The top of iron ore stage is becoming more and more obvious.

SMM: as of September 4, the main iron ore contract 2101 closed at 857.5 yuan / ton, up 74 yuan / ton or 9.44% over the beginning of August; the spot Platts 62% iron ore index rose 14.45 US dollars / ton, or 12.42%. We believe that short-term iron ore fundamentals are still strong, but begin to show signs of marginal weakening, spot probability has reached the stage of the top. Therefore, we can try to sell short every high, and the bear market spread strategy of options can also choose the opportunity to intervene.

The supply is stable and rising, and remains stable in the later period.

With the rebound of iron ore prices, the total contradiction of iron ore supply has begun to ease gradually. From January to July this year, domestic iron ore imports were 660 million tons, an increase of 11.82% over the same period last year, of which imports in June and July exceeded 100m tons. In August, with the end of port maintenance, foreign ore shipments rebounded steadily. As of the end of August, Australian and Brazilian iron ore shipments reached 24.654 million tons, an increase of 3.094 million tons over the beginning of August, and shipments at the end of August have returned to the level of the same period in previous years.

In addition, according to the results released by the four major mines, iron ore output of the four major mines was 263 million tons in the second quarter, an increase of 4.29% over the same period last year and a cumulative decline of 0.99% in the first half of the year. Based on the annual output of 290 million tons of Vale, and the median output target of the other three mines, it is estimated that the output of the four major mines will increase by 9.2% or 47.46 million tons in the second half of the year compared with the first half of the year before the output target can be achieved. therefore, we believe that under the condition that the global epidemic does not worsen further, there is a high probability of a steady rebound in iron ore supply.

The inventory structure and the problem of port pressure began to ease somewhat.

Since mid-June, port inventories have gradually stabilized, but iron ore prices have continued to rebound, and structural problems in inventories are the main reason for the rise in prices. In order to alleviate this situation, steel mills began to adjust the ore proportion. on the one hand, increase the amount of lump ore and pellets. According to Mysteel data, the total ratio of lump ore and pellets in steel mills at the end of August was 28.07%, which was 1.3% higher than that at the beginning of June, while the ratio of sintering was 71.93%, which was 1.36% lower than that at the beginning of June. On the other hand, to reduce the port shortage of mainstream Australian ore procurement, to replace with a more cost-effective card powder + Chaote, the price difference between the two has narrowed from 72 yuan / ton in mid-August to 8.5 yuan / ton, also from the side to verify this conclusion.

At the same time, with the use of berths in some domestic ports in August, the current iron ore pressure on the port has eased slightly, with 169 ships pressing on the port in the first week of September, down 19 from the previous week. We believe that the total amount and structure of port inventory will be alleviated in the later period under the condition that the steel mills adjust the iron ore ratio and the port supply is gradually transformed into inventory. In the first week of September, the proportion of port powder inventory has rebounded to 60.91%, rising for two consecutive weeks.

The daily average hot metal output is high and the demand for iron ore may be weaker.

With the continuous compression of steel mill profits, hot metal output has begun to decline from high levels. in the first week of September, the average daily hot metal output of 247 steel mills across the country was 2.5159 million tons, down 3400 tons from the previous month, and the third consecutive week of decline. Considering that the profits of steel mills continue to narrow, and environmental production restrictions begin to tighten in Tangshan and other places after September, coupled with a series of major activities in October, November will enter the heating season. Therefore, we believe that although the absolute value of hot metal output is still high, it is more likely to fall back in the later stage, so the demand for iron ore is expected to show a gradually weakening trend in the medium term. At the same time, the recent lower-than-expected demand for finished products and the increase in inventories will also suppress iron ore in the short term.

Conclusions and investment recommendations

Based on the above analysis, short-term iron ore fundamentals are still strong, but have begun to show signs of marginal weakening. First, foreign mine shipments have rebounded to the level of the same period in previous years, and according to the output targets of the four major mines, iron ore supply will obviously pick up in the second half of the year. Second, the structural problems of inventory and port pressure have begun to ease. Third, the daily average hot metal output is high, iron ore demand in the medium term, showing a marginal weakening trend.

Therefore, the iron ore price is likely to weaken in the later period, but the high discount of the disk price may restrain the falling space of the disk price. Operationally, it is suggested that 2101 contracts of iron ore should be shorted at every high in the range of 850tel 870 yuan / ton. in terms of option strategy, we can consider buying put options or getting involved in the bear market spread strategy.

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