Iron ore has the possibility of a correction

On October 21, Vale officially announced the temporary closure of itabirucu tailings dam, which is expected to affect the supply of 1.2 million tons in 2019. At the same time, Vale announced to reduce the sales target of fy2019 from the median value of 307-332 million tons to the bottom of the interval. According to the latest annual plan of the four mines, it is estimated that in the fourth quarter, the supply of the four mines will be about? 283 million tons, a year-on-year decrease of 9.03 million tons, a slight increase of 210000 tons in the third quarter, and the overall supply will be the same as that in the third quarter. However, from September to October, the equipment of four major mine berths and railways were overhauled frequently, and the shipment was greatly affected during the overhaul, which resulted in the shipment rhythm in October obviously lagging behind the target of fiscal year. In October, the three mines in Australia shipped 45.6 million tons of iron ore, a year-on-year decrease of 4.167 million tons, and vale shipped 23.31 million tons of iron ore, a year-on-year decrease of 5.754 million tons. If the four mines need to complete their respective sales tasks in the four seasons, the four mines need to ship 21.25 million tons per week on average from November to December, 21% higher than the 17.56 million tons per week from January to October. It is predicted that the arrival volume of iron ore in Brazil and Australia will be affected by the pick-up of shipping volume after the first ten days of November. The release of supply of overseas non mainstream minerals. From January to September 2019, the total amount of non Australian Brazilian iron ore imported by China increased by 12.7 million tons on a year-on-year basis, and from July to September alone, it increased by 13.31 million tons on a year-on-year basis. Among them, the increase in iron ore imports from India, Ukraine and Canada was? 9.24 million tons.

At present, the monthly average index is still $82.6/t, and it is expected that imported non mainstream mines will still be one of the incremental sources of supply in the later period. It is estimated that the iron ore inventory of the port will continue to increase from November to December. By the end of the year, the iron ore inventory of the port may rise to 140 million tons, basically returning to the level of April. The supply gap of iron ore is basically made up, and the relative demand for supply is gradually increasing To a slightly relaxed state. At present, the pressure of port trade mine inventory has gradually appeared. By the beginning of November, the port's trade mine inventory had recovered to 55.57 million tons, an increase of 6.16 million tons compared with the low point of 49.41 million tons in mid July, a decrease of only? 11.12 million tons compared with the same period last year. If the arrival of foreign ore gradually increases, and the steel plant continues to maintain a low iron ore stock, the stock pressure of traders will continue to increase, so the willingness of traders to take the initiative to reduce the stock has increased. As the arrival pressure of overseas iron ore gradually increases, and the production of steel plants is expected to be cut in the heating season and the off-season, the demand for iron ore is under pressure, and the supply and demand of iron ore is gradually shifting to loose balance. The steel plants may intend to maintain the low inventory strategy of imported ore to the end of the year. In this case, the liquidity of port trade ore may be weakened. In the case of high year-on-year trade ore, the pressure on traders to destock increases, and the spot price correction trend may continue. The approximate discount rate of iron ore futures will be fixed by accelerating the decline of spot price and weakening the oscillation of futures price. At present, the profit of screw steel is only about 300 CNY/ton, while the profit of coke after two rounds of spot delivery is only 0-50 CNY/ton. Compared with steel and coke, the gross profit of 82 dollars / ton iron ore is relatively high. If the contradiction between steel supply and demand intensifies in the later stage, when the steel plant demands profits from upstream raw materials, the iron ore or coke replaced by the supply gap gradually becomes the next most important object to be suppressed. Based on the logic of the increase of imported ore supply, the decline of domestic blast furnace demand and the port traders' initiative to go to the warehouse after November, we believe that there is a possibility of iron ore price correction. In terms of technical form, the price may be adjusted to the lower level of 570-580 CNY/ton. In the later stage, if the contradiction between the supply and demand of downstream steel is gradually intensified and the profit of steel plant is compressed again, the price of iron ore may be further broken.