Editor's note:
Commodity upstream and downstream game
Although China's manufacturing purchasing managers' index (PMI) exceeded 50% in March and returned to the expansion range, from the perspective of commodity trends, the industrial recovery is still uneven. Among them, non-ferrous metals performed strongly, but steel and coal had to take the initiative to control production capacity in a weak market. After entering the second quarter, the upstream and downstream games of the industry represented by bulk commodities may become more intense.
Since mid-February this year, the economic recovery and the start of enterprises have driven the overall rise of the commodity market, but due to the difference in the speed of downstream recovery, the prices of various commodities in the upstream are also uneven, and the performance of the non-ferrous and black industries is "ice and fire".
On April 5, the latest data from the China Federation of Logistics and Purchasing showed that China's commodity price index (CBPI) was 112 in March, up slightly by 0.6% month-on-month and down 4.9% year-on-year. With the continuous efforts of various policies to stabilize the economy, downstream consumption has gradually picked up, and the market operation has shown a trend of recovery.
Zhou Xu, vice president and secretary general of the Bulk Commodity Trading Market Circulation Branch of the China Federation of Logistics and Purchasing, said that the sub-indices are basically in the stage of bottom and upward, indicating that with the continuous efforts of various economic stabilization policies, market confidence has been restored, and the demand for downstream production and processing enterprises has risen, which also indicates that the macro economy after the first quarter is expected to come out of a steady upward trend.
However, there is still a divergence across different industries. Among them, the price indices of nonferrous metals and chemicals rose month-on-month, and other price indices fell. Among the 50 commodities monitored, 23 commodity prices rose month-on-month in March. The rise and fall of the industry is basically flat, which may affect the subsequent recovery progress of different downstream industries.
Emerging industries drive the non-ferrous market
In 2023, the output of ten commonly used non-ferrous metals in the mainland will be 74.698 million tons, an increase of 7.1% over the previous year (calculated on a comparable basis, the same below). Among them, the output of refined copper (electrolytic copper) was 12.99 million tons, a year-on-year increase of 13.5%, the output of electrolytic aluminum was 41.59 million tons, a year-on-year increase of 3.7%, the volume of six concentrated metals was 6.415 million tons, a year-on-year decrease of 0.5%, and the output of alumina was 82.44 million tons, a year-on-year increase of 1.4%. The investment in fixed assets increased significantly over the same period of last year, and the growth rate was higher than the growth rate of national industrial investment.
After entering this year, in the case of many raw material prices falling at the beginning of the year, non-ferrous metals still maintained a good growth trend. From January to February, the output of ten non-ferrous metals was 12.77 million tons, a year-on-year increase of 5.7%. Although the overall growth rate has declined, the output of refined copper was 1.945 million tons, a year-on-year increase of 10.6%, and the growth trend has further accelerated.
With the continuous development of the global economy and the rapid progress of new energy and artificial intelligence technologies, copper, as one of the key industrial metals, has maintained a steady growth in market demand. However, the tight supply-demand pattern of copper products in 2024 still refreshes market expectations. In particular, Nvidia released a new generation of artificial intelligence chip platform called Blackwell at its annual GTC event, and the most critical change is that unlike the previous chip connection using optical modules + optical cables, Blackwell has changed to a short-distance copper high-speed connection with the lowest power consumption and faster speed.
The price of electrolytic copper in China's commodity price index also maintained a month-on-month increase of 3.3% in March. According to the commodity market analysis system of the business community, copper prices have been soaring since the beginning of March, with prices soaring above 70,000 yuan, and rising and falling in late March. At the beginning of the month, the copper price was 68,803.33 yuan/ton, and the copper price rose to 71,925 yuan/ton at the end of the month, with an overall increase of 4.54% and a year-on-year increase of 4.59%.
It is worth mentioning that China is the world's largest copper smelting producer and copper consumer, but the dependence on foreign copper concentrate has remained high all year round, making China's pricing power for copper small. Recently, there have been a number of major copper mine cuts around the world: Escondida, one of the world's largest copper mines, has been affected by declining mine grades and drought in central Chile, which has led to a reduction in production, and Anglo American's copper mine has also announced a significant reduction in its copper production forecast.
The production reduction measures of these large-scale copper mines have directly affected the supply of copper plants, and also led to a significant reduction in the processing fees of copper concentrate smelting in the mainland. According to Guosen Futures Research Report, by the end of 2023, the spot processing fee of overseas copper concentrate was about US$80/ton, and after only two months, the processing fee plummeted to US$20/ton.
According to data from Shanghai Nonferrous Metals Network on March 29, the copper concentrate spot processing fee index fell to $6.38 per ton, a new low in recent years.
Against this backdrop, the profits of domestic copper concentrate smelters are also declining. On March 28, the China Copper Raw Materials Joint Negotiation Group (CSPT) held a general manager's office meeting in the first quarter of 2024, at which it was decided not to set the guidance and processing fee for spot copper concentrate procurement in the second quarter, and once again advocated joint production reduction, suggesting a production reduction of 5%-10%. This has also strengthened market expectations of tighter supply.
