Since the Spring Festival, the non-ferrous metals have experienced three rounds of decline, including concentrated release of negative domestic epidemic, panic outbreak of overseas epidemic, crude oil slump and decline, and copper, aluminum, zinc and other varieties have basically fallen to the bottom range since 2017. At present, the overseas epidemic is still on the rise, and the domestic resumption of work is gradually warming up. How to deduce the non-ferrous disk? When can the price break through the bottom?
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The overseas epidemic is not at its peak, but it is expected to be partially fulfilled
Since the outbreak of the epidemic, the non-ferrous market has mainly fulfilled the negative expectation of consumption. Taking copper as an example, the focus of the market during the Spring Festival is the sharp decline of domestic consumption. Luntong fell from 6200 US dollars / ton to 5500 US dollars / ton. After the festival, due to the effective prevention and control of China’s epidemic, the market is expected to recover and the copper price is slightly repaired. However, the overseas epidemic gradually broke out in the middle of February, and the crude oil plummeted in March due to the price war. The fear of global recession made the copper price fall in a new round. Luntong went down to 5400 USD / ton. At present, the domestic epidemic prevention has entered the second half of the year, but the overseas epidemic has not reached its peak. What is the actual impact of the overseas epidemic? We have combed China’s position in the global industry chain of nonferrous metals, and tried to deduce the impact of domestic epidemic abroad, in order to get the price guidance.
In the global industrial chain of non-ferrous metals, China plays an important role as a consumer, with each variety accounting for 40% – 60% of global metal consumption. In contrast, mineral resources are relatively poor, but smelting capacity is huge, and most of the metal resources are in the state of net import. According to the distribution of supply and demand, the six kinds of non-ferrous metals can be divided into three types: copper and nickel are similar in supply and demand matching, all of which are poor in domestic mineral resources, with large smelting capacity, but still unable to meet the consumption demand, with net imports of ore, intermediate products and smelting finished products; aluminum, zinc and tin mines are relatively rich in resources, but still unable to self-sufficient, and need to import raw ore to meet the smelting demand Smelting needs, the smelting capacity is large, which can basically meet the domestic demand, so the import demand of smelting products is small; the mineral and smelting capacity of lead are relatively matched with consumption, and the domestic supply and demand tend to be closed-loop.
Reviewing the impact of novel coronavirus pneumonia on non-ferrous industry chain, we can observe from three links: mining, smelting and processing. Some mines are subject to logistics, personnel and other problems, so it is difficult to return to work after the festival, resulting in regional and staged ore resource shortage, leading to price rise, such as alumina price rise due to short supply of raw materials recently. The smelting process is not directly affected by the epidemic situation. Most of the metal smelting plants have high automation level and do not need intensive labor force to participate. For example, the production of electrolytic aluminum production enterprises basically maintains normal level. However, the logistics problems caused by the epidemic and the suspension of production activities in the severely affected areas have resulted in a backlog of by-products in some industries, such as the expansion of sulfuric acid storage in copper and zinc smelters, which forced the smelting industry to passively reduce production. The impact of the epidemic on the primary downstream, i.e. the processing plant, is huge. This is mainly due to the fact that on the eve of the Spring Festival, under the strict national defense against the epidemic, the resumption of work of the processing plant after the festival has been delayed again and again, which has also resulted in the large accumulation of non-ferrous varieties.
Will the gradual spread of overseas epidemics have a significant impact on the supply side of nonferrous metals? From the current situation, the main non-ferrous metal mineral areas, such as South America, Southeast Asia and Australia, have not yet seen serious epidemic situation, and the mine production is relatively stable. Smelting and processing capacity in Japan, South Korea, Europe and the United States are relatively intensive. Although some countries are suffering from severe epidemic, normal production activities have not been significantly disturbed, and supply is relatively stable. Is there any risk of interference in the future? Different from the domestic situation, there is no long holiday to interrupt production overseas, and the policy style and cultural background at home and abroad are different, so it is unlikely that the production of enterprises will be subject to administrative restrictions. However, the spread of the overseas epidemic is also uncertain. Some regional traffic restrictions, such as the regional closure in Italy and similar policies that may appear in other countries in the future, will interfere with the trade chain of the industry. The production chain is interrupted, the impact is complex, the market is split, and the prices between regions may form huge differences. China is a net importer of metals. Domestic demand is expected to rebound strongly under the control of the epidemic. If there is any interference in the supply of overseas raw materials, it may have a potential positive impact on the internal price.
