Iron Ore and A-share Market Weekly Report and Global Capital Market Weekly Report 20231106
Overall
• Currently, iron ore stocks are low, and the base level is still high, which resonates with macro expectations, leading to a strong rise in iron ore prices.
• Early blast furnace maintenance has gradually been implemented. Iron and steel production has declined, profit margins have stopped falling and rebounded, and steel mill profits have improved. Judging from the blast furnace maintenance situation, molten iron production will still decline, and there is still a risk of a pullback in mineral prices in the future. $SSIF DCE Iron Ore Futures Index ETF (03047.HK)$
On the supply side
• The shipment volume of iron ore from Macau and Macau in Hong Kong 19 was 26.291 million tons, an increase of 0.659 million tons over the previous month. Among them, the Australian mine shipped 17.732 million tons, an increase of 0.298 million tons over the previous month, and shipped 14.172 million tons to China, a decrease of 0.733 million tons over the previous month. Brazilian mine shipments were 8.559 million tons, an increase of 0.361 million tons over the previous month.
• Total global shipments picked up month-on-month; Rio Tinto shipments from mainstream mines continued to increase. Platts prices are high, leading non-mainstream shipments to continue to be high; domestic mine production has declined somewhat.
Demand side
• The blast furnace operating rate of 247 steel mills was 80.1%, down 2.4% from the previous month; the utilization rate of blast furnace iron production capacity was 90.2%, down 0.5% from the previous month; the profit rate of steel mills was 16.9%, up 0.4% from the previous month.
• Iron and water production declined at a high level, and steel mill profits stopped falling and rebounded; demand for finished materials improved slightly.
In terms of inventory
• Imported iron ore stocks at 45 ports nationwide were 112.93 million tons, an increase of 1.56 million tons; total iron ore stocks in steel mills across the country decreased by 0.5447 million tons month-on-month to 89.8809 million tons.
• Port evacuation volume rebounded slightly, drift goods arrived at the port one after another, and the port entered a storage cycle. Steel exports have weakened, steel mill profits have been drastically reduced, and low inventory operations have been maintained.
This week's A-share weekly report:
1) The US recession and easing expectations became the biggest phased marginal change. The US manufacturing and non-manufacturing PMI both declined in October; employment data fell far short of expectations, and the unemployment rate reached a new high since February 2022. After the US employment data was released on Friday, overseas markets began to price the US recession: the price of gold rose and the price of crude oil fell, and investors' expectations that the Federal Reserve would cut interest rates by more than 50 BP by 2024 increased sharply. After marginal changes, the overall economy is still a follow-up concern: at least judging from recently released data, US private sector consumption and investment growth is still relatively strong: US private sector consumption and investment contributed 2.69% and 1.47% to GDP in the third quarter of 2023, respectively, and manufacturing durable goods orders and retail sales data continued to recover in September. It is worth noting that if the market expects long-term interest rates to continue to decline, then the decline in interest rates may in turn lead to some expansion in demand. Take the US real estate market as an example: the rise in long-term interest rates in 2021 suppressed the growth of housing demand; currently, US housing sales have begun to rebound. If long-term interest rates weaken in the future, it will also weaken the suppression of interest rates on the mortgage market. In this round of overseas stagnation, in addition to supply shocks, currencies that have been continuously invested in the past 10 years have resumed circulation speed, which is also an important reason. If interest rates fall under loose expectations, then the cycle of “falling interest rates in anticipation of recession - growing demand - rising inflationary pressure - the Federal Reserve tightens monetary policy - rising interest rates - weakening demand - falling interest rates in anticipation of recession” may reoccur from the end of last year to the beginning of this year. $Value Gold ETF (03081.HK)$
2) A year-end switch that seems “logical”. Investors' impression is that the A-share market often changes in the last two months of the year. This has become a current idea. Judging from objective data: in the past ten years, there has indeed been a growth/value style shift in eight years; however, from an industry perspective, in the past ten years, only four (2014, 2018, 2021, 2022) have seen a shift in leading industries; from the perspective of fund performance, only two years (2014, 2022) have seen some active bias funds “turn over” with poor performance in the previous period situation. If investors want to take advantage of market changes in the two months at the end of the year, then the 2018 experience may be more instructive: on the one hand, there is a possibility that Sino-US relations will ease in stages, and on the other hand, the overseas interest rate environment may ease. Judging from the experience of market-leading industry switching at the end of 2018, assets with large retractions in the previous period may perform better in the last two months.