According to the analysis of Zhongtai Futures non-ferrous metals analyst Peng Dinggui, the operating rate of wire and cable sample enterprises in March was 71.88%, 15.18 percentage points lower than the same period last year, a new low since 2017.
Real estate dragged down the bulk of building materials
Unlike non-ferrous metals driven by emerging industries, ferrous metals and commodities such as cement and glass, which are dragged down by the real estate industry, are still in a sluggish state.
Although the temperature is gradually rising in many areas and the construction conditions are relatively suitable, the downstream demand for building materials commodities has not recovered as expected due to the sluggish new construction of real estate and the financial pressure on infrastructure projects. According to data from the National Bureau of Statistics, from January to February, the national real estate development investment was 1,184.2 billion yuan, a year-on-year decrease of 9.0%. Correspondingly, the mineral price index in China's commodity price index also fell to 83.1 in March, down 2.2% month-on-month and 13.4% year-on-year, hitting a record low. Cement prices fell by 1.5% and glass prices by 6.7%.
The same is true for ferrous metals, where the decline in the black price index widened to 85.4 in March, down 6.7% month-on-month and 15.2% year-on-year. At the same time, the production release of iron and steel enterprises showed a slight downward trend. According to the survey data of Lange Iron and Steel Network, the average blast furnace operating rate of 100 small and medium-sized steel enterprises in China was 74.1% in March, down 1.6 percentage points from the previous month, and the average daily output of molten iron of 201 production enterprises in the country was 2.163 million tons, a decrease of 22,000 tons from the same period last month.
The 21st Century Business Herald reporter noticed that from March 7, the Yunnan Iron and Steel Association issued information on the measures to control production, reduce production, reduce losses and ensure survival of Yunnan steel mills, and the Guangdong Province and Shandong Steel Associations also released relevant production suspension and production control information in March.
Wang Guoqing, director of Lange Iron and Steel Research Center, told the 21st Century Business Herald reporter that since March, steel production enterprises have faced a more obvious structural contradiction between supply and demand, steel prices have fallen sharply, the pressure of losses has increased, and the accumulation of factories and warehouses is difficult to fall. At present, the production reduction of steel mills has achieved certain results.
According to the statistics of China Iron and Steel Association, in the first half of March, the average daily output of pig iron of key steel enterprises was 1.84 million tons, down 2.0% month-on-month and 5.3% year-on-year, and the average daily output of crude steel of key steel enterprises was 2.053 million tons, down 1.6% month-on-month and 6.8% year-on-year.
In addition, the National Development and Reform Commission, the Ministry of Industry and Information Technology, the Ministry of Ecology and Environment and other departments will also clarify with relevant parties in the near future that they will continue to carry out the national crude steel output regulation and control work in 2024, adhere to the focus on energy conservation and carbon reduction, distinguish the situation, maintain the pressure, classify the guidance, support the good and eliminate the inferior, and promote the structural adjustment and optimization of the iron and steel industry. In order to cooperate with the regulation and control of production capacity and output, relevant departments will jointly carry out the basic information mapping of equipment of national iron and steel smelting enterprises.
Wen Gang, Director of the Iron and Steel Division of the Department of Raw Materials Industry of the Ministry of Industry and Information Technology, said at the 2024 Steel High-quality Development Conference held recently that at present, the demand for steel consumption in mainland China has entered the peak platform area, and it will enter the track of reduction adjustment, structural optimization and upgrading in the future for a long time. The mainland iron and steel industry should adhere to the combination of optimizing supply and expanding demand to achieve high-quality and efficient growth, and promote the implementation of equipment renewal and technological upgrading with the application of new technologies as the traction, focusing on the renewal of old equipment, energy conservation and carbon reduction, the application of digital technology, and ultra-low emissions.
Wang Guoqing said that the current manufacturing boom has rebounded, the new orders index and the new export orders index have rebounded to the expansion range, and it is expected that the demand for steel in the manufacturing industry will remain resilient driven by automobiles, home appliances, ships and other industries. However, in terms of construction steel, due to the poor availability of project funds and the average construction progress of major projects, which limits the release of terminal demand, the willingness of domestic steel producers to release production capacity is affected by the lack of demand release and the increasing pressure of variety losses, and it is expected that domestic steel production will be under pressure in March. According to the estimate of Lange Steel Research Center, the daily output of crude steel in the country may remain at the level of about 2.7 million tons in March. In April, with the increase in the scale of steel mills' resumption of production, steel production may rebound month-on-month.
The subsequent release of coal production capacity is limited
The energy price index in China's commodity price index continued to decline to 112.1 in March, down 3.6% month-on-month and 9.5% year-on-year, while absolute energy prices fell 2.3% month-on-month, led by coking coal and coke, which fell 17.4% and 11.1% month-on-month, respectively.
