Short-term bullish drive of iron ore still exists

The current point of the fundamental game is the height and duration of the molten iron. Before verification, the price drive has not changed and does not have the conditions for deep adjustment.

Whether the subsequent molten iron can continue at a high level like last year essentially reflects profit, and the observation point is the apparent demand and destocking situation of steel. Research feedback shows that due to the impact of the decrease in coke price, profits of steel mills have rebounded this week, with an average profit of nearly 80 yuan/tonne (t) represented by the Tangshan area. The expected second round decrease of coke price will continue to provide profit margins for steel mills after its implementation. The expectation of resuming production in Shanxi coal mines has, on the one hand, reversed the strength relationship between coal and iron ore, and on the other hand, provided more flexibility for iron ore compared to finished products in the price upward trend.

In terms of trading, the short-term bullish driving force of iron ore still exists, but due to the pressure of accumulated inventory in the off-season, it is recommended to take profits of long position. The short-term fluctuations will intensify, and the no much opportunity for inter-monthly spread.

From the perspective of iron ore shipments, it is expected that the arrival at the port will rebound in early June compared to the previous week, and overall it will be at a y-o-y high in June. It is worth noting that FMG's shipments in the first quarter fell, with a y-o-y decrease of 6%. Based on its recent shipments, it is expected that efforts will still be made to make up for the volume reduction caused by derailment and extreme weather in the first quarter before the end of June.

For the recent decrease in the ratio of offtaking volume to molten iron, it reflects the steel mills' lack of active replenishment sentiment.

If we use seasonality to deduce the volume of port offtaking and arrival, the inventory at the port will still accumulate in June. On the one hand, when the price of iron ore inventory is weak, it is a negative feedback trigger, but when the price is strong, it is not the main logic of trading.

On the other hand, during the rise of molten iron, if steel inventory remains in a state of destocking, it is expected that the overall ferrous contradiction will not be prominent in the short term, and the market can still move upward.

The valuation of $120 is already affecting the willingness of steel mills to replenish inventory and the speculative sentiment of funds from a policy risk perspective. However, if the rise in copper prices comes from the overheating of short-term market sentiment, then the valuation of ferrous cannot be said to be relatively high compared to other varieties. During the process of macro, valuation, and fundamental adjustment, fluctuations will intensify, and there may be opportunities for a surge in policy expectations before the July Third Plenary Session.

Written by: Jiang Mengtian HorizonInsights

Note: This article has been written in accordance with an article exchange agreement between Horizon insights and BigMint.