[Research report] Iron ore: structural contradictions between varieties suppress iron ore rebound

Report Highlights :

1 iron ore total supply and demand marginal improvement

1.1 Supply of release less than market expectations

In terms of imported mines, the cumulative import volume of iron ore in China from January to April 2018 was 353 million tons, a slight increase of 0.20% year-on-year, which was a sharp drop from the cumulative growth rate of 8.60% in January-April 2017. Among them, the monthly import growth rate in March this year dropped by 10.22% year-on-year, which led to the negative growth rate in January-March, ending the positive growth for 28 consecutive months since October 2015.

According to the statistics of country-by-country imports, imports from Australia, Brazil and non-mainstream areas other than Australia and Pakistan in January-March were 6.454 million tons, -5.693 million tons and -634.56 million tons respectively. There is a significant reduction in imports from the region.

The growth rate of imports in the non-mainstream region peaked in early 2017 and then continued to fall, especially after entering 2018. The main reasons come from two aspects: on the one hand, steel mills continue to have high profits since 2017, and steel mills continue to increase their preference for high-end mainstream resources in order to increase production, resulting in a weakening of the actual demand for non-mainstream resources, and non-mainstream resources for a long time. Faced with the "priceless market" situation; on the other hand, the mine price has dropped from the high of more than 90 US dollars at the beginning of 2017, and the monthly average price of Platts has remained below 75 US dollars for a long time. The average price fell below 70 US dollars, the cost of non-mainstream mines was generally high, and the price of minerals continued to fall, especially below 70 US dollars, which caused obvious restrictions on the willingness to ship non-mainstream resources.

In terms of domestic mines, the decline in output is more obvious. From January to April 2018, the output of iron ore in China was 255 million tons, a drop of 145 million tons from the same period of last year, a drop of 36.25%. The high pressure situation of domestic environmental protection has led to the continued low operating rate of domestic mines.

Overall, at the beginning of the year, the market generally expected that the total supply increase of iron ore this year was more than 40 million tons, and the performance of the supply side in the first four months of this year was significantly lower than expected. After the mine price experienced a sharp decline in the first quarter, the iron ore supply side experienced an active contraction. The actual import volume in January-April was only the same as that of the same period of last year, and the domestic mine output also showed a sharp decline year-on-year. The total supply of iron ore has so far declined significantly compared to the same period last year. Therefore, for the market's previous estimate of the iron ore supply increase this year, there is a need for downward revision, and there is room for marginal improvement in the supply side.

1.2 Steel mills resumed production and pig iron production hit a new high

In the middle of March, the production season of the heating season was over. After the end of the production limit, the steel mills actively resumed production under the stimulation of high profits. Especially since the steel mill resumed production in April, the capacity utilization rate of Mysteel's statistical steel mills has been continuously 9 since mid-March. The week-on-week ratio rose. As of May 18, the national steel mill capacity utilization rate was 85.70%, which was 8.49 percentage points higher than the March 16 low of 77.21%.

The latest production of pig iron produced by the Bureau of Statistics shows that the average daily output of pig iron in China reached 2.1037 million tons in April, a record high. In the Tangshan and Hebei provinces of Hebei Province, there are still non-heating seasons and limited production policies and sudden losses in Xuzhou and other places. Under such influence, such high output has significantly exceeded market expectations.

The mainstream market view of the previous period believes that due to the increased environmental protection pressure in the steel industry this year, the production of steel mills is frequently limited, and the limited production of steel enterprises is mainly concentrated in the sintering and blast furnace, which directly affects the demand of iron ore. This year's pig iron production may be significantly lower. Last year. But as of now, we can see from the various caliber data that the actual pig iron production is not as low as expected. After the birth iron output reached a new high in April, the pig iron production in the first four months of this year has turned from negative to positive. The end of the expectation also has room for marginal improvement.

1.3 balance table shows that the supply and demand have a marginal improvement

Judging from the monthly balance of supply and demand, the supply and demand of iron ore has been marginally improved so far this year. As mentioned above, on the one hand, supply-side imports and domestic-made mine production are obviously less than market expectations, and on the other hand, steel mills resume production. Accelerated, the demand side recovers faster, and the supply and demand in the first four months are basically balanced.