According to the analysis of the "Coal Market Analysis and Later Trend Forecast in February and March 2024" released by the China Coal Transportation and Marketing Association, domestic coal prices fluctuated slightly in February. At the end of February, the spot price of 5,500 kcal thermal coal in the Bohai Rim port was about 930 yuan/ton, up 15 yuan/ton from the end of January and down 250 yuan/ton year-on-year, and the comprehensive price of coking and refined coal in Shanxi was 2,370 yuan/ton, down 50 yuan/ton from the end of January and 30 yuan/ton year-on-year. Since March, domestic coal prices have fallen significantly. On March 22, the spot price of 5,500 kcal thermal coal in the Bohai Rim port was about 850 yuan/ton, down 80 yuan/ton from the end of February and down 260 yuan/ton year-on-year, and the comprehensive price of coking and refined coal in Shanxi was 1,910 yuan/ton, down 460 yuan/ton from the end of February and 495 yuan/ton year-on-year.
According to the National Bureau of Statistics, from January to February 2024, China's raw coal output was 705.267 million tons, down 4.2% year-on-year, with an average daily output of 11.75 million tons. The 21st Century Business Herald reporter combed and found that this is also the first time since 2021 that there has been a year-on-year decline in monthly output. Among the four major producing areas of "Shanxi, Mengxi and Shaanxi", the output of raw coal in Shanxi decreased significantly, down 18.1% year-on-year, and the total output retreated to the second place, while the output of the other three major producing areas was relatively stable.
This is more related to local initiative to reduce production. In February this year, the Shanxi Provincial Emergency Management Department, the Shanxi Bureau of the State Mine Safety Supervision Bureau, and the Shanxi Provincial Energy Bureau issued the "Notice on Carrying out the Special Rectification of the "Three Supers" and Hidden Working Faces in Coal Mines.
Lin Boqiang, dean of the China Energy Policy Research Institute at Xiamen University, told the 21st Century Business Herald that the recent increase in imported coal will help support the safe and stable supply of domestic coal, accounting for about 10% of the mainland's raw coal production. However, the large increase in imported coal is not due to the lack of domestic coal production, and there is little room for domestic coal prices to continue to fall.
According to the latest data from the China Coal Transportation and Marketing Association, the average daily coal output of key monitoring coal enterprises in the first half of March increased by 15.9% over the previous month and 6.6% year-on-year.
Regarding the current trend of declining production capacity, the China Coal Transportation and Marketing Association pointed out that in recent years, the mainland has accelerated the release of coal mining energy, and the coal mines with the conditions and potential for increasing production in major coal-producing provinces and regions have basically been included in the list of coal mines with guaranteed supply, and the potential for subsequent production capacity increase and continuous production capacity is insufficient. It is expected that in 2024, the mainland's coal production capacity will maintain growth, and the production capacity will be further concentrated in the western coal resource-rich areas, and the release of coal production capacity will shrink compared with last year, and it is expected that the mainland may release coal production capacity of about 100 million tons / year in 2024, of which Xinjiang, Guizhou, Inner Mongolia, Shaanxi, Gansu and other provinces and regions will be the key areas for coal production. In addition, in 2024, the safety supervision of coal mines in various places will be tightened, and it is expected that the release of some coal production capacity in Shanxi and other places will be restricted to a certain extent.
At the same time, with the gradual rise of the temperature in March, the heating period in the northern region has ended, and the heating load of enterprises has declined rapidly. According to data from the China Coal Transportation and Marketing Association, thermal power generation in the first half of March grew rapidly year-on-year and fell rapidly month-on-month, and increased year-on-year and decreased month-on-month in the middle of March. In the first half of March, the average daily coal consumption of thermal power plants across the country decreased month-on-month.
Lin Boqiang said that in the future, the macroeconomic rebound is conducive to stimulating energy demand, hydropower output has recovered but is still at a low level, thermal power gives full play to the role of guarantee, thermal coal consumption is still the main driving force for the growth of coal consumption, and the work of promoting the release of high-quality coal can not be relaxed.
In addition, diesel, gasoline and fuel oil all showed a slight increase in March, which is also reflected in the recent increase in oil prices. The National Development and Reform Commission announced on April 1 that according to the recent changes in oil prices in the international market, in accordance with the current refined oil price formation mechanism, from 24 o'clock on April 1, 2024, domestic gasoline and diesel prices will increase by 200 yuan and 190 yuan per ton respectively.
"International oil prices rose during the current round of refined oil price adjustment cycle. The relevant person in charge of the Price Monitoring Center of the National Development and Reform Commission expects that international oil prices may fluctuate strongly in the short term, but it is unlikely that they will continue to rise sharply. On the one hand, due to geopolitical factors and the "OPEC+" production cut, the supply of crude oil is tight in the short term, and the demand side has driven the growth of travel consumption due to the warmer weather. On the other hand, rising international oil prices have an adverse impact on curbing inflation, and once inflation indicators pick up significantly, it may delay the timing and pace of monetary policy adjustment in advanced economies, thereby inhibiting economic recovery and demand recovery.
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