Iron ore maintains a tight supply pattern in the long-term. In the short term, the main contradiction in the market is the marginal demand contraction caused by limited production, and its price will be suppressed by the restriction of production.
Since the beginning of March, many areas such as Handan and Tangshan have strengthened environmental protection and stopped production. Affected by this, the utilization rate of blast furnace capacity has fallen sharply, and the number of days available for steel mill inventory has also begun to increase. The upgrade of environmental protection and production restriction has had a great impact on the marginal demand of iron ore in the short term, but the shipment of external mines has declined and the supply has contracted to some extent. We believe that iron ore maintains a tight supply pattern in the long-term. In the short term, the main contradiction in the market is the marginal demand contraction caused by limited production, and its price will be suppressed by the restriction of production.
Limit production disturbance marginal demand
In March, 邯郸 once again strengthened the production limit, requiring that on the basis of the original limited production, the national two sessions will increase the 10% limit production task, and the superimposed winter unfinished tasks will be completed before the end of the month. Tangshan, Shanxi and other provinces and cities have further strengthened the limit of environmental protection and peak production, and a large number of blast furnaces have been repaired in Hebei and Shanxi. According to Mysteel data, as of March 8, the utilization rate of blast furnace capacity under the elimination of production capacity was 79.45%. However, this year's production limit is generally not as good as last year. At present, the utilization rate of blast furnace capacity is still higher than the average of 78.2% in March last year. On the other hand, according to Mysteel data, Tangshan has completed a limited production of 15.2433 million tons from October 1, 2018 to March 12, 2019, and the target of the limited production is 2,793,700 tons. Driven by profit, steel mill production maintains a relatively large elasticity, and the utilization rate of subsequent blast furnace capacity is expected to gradually increase.
Environmentally limited production disturbances, although at the marginMeetingBringing a reduction, but the overall strength and time are not expected to be as good as the same period last year. As a result, the demand for iron ore has improved to some extent in the previous year. According to the National Bureau of Statistics and Mysteel data, the production of pig iron in March and December 2018 was 6045.48 and 63.201 million tons respectively, and the monthly average blast furnace capacity utilization rate under the elimination of production capacity was 78.2% and 81.52%, respectively. The utilization rate was 79.45%. As mentioned above, we conservatively assume that the utilization rate of blast furnace capacity in March this year is 79.45%. It is estimated that the output of pig iron in March this year will be about 61.6 million tons, an increase of 1.15 million tons. According to the calculation of 1.6 coefficient, the demand for iron ore increased by 1.84 million tons year-on-year; the utilization rate of blast furnace capacity decreased from 82.66% to 79.45%, and the marginal impact of demand was huge.
Seasonal contraction of shipments
According to the previous data, the shipment volume of the outer mine is affected by the weather and other factors, and the shipment will have obvious seasonal shrinkage in March. According to Mysteel data, from March 4th to March 10th, Australia's iron ore was sent to China for 12.544 million tons, and Brazil's total shipments were 5 million tons, a significant decrease from the previous month and the same period last year. At present, the combined shipments of Australia and Brazil are 17.544 million tons / week. To achieve the shipment of 80 million tons in March last year, the subsequent weekly shipments need to reach 20,818,700 tons, but according to the current shipping trend, the probability of subsequent shipments rising sharply is very small.
The latest news, on March 11, Vale received a notice from the City of Mangalati City requesting temporary suspension of all operations at the port of Guaiba. According to historical shipping data, the port shipped 40.387 million tons in 2018, accounting for 10.23% of Brazil's total shipments. Affected by this, the total shipment of iron ore in Brazil is expected to be difficult to recover in the short term.
Stock front steel mills willing to replenish small
Affected by the environmental shutdown and production upgrades, the number of days available for steel ore stocks in steel mills will increase. As of March 8th, the available days of large and medium-sized steel mills were 30 days, which was 7 days higher than last year's Lunar calendar, which was flat compared with the previous year; the port inventory was 144,465,500 tons, which was 12.27 million tons less than the same period last year, an increase of 580,000 tons. . At this stage, the steel mills have large inventories, but the total amount of steel mill inventory and port stocks after conversion is not much different from last year. Therefore, the current replenishment of steel mills is relatively small, and the support for iron ore prices is also weak. After the intensification period of environmental protection and production restriction, steel mill inventory is expected to be faster.
On the whole, the recent shipments of external mines decreased both month-on-month and year-on-year, with a certain degree of contraction in supply, demand-side environmental protection and production upgrades, and marginal demand drastically reduced. We believe that after the environmental protection upgrade, the supply and demand side of iron ore will change from the original tight balance to the equilibrium looseness. Under the background of the increase in the available days of steel mill inventory, the main contradiction of the market focuses on the reduction of the marginal demand of iron ore, and its price. The suppression by the marginal demand is greater.
(Author: Cinda Futures)
(Article source: Futures Daily)