2 structural contradictions between varieties to suppress iron ore rebound space

2.1 The marginal improvement of supply and demand has limited the price of mines

The marginal improvement of iron ore's recent supply and demand has not brought much boost to the price of the mine. Take the recent rebound from late March to mid-May as an example. First of all, this round of rebound is mainly driven by the finished product. After the high turnover of the finished product, the ore only barely followed up; secondly, during the period from late March to mid-April, the material showed a relatively obvious rebound, while the ore still maintained a low volatility, just starting from late April. The steel price rebounded and the rise lasted for a short time. Finally, the increase was lower than other varieties in the industrial chain. From the lowest point to the highest point, the iron ore main contract rebounded by 14.22%, which was lower than the thread (18.02%) and coking coal (18.74). %), coke (27.00%).

2.2 The stock pressure is still heavy, and the high-quality resources are abundant.

Due to the long-term oversupply state, the iron ore deposits accumulated in the past are still relatively large. As of May 18, the inventory of iron ore 45 ports was 158 million tons. Although the port inventory has declined slightly in the near future, the total amount is still Historical high range.

The structural contradiction between high and low products still has no induced conditions. The current inventory of sub-species ports is compared with the high point of July last year. The inventory of 60% grade and above increased by 27%, the MNP increased by 39.87%, and the high-quality resources were abundant. It has been difficult to induce structural contradictions between high and low grades that have caused a large increase in the stage of iron ore since 2016.

2.2 Structural contradictions between varieties appear, suppressing the upward space of iron ore

A more important factor in the recent suppression of iron ore rebound space is the structural contradiction between varieties. As mentioned above, although there is a certain editorial improvement in iron ore supply and demand, it has shown a large differentiation among various varieties, resulting in the emergence of structural contradictions among new varieties.

Combined with the previous supply data, we can see that the reduction mainly occurred in Brazil, non-mainstream and domestic mines, but the Australian mines have a certain increase. Taking the current inventory comparison with some of the northern ports in July 2017, we see that the increase in Brazilian inventories is only 6.20%, while the increase in Australian inventories has reached 49.01%, which also led to the Brazilian mine so far this year. The price performance is significantly better than that of the Australian mine. Take PB-SSFG as an example. The difference between the two is 101 yuan/ton at the beginning of the year, and then it continues to fall. As of May 18, the prices are flat, and the Brazilian mine resources are relatively tight. The relative abundance with Australian mineral resources has led to such dramatic changes in the spread.

The same situation also occurred between domestic mines and Brazilian mines. We found that 65% of domestic iron concentrates in Shanxi and PB found that the spread between the two increased from 44 yuan/ton at the beginning of the year to the current 92 yuan/ton.

The structural contradiction between iron ore varieties has become increasingly fierce. The differentiation of Brazil, domestic mines and Australian mines is still continuing. The prices of Brazilian mines and domestic mines are relatively strong, but in fact the impact on the disk is limited. Futures disk iron ore. The pricing benchmark is still dominated by Australia's PB powder and Kim Bubba. However, the supply of Australian mines has increased by a large margin so far this year, resulting in a weaker price performance, which in turn dragged the disk.

We note that the biggest advantage of Brazilian mines and domestic mines over Australian mines is their low aluminum and phosphorus content. Therefore, there is a large transaction value in the low-aluminum and low-phosphorus varieties in the spot trade. The new trading opportunities and ideas brought about by the evolution to the spot side have limited impact on the futures disk, but it is necessary to pay attention to the further evolution of the structural contradictions between the varieties and the possible impact on the futures disk, especially The excessive tension of low-aluminum and low-phosphorus resources has had an impact on market sentiment.

3 conclusions

We believe that the iron ore's recent supply and demand shows signs of marginal improvement, but this marginal improvement is mainly reflected in the price difference of iron ore resources in different regions. The Australian mine is significantly weaker than Brazil and domestic mines, and the Australian powder mine is suppressed. The rebound in the price of the iron plate price of the pricing benchmark.

So far this year, there has been marginal improvement in the supply and demand of iron ore. On the one hand, supply-side imports and domestic-made mine production are significantly lower than the pre-market expectations. On the other hand, steel mills resume production and demand-side recovery is faster. The output of steel mills increased rapidly, so the supply and demand in the first four months of the year showed a basically balanced state. Both the performance of both supply and demand exceeded the previous market expectations.

However, due to the excessive accumulation of inventory pressure in the early stage, this marginal improvement still needs to change the process of quantitative change to qualitative change, which is not enough to reverse the decline of iron ore.

From the inventory inventory, the current high-end resources accounted for a significant increase compared to last year's high point. In 2016, the structural contradictions of the high and low products on which the iron ore's previous rises depended were difficult to induce.

The contradiction between varieties shows that the price of Australian mines with a large increase in supply is significantly weaker than that of Brazilian mines and domestic mines with reduced supply. The weakness of Australian mines directly suppresses the price of iron taps based on Australian fines. The rebound space.