Iron ore prices have soared, coal prices have continued to fall

The extreme cold weather in the United States caused extreme imbalances in supply and demand, and Texas electricity prices soared wildly. According to data from the Texas Electric Power Reliability Commission, which manages the local power grid, earlier this week, the wholesale electricity price in Texas once exceeded US$10,000/MWh, which is equivalent to more than US$10/kWh, or approximately RMB 65/Mega. Watt-hour, compared with the average daily electricity price, increased by nearly 200 times. At the same time, the price of thermal coal in my country continued to fall, and the main contract for thermal coal futures once fell below 600 yuan/ton. Industry insiders believe that starting after the holiday, demand recovery requires a process, and inventory continues to accumulate. The burnable days of power plants are relatively high, purchases are generally indifferent, and coal prices are under pressure. When demand starts, coal prices are expected to stop falling and stabilize.

Coal supply shifted from tight to loose

From the perspective of supply, my country's coal supply capacity has increased steadily. In 2020, my country's coal production will achieve a year-on-year growth. It is particularly noteworthy that since the fourth quarter, Inner Mongolia's coal production has changed from a year-on-year low to a record high for the same period. Since the 13th Five-Year Plan, the concentration of my country's coal industry has further increased. After the adjustment of the industrial structure, my country's coal supply system has been further improved. With the emphasis on ensuring the stability of energy supply, all medium and large coal mines basically maintained normal production. During the Spring Festival, the supply stabilized and increased. In addition, due to the "New Year in situ", production areas resumed rapidly after the festival, and automobile transportation has also begun to pull and supply. Continued to improve, the pit mouth price continued to decline before the holiday. "In addition, during the Spring Festival, the railway line maintained a high rate, the Bohai Rim port inventory was also improved, the tension in the intermediate links was eased, and the supply stability was further established." said Wang Xiaonan, a senior thermal coal analyst at Baocheng Futures.

In terms of demand, Wang Xiaonan said that due to the holiday, the electricity load dropped rapidly. After the holiday, the daily coal consumption of power plants in eight coastal provinces was about 1.1 million tons. Although it was still higher than the level of the same period in previous years (lunar calendar), it would not constitute a power plant. pressure. In addition, the temperature in a large area across the country has risen, and the electrical power for heating has been significantly reduced. After March, the heating power is gradually coming to an end, which will further reduce the power demand and transition to the off-season. Under this circumstance, downstream power companies mainly rely on executive long-term agreements, and the willingness to go north to purchase is relatively weak. In the absence of demand coordination, port quotations also showed continuous decline after the holiday.

"At present, demand has not yet fully started, coupled with the current high power plant inventory, and the accumulation of port inventory is too fast, resulting in continuous decline in coal prices." A coal trader at Bohai Rim Port told reporters.

It is reported that the overall domestic electricity consumption has shown steady and healthy growth compared with last year's Spring Festival. In some areas where people gather, such as East China and South China, the electricity consumption has increased significantly due to short holidays and the New Year at work. Taking China Southern Power Grid as an example, the peak load during the holiday season reached 116 million kilowatts, an increase of 12.74%, and the electricity consumption of the entire network increased by 14.6%. The secondary industry has become the main force in the growth of electricity consumption, with a year-on-year increase of 33.57%, contributing 98.41% of the growth in electricity consumption; electricity consumption in the tertiary industry and the primary industry also increased by 15.61% and 21.39% respectively.

"After the Spring Festival, the accumulated inventory and seasonally sluggish daily consumption have promoted the characteristics of passive replenishment and high active destocking in downstream. The change, the interest in power plant procurement is not large, and domestic coal prices are under pressure. But this does not mean that the first quarter will be under pressure. Coal prices are about to enter a deep fall." An industry source who did not want to be named told reporters that there are several reasons: First, the trade trend that has been formed in recent years is difficult to change, and it is difficult to change the trade trend that has been formed in recent years. After the lack of transfer in the last few months, the uneven coal structure of northern ports and the shortage of high-calorie and low-sulfur coal cannot be fundamentally resolved in the short term; secondly, the social resumption of work this year has been relatively fast, and the thermal power load of coastal provinces has been slow. There are signs of recovery. It is expected that before and after the Lantern Festival, as various industries in the society begin to start construction, social electricity and coal consumption will show a significant rebound; again, the current unconventional import policy is continuing, and the import policy tends to be distributed on a monthly basis. The new quota regulation policy is widely spread in the city, or it will bring price support to the coastal coal market after the return of demand; finally, this year is the beginning of the 14th Five-Year Plan period. Under the background of wide currency, a large number of new manufacturing and electronic projects It is about to be implemented within the year, social electricity consumption can be expected to increase, and domestic coal consumption is expected to quickly recover from the festival.

In Wang Xiaonan's view, it is not appropriate to be overly pessimistic about the current weak coal prices. On the one hand, the international market has not yet returned to normal, industrial orders are strong, and the manufacturing industry will still play a strong boost in the short term. It is understood that during the Spring Festival, the electricity consumption in the manufacturing industry increased by 31.76% compared with the same period last year. The industrial resumption of work and production was relatively rapid or exerted a strong boost; on the other hand, during the holidays, power plant procurement and replenishment were relatively cautious. Currently, eight coastal provinces Coal inventories in power plants are still low. Once demand recovers quickly, or change the current loose supply and demand situation, restrict the room for price correction. In addition, after the Spring Festival, the demand for the return of the main contract basis will be further strengthened, and the decline in futures prices may be relatively weaker than the current prices, or gradually stabilized.

