Iron ore has a large downside probability in the second quarter
Substitution of hard-to-reach sparse steel scraps is enhanced
The latest data shows that since April, the domestic daily volume of iron ore is 3.043 million tons, an increase of 199,000 tons or 7.0% year-on-year, the highest value in the same period in five years. At present, the stock of sintered ore in the long process steel plant is 16.69 million tons, the lowest level in the past five years, but the purchase rhythm of the steel plant has changed significantly. The main reasons are as follows: First, the finished products are always in a high inventory state and are likely to become the normal throughout the year; second, according to our calculation model, the profit of steel has shrunk significantly compared with previous years, and the average profit of rebar production by 2020 is 335 Yuan / ton, compared with 2019, a decline of 231 yuan / ton, compared with 2018, the decline was as high as 735 yuan / ton. Therefore, under the background of high inventories of finished products and shrinking production profits, steel mills adjusted the procurement rhythm to focus on purchases on demand, and it was difficult to continue to increase the amount of sparse ports in the later period.
In addition, the scrap prices fell sharply after the Spring Festival, resulting in the cost of molten iron being almost the same as scrap prices.
Overseas demand weakens domestic supply increases
Since late March, overseas epidemics have spread, and blast furnaces in the United States, Germany, France, Japan, and South Korea have ceased or reduced production. According to public statistics, the epidemic affected a total of nearly 75 million tons of overseas hot metal production capacity per year. From the analysis of the current situation, it is almost impossible for the above-mentioned blast furnaces to stop production or reduce production to resume full production in the second quarter. If calculated on the basis of blast furnace capacity utilization rate of 75% and iron ore grade of 61.5%, the reduction in overseas iron ore demand in the second quarter will reach 23 million tons. At present, the suspension or reduction of overseas steel mills has been transmitted to the structure of the iron ore shipping destination. In the first quarter, Australian iron ore was shipped to China on an average of 12.186 million tons per week and 2.412 million tons to other regions. Since April, it has averaged 14.22 million tons per week to China and 2.194 million tons to other regions. Brazil and Australia are similar, and are also increasing the proportion of shipments to China. In addition, due to the similar structure of iron ore in Japan and South Korea and China, the phenomenon of resale of long-term orders to China also occurred.
Affected by seasonal factors, the total shipment of Brazil's iron ore in the early period has decreased significantly year-on-year, but as the weather in South America improves, shipments will gradually increase. The average weekly shipment of Vale iron ore in the first quarter was 3.85 million tons. According to April data, the current average weekly shipment has increased to 4.75 million tons. Although Vale has lowered its annual production and sales plan from 340 million to 355 million tons to 310 million to 330 million tons, it corresponds to the production and sales plan for the next three quarters of 250 million to 270 million tons, equivalent to an average weekly shipment of 5.95 million to 6.4 million Tons, an increase of 25.3% -34.7% from the current level. Under the premise of sluggish overseas demand, the number of Brazilian iron ore shipped to China will further increase.
In summary, the best period for domestic iron ore demand may have passed. At the same time, affected by the epidemic, overseas blast furnaces have been shut down or reduced in a large scale, overseas demand has been weak, and the supply of mainstream mines has increased, and domestic iron ore supply is facing significant pressure. In the second quarter, domestic iron ore supply was on the loose side, with short-selling rallies in 2009 contracts.
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