In 2019, the marginal variation of iron ore supply and demand has limited impact, and the cost supports the price operation. The cost support of iron ore of $58/dmt is expected to remain valid in 2019, but the price shift will be lower than 2018 due to the left shift in demand. The average Platts index is expected to be $65/dmt, which is $5/dmt lower than in 2018. Corresponding to the domestic domestic futures main fluctuations in the 400-500 yuan / ton, the overall 2019 center of gravity will move down.
Analysis of supply and demand of iron ore and prospects for 2019
After the peak period of production of external mines in 2015-2017, the supply increment of overseas mines has not advanced steadily since 2018. China's iron ore imports in 2017 reached 1.075 billion tons, an increase of 30 million tons from the previous year. It is expected that imports in 2018 will be the same as in 2017. 2018, 2019 Two years may become the least increase in the supply of foreign mines: the old production capacity is gradually consumed, the new capacity has not yet reached production, and the consumption of iron ore in other countries has increased, diverting some of the ore that would have been imported into China.
Supply and demand: We expect global iron ore output to increase by 0.70%-2.20% in 2019 and close to the upper limit, and increase the output of high-quality ore. The probability of global iron ore demand growth is lower than 2.11%. The oversupply pattern in the global iron ore market will intensify and global iron ore prices will be under pressure.
Structure: The average grade of iron ore produced by the four major mines will continue to increase in 2019, and the supply of high-quality minerals worldwide will continue to increase. At the same time, the worsening domestic supply and demand pattern will promote the steel price and profit center to move down, and domestic steel mills will reduce the use of high-grade ore. It is expected that the supply of high-quality ore will continue to increase, demand or decrease in 2019, and the price difference between high and low grade iron ore will narrow.
Profit: Since 2013, the four major overseas mines have improved efficiency and reduced costs. Under the existing iron ore prices, the current gross profit margin of the four major mines is still 78-81%, and the gross profit margin for export to China is as high as 30~ 60%, so there is no power to cut production. The manufacturing cost of iron concentrates in 30 key mines in China is US$47.03/tonne, which is significantly higher than the latest single-season average C1 cash cost of the four major mines, which is 13.33 US dollars/wet metric tons. The competitiveness of domestic mines is obviously weaker than that of imported mines. The profitability of domestic mining companies will be affected.
Based on global mine expansion projects and capacityThe survey data of the exit shows that the supply increase in 2019 is mainly for medium and high-quality resources, and the trend of the proportion of taste in the late port inventory is also the same. Since the steel mill's profit has narrowed sharply in the fourth quarter of 2018, it is difficult to climb to a level of more than 1,000 yuan / ton. The latter's low- and medium-end goods will be affected by the changes in steel mill demand. Therefore, in 2019, the pressure on steel mills in the spot purchase of medium and high-quality products will continue to decline, and structural contradictions will continue to ease.
The global iron ore new capacity release cycle is coming to an end, the marginal supply of iron ore has entered a steady state, and the cost curve has slowed down. Since April 2016, the Platts iron ore price index (62% Fe) has repeatedly touched domestic iron. The ore averaged $58/dmt and was supported. In 2019, the increase in iron ore supply is mainly based on the Danshui River Valley, which is expected to increase production by 28 million tons. Assuming that the average capacity of Hebei's production capacity will be distributed in the next two years, the reduction of molten iron production will be no less than 16.8 million tons in 2019, and the demand for iron ore will be reduced by 27 million. Ton. Therefore, the new capacity of Vale is squeezed at the marginal high cost, and the demand curve of the superimposed iron ore shifts to the left, which is equivalent to the demand curve shifting by 55 million tons from 2018. It is roughly estimated that the supply of iron fines in China with a cost of more than US$58/dryne is about 100 million tons at this stage. Therefore, there is still a marginal supply of 45 million tons or more after the demand curve is shifted to the left. The price is expected to be at this cost. Continue running for a while.