3) Changes in domestic fundamentals: The reshaping of profit distribution The domestic PMI data released this week further verified the characteristics that the year-on-year revenue growth rate was lower than the year-on-year inventory growth rate in the current round of inventory replenishment cycle: in all sub-indicators of the October 2023 PMI, with the exception of the inventory segment for finished products still rising, almost all other sub-items such as new orders and production have shrunk. In an environment where domestic demand elasticity is limited and overseas supply chains are being reshaped, midstream manufacturing companies will have to increase production and inventory holdings to cope with the “internal volume” of the industry in the future, while upstream, where there are supply bottlenecks, will usher in a return to elastic molecular performance. Judging from the three-quarter reports of A-share listed companies, the upstream manufacturing industry, represented by raw materials, has picked up significantly and has high profit elasticity, while the midstream manufacturing industry needs to face greater resistance.
4) Structurally, there may be a “beautiful misunderstanding” for the market itself. The combined decline in real interest rates between China and the US should be an important driver for next year. But now, when the US recession is expected to reach the end of the year, and coincides with the relatively low “growth style” most sought after by the market, the switch has become so “natural.” In the next month, the market may return to the pursuit of “revenue elasticity,” just like January and May-June of this year. A new “beautiful misunderstanding” is sprouting in the long season. After each breakthrough and failure, investors will return to the reality of embracing underlying assets. Our allocation is more in the medium term, and trading opportunities may be limited in terms of capturing short-term structures: first, commodity related assets (copper, oil, oil transportation, aluminum, precious metals, coal), which have bottlenecks on the supply side and benefit from falling overseas interest rates; second, under the year-end game switching approach, industries that have retracted significantly in the growth sector since 2023; the theme recommends the robot industry chain; third, dividend assets are driven by allocation capital, and the retracement in the game is relatively small, and a retracement against the trend is recommended.
Global Capital Markets Weekly Report:
Business investment growth will slow to 4%, which is still healthy, by 2023. However, apart from a surge in domestic manufacturing investment spurred by government subsidies, this total conceals that capital spending has been lackluster. Multiple components of business investment are likely to see similar different trends in 2024. In this week's analyst, we assessed the main negative and favorable factors for the capital expenditure outlook.
The first obstacle is the recent slight slowdown in the rapid pace of structural investment in manufacturing. An analysis of various construction projects related to the Inflation Reduction Act and the CHIPS Act shows that the level of construction spending in the manufacturing industry is likely to remain at a very high level, but will decline by 2024, as some of the projects currently underway will be completed. After driving an overall capital expenditure increase of 4 percentage points in 2023, we expect structured investment associated with these incentives will drag down capital expenditure growth by 0.5 percentage points in 2024.
The second downside is that it is more difficult to finance, particularly commercial real estate. Delayed increases in interest expenses (reflecting corporate debt payments early in the outbreak) and stricter loan standards may have a modest impact on capital expenditure growth beyond what is implied by our standard financial situation framework. The disproportionate tightening of loan standards for commercial real estate is a symptom of structural resistance in some market segments. For example, we expect the decline in investment in office structures to drag capital expenditure up 0.3 percentage points next year, as the continued presence of remote work may continue to drive up vacancy rates.
The first driver was to ease concerns about a recession. Business concerns about the impending recession have abated drastically, and the proportion of management teams discussing the recession during earnings calls has dropped from a peak of 30% to 10% today. We estimate that so far, the weakening of recession concerns means that the drag on capital expenditure growth next year will be reduced by 0.6-0.8 percentage points.
The second driver is increasing investment in artificial intelligence. As corporate interest in investing in AI continues to rise, companies our strategists identified as direct beneficiaries of AI have raised their 2024 capital expenditure expectations by 28%. We expect AI-related investments to drive a 0.3 percentage point increase in capital expenditure in 2024, and believe this poses a significant upward risk to the long-term capital expenditure outlook. $BIDU-SW (09888.HK)$
• Currently, iron ore stocks are low, and the base level is still high, which resonates with macro expectations, leading to a strong rise in iron ore prices.