Iron ore prices hit a new high since September 2011

Iron ore prices soared on the first trading day after the Spring Festival, reaching the highest level since September 2011.

"Iron ore spot prices are at historical highs, mines are profitable, and mainstream iron ore suppliers such as Australia and Brazil are very enthusiastic about production." According to Zhao Yongjun, iron ore from China Securities Futures, the data show that in the fourth quarter of 2020, Vale, Vale, The output of Rio Tinto and BHP Billiton's three large iron ore producers increased by 3.3%-7.8% year-on-year. In addition, non-mainstream mines have also resumed production in large numbers under the stimulus of high profits, especially equity mines in Africa. For example, Sierra Leone’s new Tangkelili iron ore project has resumed production at the end of January and completed its first shipment.

"In the short term, the current round of iron ore rise is driven by the end of the Australian-Pakistan shipping impulse, the disturbance of two hurricanes in Australia, the marginal decline of iron ore arrivals and the replenishment before the end of the Spring Festival, which has made the iron ore port inventory depleted. The second is that the steel-saving mills are expected to repair their own profits or are under normal seasonal maintenance. Therefore, the national steel mills' hot metal output has continued to rise, exceeding market expectations, which to a certain extent falsified the steel mills’ production reduction logic; third, the pre-holiday black sectors include The deep adjustment of iron ore, from the perspective of discounts, also gives a larger room for longing. From a macro perspective, it is Biden’s 1.9 trillion fiscal stimulus bill that has accelerated, boosting asset risk appetite.” Shanghai Yi The investment black researcher Guo Rong said.

It is understood that in the week of February 14th, the total shipment of new caliber Australia and Brazil iron ore was 26.021 million tons, an increase of 7.874 million tons from the previous month; the total shipment from Australia was 19.587 million tons, an increase of 6.645 million tons from the previous month; of which, Australia sent to China. 14.90 million tons, a month-on-month increase of 3.544 million tons; Brazil’s total shipments were 6.434 million tons, a month-on-month increase of 1.229 million tons. The total global shipment volume was 32.4 million tons, an increase of 8.988 million tons from the previous month. In terms of arrivals, China’s 45 ports arrived at a total of 20.611 million tons, a decrease of 631,000 tons from the previous month; the total arrival of the six ports in the north was 10.034 million tons, a decrease of 1.156 million tons from the previous month. The total arrival volume of China's 26 ports was 19.332 million tons, a decrease of 818,000 tons from the previous month. Recently, iron ore has decreased compared with mid-January.

What is the demand situation? As of the week of February 19, the blast furnace operating rate of 247 steel plants was 83.98%, an increase of 0.78% month-on-month and 6.90% year-on-year; the blast furnace ironmaking capacity utilization rate was 92.19%, a month-on-month increase of 1.25% and a year-on-year increase of 12.09%. The profit rate of steel mills was 77.06%, an increase of 1.30% month-on-month and a decrease of 9.96% year-on-year; the average daily molten iron output was 2,453,800 tons, an increase of 33,200 tons from the previous month, and an increase of 321,900 tons year-on-year. The average daily port volume dropped by 2.8485 million tons and 431,600 tons. “There is basically no maintenance during the Spring Festival of the steel mills, and the replenishment is reduced, mainly due to the consumption of iron ore inventory, and there may be centralized replenishment after the Lantern Festival.” said Li Hairong, an iron ore researcher at Zhonghui Futures.

It is reported that the imported iron ore inventory of 45 ports across the country was 127.069 million tons, an increase of 1.875 million tons from the previous month; the total imported iron ore inventory of the sample steel plants was 113,975,900 tons, a decrease of 10.383,400 tons from the previous month; the current daily consumption of imported ore of the sample steel plants It was 3.0433 million tons, an increase of 48,200 tons from the previous month, and the inventory consumption ratio was 37.45, a decrease of 4.07 from the previous month. The number of ships pressing at the port has decreased, and inventory continues to accumulate.

According to an industry person who did not wish to be named, terminal demand is expected to be good. It is expected that domestic and overseas molten iron production will recover significantly under the effect of last year’s low base. The Steel Union data also shows that molten iron production remained high during the Spring Festival, and the demand was strong and the supply was released. Limited, Hong Kong stocks will continue to decline in the first half of the year, tight iron ore supply and demand are expected to continue, and the overall trend is still upward. However, as prices rise, risks are gradually accumulating, and we need to focus on whether demand can recover in time after the holiday.

"From a medium-term logic point of view, iron ore is still in the four major mines' capacity bottleneck period superimposed on the mismatch period of my country's blast furnace capacity release. Due to the seasonal impact of my country's molten iron production and imported ore shipments, it is expected that the contradiction between iron ore supply and demand in the first half of the year will be relatively high. The price of iron ore futures tends to rise but harder to fall, and the contradiction between supply and demand in the second half of the year is relatively eased. On the macro level, the recovery of the domestic and foreign real economy is still the main driving force, but the futures market has fulfilled some or most of the expectations, so it is even more challenging The demand situation of the black sector during the peak season." Guo Rong said.

Jia Li, an iron ore researcher at Tianfeng Futures, believes that terminal demand after the holiday will determine the trend of ore prices. From February 2021, the spot profit of steel has already begun to lose money, but the decline in steel production and molten iron production is relatively small. It is understood that this situation stems from the fact that the steel mills are more optimistic about the end demand after the holiday. In the case of a relatively scarce furnace charge in the plant and a seasonal reduction in production during the Spring Festival, the output is still much higher than that of previous years. If later demand falls short of steel mill expectations, "negative feedback" will be formed immediately. Source: Futures Daily