Iron ore inventory analysis
Reviewing the iron ore market in recent years, the economic growth rate shift in 2013, demand slowdown, passive accumulation of inventory, ore prices continued to fall; the economy continued to decline in 2014 and there is no sign of stabilization The market is very pessimistic about the demand for steel industry and ore demand, showing the phenomenon of active destocking, and the mining price is accelerating. In the second half of 2015, the profit of steel mills has turned negative, and the loss has become a common phenomenon in the industry. Or stop the production of pig iron and crude steel, the steel price and the bottom price range of the mine price are gradually formed. At this time, the macro fiscal policy and the monetary policy are both active, and the investment pulls the downstream demand forecast, the steel mill profit expectation, and the ore consumption expectation. The impact, so the signs of recovery in demand, the price bottomed out; in 2016, as demand rose, steel mills actively replenish raw material stocks, mineral prices rose; 2017 supply-side reform cut off the upward trend of the price of the mine, restrictions on blast furnace, sintering Lead to slower ore consumption, passive accumulation of inventory, wide price rangeIn the second quarter of 2018, with the start of downstream demand and the marginal relaxation of the third-quarter production policy, the demand for ore recovered, the inventory was passively degraded, the price fluctuations decreased, and the bottom appeared.
What is the inventory cycle?
The inventory cycle can be divided into four stages: passive destocking, active replenishment, passive restocking, and active destocking. Among them, the passive destocking stage presents an economic recovery, demand is beginning to improve, supply changes are relatively lagging, and remain stable, while companies are still in destocking due to inventory squeeze in the previous cycle; As the company rises, the company begins to replenish stocks, and the economy enters the active replenishment stage. When the demand slows down, the supply inertia rises, the enterprise is still replenishing the stocks, and enters the passive replenishment stage; with the continuous decline of demand, the company has poor expectations for the future. Actively reduce inventory and enter the active destocking stage.
The total inventory of the port and the spot price trend have a high negative correlation
In 2018, the iron ore port inventory continued to accumulate since the first quarter. After the heating season, the output fluctuated and fell, and the overall price rose first and then fell. The trend is a record high in April. According to Mysteel's statistics of 45 ports in the country, in 2018, the port at the end of the year closed at 138.85 million tons, down 10.38 million tons from the beginning of the year, down 23.96 million tons from the highest in April. The average stock value in 2018 was 1521.12 million tons, up 11.8% year-on-year. The actual stocks in February-August were above average. Compared with the trend of rising and then rising again in 2017, this year's decline began at the beginning of the second quarter, and the follow-up trend continued to decline.
Iron ore cost analysis - four major mines will not reduce production
Since 2013, the four major overseas mines have increased their efficiency and reduced costs, and the C1 cash cost has decreased by 40-60%; Under the iron ore price, the current gross profit margin of the four major mines is still 78-81%, and the gross profit margin for export to China is as high as 30-60%, so there is no power to cut production. The manufacturing cost of iron concentrates in 30 key mines in China is US$47.03/tonne, which is significantly higher than the latest single-season average C1 cash cost of the four major mines, which is 13.33 US dollars/wet metric tons. The competitiveness of domestic mines is obviously weaker than that of imported mines. The profitability of domestic mining companies will be affected.
From the perspective of profitability: domesticMine 600 yuan / ton or breakeven line, subject to high cost rigidity, domestic mines are difficult to resist the impact of imported mine scale and cost advantages. Although the manufacturing cost and the total cost of iron concentrates in key mines in China have been decreasing as a whole since 2014, they have only decreased by 29.72% and 23.80% respectively since 2014. Therefore, the high cost and rigidity of domestic mines make it difficult for domestic mines to resist low cost. The impact of imported mines, in 2015 and 2016, domestic mine prices fluctuated at a low level of 400~600 yuan/ton for a long time, and domestic mines fell into a loss state. In November 2015, the total profit of 30 key mining enterprises in a single month was only -1.357 billion yuan. After that, the domestic mineral price rebound loss narrowed month by month until the domestic mineral price returned to 600 yuan/ton in November 2016, and 30 key mining enterprises returned to profit.