• Early blast furnace maintenance has gradually been implemented. Iron and steel production has declined, profit margins have stopped falling and rebounded, and steel mill profits have improved. Judging from the blast furnace maintenance situation, molten iron production will still decline, and there is still a risk of a pullback in mineral prices in the future. $SSIF DCE Iron Ore Futures Index ETF (03047.HK)$
On the supply side
• The shipment volume of iron ore from Macau and Macau in Hong Kong 19 was 26.291 million tons, an increase of 0.659 million tons over the previous month. Among them, the Australian mine shipped 17.732 million tons, an increase of 0.298 million tons over the previous month, and shipped 14.172 million tons to China, a decrease of 0.733 million tons over the previous month. Brazilian mine shipments were 8.559 million tons, an increase of 0.361 million tons over the previous month.
• Total global shipments picked up month-on-month; Rio Tinto shipments from mainstream mines continued to increase. Platts prices are high, leading non-mainstream shipments to continue to be high; domestic mine production has declined somewhat.
Demand side
• The blast furnace operating rate of 247 steel mills was 80.1%, down 2.4% from the previous month; the utilization rate of blast furnace iron production capacity was 90.2%, down 0.5% from the previous month; the profit rate of steel mills was 16.9%, up 0.4% from the previous month.
• Iron and water production declined at a high level, and steel mill profits stopped falling and rebounded; demand for finished materials improved slightly.
In terms of inventory
• Imported iron ore stocks at 45 ports nationwide were 112.93 million tons, an increase of 1.56 million tons; total iron ore stocks in steel mills across the country decreased by 0.5447 million tons month-on-month to 89.8809 million tons.
• Port evacuation volume rebounded slightly, drift goods arrived at the port one after another, and the port entered a storage cycle. Steel exports have weakened, steel mill profits have been drastically reduced, and low inventory operations have been maintained.
This week's A-share weekly report:
1) The US recession and easing expectations became the biggest phased marginal change. The US manufacturing and non-manufacturing PMI both declined in October; employment data fell far short of expectations, and the unemployment rate reached a new high since February 2022. After the US employment data was released on Friday, overseas markets began to price the US recession: the price of gold rose and the price of crude oil fell, and investors' expectations that the Federal Reserve would cut interest rates by more than 50 BP by 2024 increased sharply. After marginal changes, the overall economy is still a follow-up concern: at least judging from recently released data, US private sector consumption and investment growth is still relatively strong: US private sector consumption and investment contributed 2.69% and 1.47% to GDP in the third quarter of 2023, respectively, and manufacturing durable goods orders and retail sales data continued to recover in September. It is worth noting that if the market expects long-term interest rates to continue to decline, then the decline in interest rates may in turn lead to some expansion in demand. Take the US real estate market as an example: the rise in long-term interest rates in 2021 suppressed the growth of housing demand; currently, US housing sales have begun to rebound. If long-term interest rates weaken in the future, it will also weaken the suppression of interest rates on the mortgage market. In this round of overseas stagnation, in addition to supply shocks, currencies that have been continuously invested in the past 10 years have resumed circulation speed, which is also an important reason. If interest rates fall under loose expectations, then the cycle of “falling interest rates in anticipation of recession - growing demand - rising inflationary pressure - the Federal Reserve tightens monetary policy - rising interest rates - weakening demand - falling interest rates in anticipation of recession” may reoccur from the end of last year to the beginning of this year. $Value Gold ETF (03081.HK)$
2) A year-end switch that seems “logical”. Investors' impression is that the A-share market often changes in the last two months of the year. This has become a current idea. Judging from objective data: in the past ten years, there has indeed been a growth/value style shift in eight years; however, from an industry perspective, in the past ten years, only four (2014, 2018, 2021, 2022) have seen a shift in leading industries; from the perspective of fund performance, only two years (2014, 2022) have seen some active bias funds “turn over” with poor performance in the previous period situation. If investors want to take advantage of market changes in the two months at the end of the year, then the 2018 experience may be more instructive: on the one hand, there is a possibility that Sino-US relations will ease in stages, and on the other hand, the overseas interest rate environment may ease. Judging from the experience of market-leading industry switching at the end of 2018, assets with large retractions in the previous period may perform better in the last two months.