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Looking at the impact of the epidemic on consumption, whether at home or abroad, the expected consistency of the market is short. The negative impact of the epidemic on domestic consumption has been reflected in some economic data in February. At this stage, the downstream is busy resuming work, and the market is more expected to demand compensatory rebound. On the other hand, the actual negative effect of the epidemic on consumption has not been clearly reflected overseas. The key factors determining the actual impact of the epidemic are what policies countries will eventually adopt and what impact they will have on social production and life. However, it is relatively certain that under the current situation of only expectation, the pessimism of consumption has been realized on the market. Before new variables appear overseas, the current pessimism expectation is not enough to cause the colored price to fall out of the new low.
The pace of domestic resumption of work is speeding up, and the turning point of inventory still needs to wait
Since the end of February, the domestic resumption of work has been carried out in full swing, and the pace has been further accelerated since March. From the high-frequency data, it is observed that the average daily coal consumption of the six power plants has returned to more than 70% before the saving, the scale of national migrant workers has been significantly improved, and the congestion index of major cities continues to rise. From the perspective of the spot market of non-ferrous metals, although the overall transaction volume is still light, the range of spot discount has been significantly narrowed, some varieties have turned into rising water, and the downstream demand has been restored.
Affected by the epidemic situation, the seasonal accumulation time of non-ferrous metals has been prolonged, and the accumulation range has increased significantly. At present, there is no peak inventory. Based on the accumulation period of previous years, the stock peak of copper, aluminum and zinc mostly appears near the sixth week after the festival, the downstream resumption of work this year has been extended for more than two weeks, and the capacity utilization rate after the early resumption of work is also low, now it is the seventh week after the festival, it is reasonable to speculate that the accumulation period will continue for 1-2 weeks, and the stock may peak in the middle and late March.
The second quarter has always been the peak season of industrial activities, especially in the areas of real estate, home appliances and other non-ferrous intensive consumption. This year, in order to hedge the negative impact of the epidemic, policy support for special debt and infrastructure investment has been increased, the 1.29 trillion local special debt limit has been issued in advance, and the effect of infrastructure development is expected to appear in advance. From the perspective of domestic demand, the demand for non-ferrous metals, especially copper, aluminum and zinc, is expected to rebound significantly in the second quarter on a month basis. After the inventory inflection point appears, the rate of destocking may exceed that of previous years.
The elasticity of price downward is limited, and the rhythm of stages should be grasped
Considering that the pessimistic expectation of the overseas epidemic has been partially fulfilled and that there is no longer a black swan outside, the short-term downward elasticity of metal prices is relatively small after falling to the bottom since 2017. For copper, the increase of ore end is limited and the supply is released. The smelting industry with low profit has operational risk. The price of aluminum is close to the cost line of the industry. Although zinc is in the bear market cycle, after a sharp fall, the cost constraints and the clearing of mine capacity are slow, making it difficult for the price to fall to the bottom in a one-step manner. At present, the overseas epidemic is still on the rise, and the good expectation of domestic consumption has not been fulfilled. It is difficult for nonferrous metals to show a trend upward in the short term. However, in the case of less elasticity below, the cost performance ratio of chasing short is not high. Perhaps the better choice is to consider the elasticity of price stage upward, and pay attention to the guidance given by the evolution of the epidemic in Europe and the United States and the inflection point of domestic inventory.
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