The manufacturing cost and complete cost of iron concentrates in 30 key mines in China are significantly higher than the average C1 cost of the four major mines
Under the current price, the gross profit margin of the four major mines exported to China's iron ore remains At 30-60%, there is no incentive to cut production and insured.
Even considering the 62% CFR cash cost of the four major mines, under the current iron ore prices in China, the profit margin of the four major mine iron ore exports to China is still 30-60%. 2018Q3 iron ore price index: 62% Fe: CFR China's northern average is 66.68 US dollars / metric ton, while Vale, BHP Billiton, Rio Tinto and FMG latest single season 62% CFR cash costs are 44.06, 25.47, 24.48 and 27.34 respectively USD/metric tons. It can be seen that even in the Vale, where CFR has the highest cash cost, the profit margin of iron ore export to China is still above 20 US dollars/dmt, and the gross profit margin is nearly 30%. The profit margin of Australia's three major mines exporting to China is More than 40 US dollars / dry metric tons, gross margin of nearly 60%.
Domestic mine production will continue to decline
In 2018, domestic iron fines production generally declined, and the main reasons for the decline in domestic fines production in the Northeast, North China, East China, Central China, Southwest China, etc. It is environmental protection and security inspections have intensified, resulting in a decline in the frequency of production activities and a decline in production. Most of the domestic fines production in the northeastern region is concentrated in the mines affiliated to the state-owned steel mills, so the fine powder production is relatively stable, with little change.. The reason for the decline in fines production in domestic mines in South China is that large-scale mining in the area has been transferred from open pit to underground, and fine powder production has declined. The production of refined fines in domestic mines in the northwestern region has increased significantly. The reason is that large-scale mines in Xinjiang released new production capacity in the previous year, and the production of fines has increased substantially. The current supply of fines in the region is still tight, and new fine powders are not excluded. the amount.
On the whole, environmental protection and security inspection in 2019 are still the main factors leading to the reduction of production in the northeast and north China mines. The total supply of domestic iron fines continues to decrease by about 5 million tons from 2018.
In the futures market, the dominant logic of iron ore is the total contradiction, and the contradiction between the varieties of the spot market has not affected the futures market. This is because the Taishang iron ore futures standard delivery product is a 62-grade medium-high grade iron ore. Due to the improvement of the supply of 62 grade iron ore, the contradiction between medium and high grades is no longer prominent, and the steel mills are chasing higher grade and lower aluminum content of Brazilian mixed powder, so the 62 grade iron ore spot and futures prices are passive in the first three quarters. Follow up.
Global iron ore demand
Iron ore demand and prosperity are nothing but important steel industry, and the steel industry's most volatile source is the Chinese market, which accounts for 50%. Benefiting from the supply side policy of 2016-2018, iron ore has ushered in a high profit period. However, it is expected that in 2019, the downward pressure on the economy will increase, and environmental protection and production will be loosened. Steel mills will have sufficient profitability in the case of profitability. Production expectations. But increased production means that competition may increase and iron ore is difficult to support in such an environment. We can refer to the trend of the 2015 recession.
Outlook 2019: Short-selling steel mill profit
The iron ore supply end has little increase, and the supply elasticity is weak. In 2019, China's iron ore supply increased by about 20 million tons. The ore inventory is too high in 2018, and high stocks are expected to decrease after 2019 supply and demand improvement. The increase in ore consumption brought about by the increase in steel production is about 35 million tons, and the elasticity of the demand side is relatively large, which should be monitored. The static supply and demand gap is about 15 million tons, and the overall supply is less than demand. The consensus of high ore high supply, low demand and high inventory has been broken, and price volatility is expected to increase. If the steel price falls, there is resistance to the iron ore out of the independent rising market, but once the steel price stops falling or rises, the iron ore's increase is expected to exceed the steel price increase.
Strategy: IronThe ore is suitable for staged empty matching, but the iron ore is expected to be stronger than steel, and the multi-mineral empty steel can be considered for short selling profit.
Risk points and concerns: Restricted production and over-expectation, steel mill profit loss, sharp depreciation of exchange rate, substantial increase in production of mines and domestic mines, and reduction of global steel production activities.