3) Changes in domestic fundamentals: The reshaping of profit distribution The domestic PMI data released this week further verified the characteristics that the year-on-year revenue growth rate was lower than the year-on-year inventory growth rate in the current round of inventory replenishment cycle: in all sub-indicators of the October 2023 PMI, with the exception of the inventory segment for finished products still rising, almost all other sub-items such as new orders and production have shrunk. In an environment where domestic demand elasticity is limited and overseas supply chains are being reshaped, midstream manufacturing companies will have to increase production and inventory holdings to cope with the “internal volume” of the industry in the future, while upstream, where there are supply bottlenecks, will usher in a return to elastic molecular performance. Judging from the three-quarter reports of A-share listed companies, the upstream manufacturing industry, represented by raw materials, has picked up significantly and has high profit elasticity, while the midstream manufacturing industry needs to face greater resistance.
4) Structurally, there may be a “beautiful misunderstanding” for the market itself. The combined decline in real interest rates between China and the US should be an important driver for next year. But now, when the US recession is expected to reach the end of the year, and coincides with the relatively low “growth style” most sought after by the market, the switch has become so “natural.” In the next month, the market may return to the pursuit of “revenue elasticity,” just like January and May-June of this year. A new “beautiful misunderstanding” is sprouting in the long season. After each breakthrough and failure, investors will return to the reality of embracing underlying assets. Our allocation is more in the medium term, and trading opportunities may be limited in terms of capturing short-term structures: first, commodity related assets (copper, oil, oil transportation, aluminum, precious metals, coal), which have bottlenecks on the supply side and benefit from falling overseas interest rates; second, under the year-end game switching approach, industries that have retracted significantly in the growth sector since 2023; the theme recommends the robot industry chain; third, dividend assets are driven by allocation capital, and the retracement in the game is relatively small, and a retracement against the trend is recommended.
Global Capital Markets Weekly Report:
Business investment growth will slow to 4%, which is still healthy, by 2023. However, apart from a surge in domestic manufacturing investment spurred by government subsidies, this total conceals that capital spending has been lackluster. Multiple components of business investment are likely to see similar different trends in 2024. In this week's analyst, we assessed the main negative and favorable factors for the capital expenditure outlook.
The first obstacle is the recent slight slowdown in the rapid pace of structural investment in manufacturing. An analysis of various construction projects related to the Inflation Reduction Act and the CHIPS Act shows that the level of construction spending in the manufacturing industry is likely to remain at a very high level, but will decline by 2024, as some of the projects currently underway will be completed. After driving an overall capital expenditure increase of 4 percentage points in 2023, we expect structured investment associated with these incentives will drag down capital expenditure growth by 0.5 percentage points in 2024.
The second downside is that it is more difficult to finance, particularly commercial real estate. Delayed increases in interest expenses (reflecting corporate debt payments early in the outbreak) and stricter loan standards may have a modest impact on capital expenditure growth beyond what is implied by our standard financial situation framework. The disproportionate tightening of loan standards for commercial real estate is a symptom of structural resistance in some market segments. For example, we expect the decline in investment in office structures to drag capital expenditure up 0.3 percentage points next year, as the continued presence of remote work may continue to drive up vacancy rates.
The first driver was to ease concerns about a recession. Business concerns about the impending recession have abated drastically, and the proportion of management teams discussing the recession during earnings calls has dropped from a peak of 30% to 10% today. We estimate that so far, the weakening of recession concerns means that the drag on capital expenditure growth next year will be reduced by 0.6-0.8 percentage points.
The second driver is increasing investment in artificial intelligence. As corporate interest in investing in AI continues to rise, companies our strategists identified as direct beneficiaries of AI have raised their 2024 capital expenditure expectations by 28%. We expect AI-related investments to drive a 0.3 percentage point increase in capital expenditure in 2024, and believe this poses a significant upward risk to the long-term capital expenditure outlook. $BIDU-SW (09888.HK)$
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3047 is a team specializing in the research of commodities and smart beta. We like to exchange investment strategies.
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