, has brought upward impetus to futures.
We believe that the room for iron ore structural contradictions to continue to ferment is limited for the following two reasons: first, iron ore structural contradictions occurred many times in 2016 and 2018, mainly due to the over-concentration of selective preferences of steel mills leading to a shortage of medium-grade resources, driving up prices, while steel mills' strong and persistent concentrated selective preference has an important support is that steel mills have better profits. At that time, the profit level of steel mills was very high, although the performance-to-price ratio of some middle-grade resources was not high, but in order to ensure the stability of production, steel mills could tolerate the high premium of middle-grade resources. At present, steel mills are generally in a low-profit environment, and the centralized selection of some varieties is restricted by profits. at present, the spot profits of rebar and hot coil are about 150yuan / ton and 250yuan / ton respectively, and we note that the recent high-quality card powder continues to weaken, the performance-to-price ratio of middle-grade resources is already low, and the card powder matching super is already much lower than PB powder. Second, at present, the continuous fermentation of structural contradictions needs the total amount as the support and basis. to put it simply, under the premise of the continuous decline of total inventory, even if the steel mills switch over the preferred varieties, it will bring about an upward shift of the overall price center of gravity, while under the premise of a continuous rise of total inventory, it may lead to a downward shift of the overall price center of gravity. Recently, we have seen that the contradiction in the total amount of iron ore has been alleviated obviously, and from the total point of view, the support for the continued fermentation of structural contradictions is not enough.
On the whole, the contradiction of the total amount of iron ore has been obviously alleviated, and the recent market trading logic has shifted from the total amount to the structure, but under the circumstances that the total amount contradiction continues to ease and the profit environment of the steel mill is not good, the room for iron ore structural contradiction to continue to ferment is limited, and the height of iron ore continuing to rise is treated cautiously.
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