SMM News: in order to promote futures companies to invest in research and improve the level of industrial services, and better serve the real economy, the selection of the Top Ten Futures Investment and Research teams of the Big Trading Institute 2020 has officially kicked off on August 28th. During the selection period, this column will select the evaluation team to participate in the research report for display, in order to provide dinner for readers. This article comes from Guosheng Futures team 1.
The recent rise in iron ore is relatively large, mainly due to the periodic tight supply of medium-grade mineral powder in the port and the large short offer of contracts in recent months. The spot supply and demand pattern has shifted since the end of June, with the total inventory of pressurized ports in 45 ports across the country increasing by about 22 million tons from the end of June to the end of August. In this case, the tight supply of middle-grade mineral powder is due to the epidemic situation, weather and other causes that the ship was not unloaded in time and the holding warehouse temporarily locked the middle-grade mineral powder. with the end of the contract in recent months, the difficulties in delivery are temporarily relieved, and at the same time, the problem of pressing port is given time to solve, which is expected to make the market return to the fundamentals of supply and demand. The supply and demand pattern has accumulated inventories at the level of 24.62 million tons (45 ports) of weekly arrival and 94 per cent capacity utilization of steel mills since the end of June. According to the seasonal fourth quarter iron ore supply is expected to continue to increase on a month-on-month basis, while the 94 per cent high operating rate of steel mills is not sustainable, then it can be speculated that iron ore accumulation will accelerate in the later period, and the pattern of iron ore supply surplus will be more significant, thus putting pressure on spot and 2101 contract prices.
Since the epidemic, mine production reduction has become the biggest hype point of this round of iron ore rise, but according to the data, the total global iron ore trade volume from January to July was 944 million tons, an increase of 5.6% over the same period last year, while overseas steel mills reduced production by 14.43% from January to July. As a result, the proportion of iron ore shipped to China increased significantly. China imported 660 million tons of iron ore from January to July, an increase of 11.77% over the same period last year. In other words, on the whole, China's iron ore supply has not decreased, showing a phased tight pattern from April to May, and the most tense time has passed, with a significant increase in imports from June to July.
Driven by profits, mines at home and abroad are working hard to produce. Shipments from Australia and Pakistan have been at a high level for three months in a row, and domestic mines have reached a new high since June. With better climatic conditions in the southern hemisphere in the fourth quarter, coupled with profit-driven and seasonal shipments, it is expected that there is room for an increase in foreign mine supply in the fourth quarter compared with the previous quarter.
In addition to the supply-side hype, the rising blast furnace operating rate in the first half of the year is also an important reason for the surge in iron ore. According to Mysteel, the utilization rate of blast furnace capacity in 247 steel mills rose from 80 per cent at the beginning of April to 95 per cent at the end of August, providing a strong support for iron ore demand. However, with the continuous increase in the operating rate of the blast furnace, several important problems are in front of us: first, the production capacity of the blast furnace is basically stable, and the capacity utilization rate has basically peaked at 95%, so it is difficult to continue to increase, and the demand for iron ore also peaked accordingly. Second, with the continuous rise of raw materials, the profits of steel mills are shrinking rapidly. at present, the gross profit of the long process in East China is only more than 100 yuan, and in some parts of the land, the long process steel mills have lost money, and the profit drive does not support the steel mills to continue to increase their production; third, under the existing capacity utilization level, steel inventory shows accumulation, indicating that the current production level of supply exceeds demand; Fourth, according to the seasonal law, steel demand will decline seasonally after October, and the pressure on steel mills to reduce production will increase with the cold weather. Therefore, we think that the current high operating rate of steel mills is difficult to maintain.
Based on the above analysis, we can see that under the current supply pattern (24.62 million tons per week arriving in Hong Kong / 45 port, the utilization rate of blast furnace capacity of 247 steel mills is 93.97%) iron ore has shown a pattern of surplus. As of August 28, 45 ports had inventories of 113.11 million tons and pressurized stocks of about 32 million tons, with a total inventory of more than 140 million tons, an increase of about 22 million tons since the end of June. We have balanced and calculated the iron ore supply needed by steel mills under different capacity utilization conditions. It is estimated that about 22 million tons of imported 26 ports will be able to meet 95% of the domestic demand for blast furnace capacity utilization. If this figure is exceeded, there is a surplus in supply, and there has been a surplus in the arrival data since July. In other words, even if the supply maintains the status quo and the demand maintains the high capacity utilization rate of about 95% in the future, there will still be a situation of surplus. If the capacity utilization of steel mills decreases (based on the above demand analysis, we think it is very likely), then the pattern of iron ore oversupply will be more significant.
Based on the above analysis, we believe that after the end of the 2009 contract, the 2101 market will return to the stage dominated by supply and demand, and the inventory accumulation in the past two months has proved that the current supply exceeds demand, and there is a greater expectation of demand decline in the future. therefore, we think that the excess supply and demand will be more obvious in the future, and the speed of accumulation will be accelerated, thus putting pressure on the contract price of 2101. The deficiency is that there is a large discount on the current futures, and the safety margin of the basis is relatively poor, but based on the fact that there is a large price bubble and weak support in the spot after the recent rally, we think we can go short. However, it is recommended to enter the market whenever there is a rebound, not to pursue short, and to roll properly whenever it falls rapidly.
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