Behind The Soaring Iron Ore Price: High Demand At Home And Abroad Boosts "Crazy Stone"

Behind the crisis and the iron ore boom.

On the evening of December 9, in order to cool down the iron ore futures, the Taishang exchange again decided that, from the trading on December 14, non futures company members or customers should not open more than 5000 shares in a single day on the i2105 contract of iron ore futures. This is also the fourth time in the past week that DSE has made a move.

"At present, not only the black commodities including iron ore continue to rise, but also all raw materials in the upstream of the black industry chain, which actually means the recovery of Global trade." On December 10, Zhang Lin, senior analyst of Jinyu Jidong international trade, said in an interview with the 21st century economic reporter that this significant upward trend was mainly concentrated in November this year, especially in the late November. All the global capital market transactions, including global capital market transactions, are experiencing the recovery of the global economy, including a good expectation for next year.

In Zhang Lin's view, the strong performance of 05 contract is the strong support of downstream pig iron demand. "But at the same time, raw materials continue to rise, which may eat up part of the profits of finished products. Linked to each other, the rising raw materials lead to increased costs. "

Crazy stone

In fact, iron ore rose all the way after reaching a periodic low of 756.5 on October 26, and the rise rate of iron ore in recent two weeks has increased again. On December 10, the main contract of iron ore futures rose 5% to 955.00 yuan / ton in early trading. In addition, Goldman Sachs recently raised its iron ore price forecast, raising its forecast of iron ore price in 2021 from US $90 / T to US $120 / T. Driven by iron ore, the main contracts of black bulk commodities have reached new highs.

The situation of this crazy rise makes the regulatory layer take measures to stabilize the normal order of futures trading.

On December 3, DCE imposed a trading limit on the i2105 contract of iron ore futures, requiring that the opening volume in a single day should not exceed 10000 hands, and the maximum price limit of the warehouse delivery fee for iron ore delivery was significantly reduced. Then, on December 4, the exchange issued a "market risk reminder letter" for iron ore to remind customers to participate in futures trading rationally and in accordance with regulations; on December 6, DCE issued a new "market risk warning letter" for iron ore futures The second public said that the "zero tolerance" requirement was implemented and the "five in one" regulatory cooperation mechanism was launched to play a regulatory joint force and crack down on illegal trading.

Crisis and challenge coexist behind the crazy rise of iron ore. Picture vision China

Luo Tiejun, vice president of China Iron and Steel Industry Association, said in an interview with reporters on December 6 that the recent sharp rise in imported iron ore prices has exceeded the industry's expectations. There are some nervous behaviors in the manufacturing market, such as the abnormal promotion of the index by traders' bidding, and the long positions in the futures market near the delivery month, which further increases the risk of the industry and is not conducive to the stability of the supply chain of the industrial chain Relevant regulatory departments are urged to intervene as soon as possible.

Under such circumstances, on December 7, Dalian Mercantile Exchange (DCE) once again issued four regulations, including revising the risk management measures of Dalian Commodity Exchange, the market maker management measures of Dalian Commodity Exchange, and the management measures of non-standard warehouse receipt business of Dalian Commodity Exchange (for Trial Implementation) and the management measures for OTC members of Dalian Commodity Exchange (for Trial Implementation). Since December 7, 2020, the single day opening volume of non futures company members or customers on iron ore futures i2105 contract shall not exceed 10000 hands.

At the same time, Dashang also lowered the maximum price of iron ore delivery warehouse delivery costs. Among them, the maximum price of automobile delivery fee is reduced from 10 to 15 yuan / ton to 8 yuan / ton, the maximum price of train delivery fee is reduced from 20-23 yuan / ton to 8 yuan / ton, and the maximum price of ship delivery fee is reduced from 25-44 yuan / ton to 12 yuan / ton.

In this regard, Zhang Lin believes: "active delivery in turn is more conducive to long purchases, and delivery costs are relatively downward. In this case, if the spot fundamentals continue to support, price limit is also a good thing, which means that the purchase cost is lower."

Wang Zhe of Guangzhou futures analyzed and said: "iron ore, as a kind of product with high import dependence, the continuous rise of iron ore price erodes the profits of steel mills in China, which makes the exchange and China Iron and Steel Association cool down. If the price of iron ore continues to rise sharply, it can not be ruled out that the exchange will continue to cool down through dynamic adjustment of brand promotion and discount, which will increase the risk of policy regulation."

