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Iron Ore Holds Positive Arbitrage Opportunities
【Time:2019-01-16 15:45】 【Traffic:
Due to the interference of non-mainstream mines and other factors, the traditional rule of forward arbitrage between 1905 and 1909 contracts of iron ore has been broken. However, considering the supply-demand relationship or improvement of iron ore this year, 1905 contracts of iron ore and spot discount, the author believes that there will still be "buy 5 sell 9" positive arbitrage operation opportunities for iron ore in the future, and investors can try to return to backward participation in price spreads.
 
Improvement of supply-demand relationship
 
In terms of short-term and medium-term supply, on the one hand, overseas mines will be affected by weather factors such as hurricanes in the first quarter of each year, and shipments will decline; on the other hand, after the iron ore de-stocking process in 2018, the stock of imported mine ports in China has dropped from 160 million tons before to less than 140 million tons at present, taking into account the existence of non-tradable mines in ports, which leads to high inventory pressure. It is helpful to improve the supply pressure of iron ore contract 1905.
 
From the demand side, on the one hand, although the current heating season, steel plant production is affected by environmental factors, but in the heating season of 2018-2019, the environmental protection productivity limit is far less than the previous heating season, pig iron production has not decreased significantly; on the other hand, with the end of the heating season, the environmental protection productivity limit is further reduced, the blast furnaces of the steel plant start to resume production, steel plant There is a demand for iron ore replenishment in stages, which is also conducive to the recovery of demand side of the iron ore 1905 contract. Overall, there is a basis for improving the seasonal supply-demand relationship in the iron ore 1905 contract, which is conducive to the expansion of the price gap between the iron ore 1905 contract and the 1909 contract in the later period.
 
In addition, from the supply-demand relationship and price transmission factors of the whole industrial chain, the trend of iron ore will still be greatly affected by the screw steel. The supply-demand relationship of the screw steel 1905 contract also has a seasonal improvement basis. While it is beneficial to the price of the screw steel, it will also form a certain support for the price of the iron ore contract in recent months, which is beneficial to the price difference between the iron ore 1905 contract and the 1909 contract. The expansion.
 
Spot presence support
 
By mid-January, with the delivery of the iron ore 1901 contract, the 1905 contract will gradually become an active near-month contract, and its impact on spot prices will gradually increase. At present, the price of 61.5% PB powder in Qingdao Port is hovering around 560 yuan/wet ton, and about 1905 yuan/dry ton of Shengshui Iron Ore Futures, which is at a high level in history. Under the condition that the supply-demand relationship of iron ore in the medium and short term is still improving, it is expected that with the passage of time, near the delivery of iron ore 1905 contract, the probability of iron ore futures price revising to spot price is greater, so spot support is conducive to the forward arbitrage operation of "buy 5 sell 9" of iron ore.
 
Prior to this, there was a positive intertemporal arbitrage operation rule of "buy 5 sell 9". The reason why the price difference between 1705 contract and 1709 contract, 1805 contract and 1809 contract violated the previous rule is due to the interference of non-mainstream ore delivery. At present, Dachang has made further amendments to the iron ore delivery rules, aiming at improving the quality of iron ore delivery and avoiding the participation of inferior non-mainstream mines in the delivery. The rules have been implemented from the iron ore 1809 contract delivery, and the price difference of iron ore futures contracts in the near and far months has been restored to the previous pattern of "near high or far low".
 
In addition, by the favor of China's steel mills for medium and high-grade mines, major mines have improved product quality, the overall quality of iron ore spot than before. Therefore, it is expected that the price difference between 1905 and 1909 contracts of iron ore futures will be significantly reduced under the influence of non-mainstream ore delivery, the trend of contracts will return to the change of supply-demand relationship, and the trend of price difference between 1905 and 1909 contracts will continue the previous rule again, giving investors the opportunity to carry out "buy 5 sell 9" forward arbitrage trading.
 
From the perspective of the trend of inter-period spread since the listing of iron ore futures, excluding the influence of special factors, the maximum probability of price difference remains above -20 yuan/ton. Taking into account the change of supply-demand relationship of iron ore in the short and medium term, investors set the entry point of "buy 5 sell 9" forward arbitrage trading to lower than 15 yuan/ton, and the stop loss point to be set at 1905 contract and 1905 contract, taking into account the change of supply-demand relationship of iron ore in the short and medium term. 9. There is a strong rationality and risk-return ratio when the contract price difference falls back to -20 yuan/ton. Therefore, according to the trend of historical price spreads and the evolution of future supply-demand relationship, investors can gradually "inverted pyramid" warehouse construction and reduce the cost of warehouse construction by reducing the price difference between 1905 contract and 1909 contract to less than 20 yuan/ton.
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