As for the future market trend of the policy, Zhang Lin thinks: "in fact, we may have to increase varieties. Now the regulatory policy starts from the delivery fee and limit the position, which has a relatively limited suppression effect on the market. If a new contract is established one year ahead of schedule, such as adding some other financial products to the contract in 2021, it may be more effective. "

Demand gap still exists

Under the influence of the epidemic situation, the domestic macroeconomic environment is loose and the demand is stagnant in the early stage. The current market has great expectations for the continuation of the demand in the peak season after the "golden nine silver ten". Due to the higher than expected performance of downstream terminal demand and the internal driving force of steel mill profit improvement, the iron ore price skyrocketed.

Relevant data show that the strong demand for real estate investment makes the steel profit keep at a high level. At present, the profit of domestic plate enterprises has reached 450 yuan / ton. Stimulated by high profits, China's pig iron, crude steel and steel production in January October were 741.699 million tons, 873.933 million tons and 1083.281 million tons, respectively, up 4.3%, 5.5% and 6.5% year-on-year.

Zhang Lin pointed out that this year, unlike previous years, the winter production restriction time is relatively short, the enterprise's production equipment is also upgrading, and the environmental protection production restriction factor is being weakened. "After all, we will stop production in the first quarter of this year, and we will certainly catch up in the fourth quarter. Therefore, the environmental protection production restriction of local governments is phased, mostly for about a week. At present, there is no long-term continuous environmental protection production restriction

On the other hand, the market is optimistic about the global economic recovery, and the demand of downstream steel mills is expected to continue to increase. At present, the utilization rate of blast furnace capacity is in the rising range, and the steel output is also growing steadily. The latest data shows that the blast furnace operating rate is 86.33%, with a month on month decrease of 0.13%, and a year-on-year increase of 1.56%; the utilization rate of blast furnace ironmaking capacity is 92.47%, with a month on month increase of 0.83%, and a year-on-year increase of 6.39%;

However, Chen Mingming, an analyst of Zhongyuan futures, pointed out: "from the demand side, although there is a seasonal contraction in the downstream, the molten iron production is still increasing steadily. Under the current profit level, the steel mills still have strong production power, and the demand for iron ore can still be maintained at a high level in the short term; the contradiction between iron ore supply and demand is not obvious, and the recent high-frequency data is partial to be beneficial. As the temperature drops, the downstream demand shrinks seasonally. Although there is no obvious inflection point from the basic data of supply and demand, risks are gradually accumulated after the continuous rise of iron ore

On the supply side, the overall volume of overseas transportation has declined, resulting in the current demand for iron ore is still insufficient. Data show that as of November 28, the average arrival of China's iron ore in November was 3.14 million tons / day, down 8.7% month on month. Vale's shipment volume in the latest week dropped sharply to 4.42 million tons. Previously, Vale lowered its production plan for 2020. At present, the weekly average output of vale in the fourth quarter is 5.78 million tons, close to the lower limit of the planned range. With the recovery of overseas demand, the proportion of Brazilian exports to China has decreased significantly.

Wang pointed out that Vale's production plan for 2021 was 315-335 million tons, lower than market expectations. According to Brazil's plan for resuming production and increasing production, the main increment is in the first quarter to the second quarter of next year. Considering the loss of production cycle and transportation time, the supply increase rate will take effect in September next year. However, there is an expectation of overseas demand recovery in the demand side next year, and the demand for finished products is expected to be strong. Therefore, there is still a gap in the iron ore probability rate in the first quarter of next year.

Qiu hanxuan, an analyst with Huatai Securities, said: "in the near future, the supervision of iron ore market may be strengthened, and speculation in iron ore trading may be suppressed in the short term, but the regulation can not change the basic situation such as the supply and demand pattern of iron ore, and the upward pattern of iron ore price is still in existence."

As for how long the rally will last, Zhang Lin predicted: "there will definitely be a downward adjustment during the Spring Festival, because the new year will involve rest and production. But in the medium and long term, this trend will probably last for half a year, and it should be a good market until May next year. "