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In 2022, the global economy is expected to continue its recovery trend, and the pace of recovery may be relatively slow. The expectation of a US interest rate hike has become an important global macro monetary policy background, and the Fed's management of inflation expectations will gradually materialize. In early January, the minutes of the December 2021 interest rate meeting released by the Federal Reserve may become an important watershed in global monetary policy in recent years.
The recently released US December non-farm payrolls data is far below market expectations, superimposed on the relatively dovish statements of Fed officials, non-ferrous metals in the context of overall low inventories, supply-side speculation to promote prices generally strengthened, but in the face of the seasonal off-season of downstream consumption, prices have fallen relatively after the rebound, and the upper space is pre-holiday or relatively limited.
The "basis price + weight trade" model is a new trade model that combines futures derivatives into spot trade, converts options and option combinations into spot pricing methods, and is reflected in spot purchase and sale contracts to help enterprises achieve price risk management. In the face of downstream enterprises that need to purchase raw materials after the Spring Festival, they can flexibly use "right trade" to preserve the value of raw materials.
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01 The global economy is recovering, and non-ferrous inventories are generally low
In 2021, the global economy continued to recover in the context of monetary policy easing, and the economies of China and Europe and the United States maintained rapid growth. The demand for industrial raw materials in major economies is relatively strong, non-ferrous metals as an important industrial commodity, copper and aluminum and other raw materials appear in a state of phased shortage of supply, non-ferrous plates prices continued to rise in the first half of the year, in the second half of the year policy regulation and supply and demand contradictions eased after a decline. In 2021, driven by strong downstream consumption, the divergence of non-ferrous metal inventories is very obvious, and the overall inventory is generally at a relatively low level in history.
In 2021, under the background of carbon peaking and carbon neutrality, China's dual control policy of energy consumption is implemented very strictly, and there is a certain shortage of energy and electricity supply. In the first half of the year, the phenomenon of power curtailment occurred in various parts of the country, the power cost of non-ferrous metal smelting rose significantly, and the production capacity of some smelters such as electrolytic aluminum, electrolytic zinc, and electrolytic lead was limited and production was reduced. At the same time, imports of tin concentrate are often interfered with by the epidemic at Myanmar ports, which further aggravates the imbalance between supply and demand in the non-ferrous sector, and also supports the overall strong trend of non-ferrous metal prices.
02 Supply-side interference is continuous, and downstream consumer demand is strong
Since the beginning of 2021, the global economy has continued to recover, and the phased shortage of energy has become a global problem. On the one hand, the local natural gas supply in Europe has declined during the year, on the other hand, due to geopolitical influences, Russia's natural gas supply to Western Europe has continued to decrease, making European natural gas imports significantly lower than in previous years. In the third quarter, overseas natural gas prices continued to refresh the record high, ICE natural gas prices rose more than 7 times in the year, and the electricity cost price of European metal smelting soared, which led to many large smelting enterprises in Europe announcing the reduction of aluminum, zinc and other industrial products, and the overseas production cuts brought a greater impact on the non-ferrous metal market.
In the fourth quarter of 2021, as Russia publicly stated that it would gradually increase its natural gas supply to Europe, and the increase in natural gas exports from the United States to Europe, the higher level of natural gas prices in Europe showed a phased decline. However, the recent geopolitical disturbances between Russia and Europe have intensified again, and Europe has expressed concerns about the current situation in Ukraine, resulting in the expected time for the passage of Nord Stream-2 from the beginning of 2022 or postponed to the second half of the year, and gas supply concerns have re-emerged. In the winter, the demand for electricity and heating in Europe has risen significantly, the demand for natural gas is also relatively strong, and the imbalance between supply and demand has led to the acceleration of natural gas inventories, and the current European natural gas inventory rate is near 59%, which has been low to a historical low level in the past five years.
In the context of global carbon reduction, Europe actively uses natural gas instead of coal, the proportion of natural gas in the European power structure is large, and new energy power generation is difficult to make up for the power gap in the short term, and France's nuclear power generation is also declining due to strikes and other factors. As a result, the surge in natural gas prices has also led to a surge in electricity prices in Europe. Another reason for the sharp rise in electricity prices in the European region last year is that the market demand for electricity is relatively strong, and the price of natural gas continues to rise, resulting in a significant increase in the cost of power generation, triggering a shortage and shortage of electricity. Before the end of the winter, European natural gas prices are expected to rise and fall, shortage of electricity and high electricity bills, supply disruption to non-ferrous metal smelters in Europe will continue, will also support zinc, aluminum and other prices to maintain a strong trend.
According to IAI statistics, the total production capacity of electrolytic aluminum in Europe will account for 11% of the total global production capacity in 2021, accounting for about 26% of the overseas electrolytic aluminum smelting capacity except China, and the source of electricity for about 2.4 million tons of aluminum smelting capacity in Europe is natural gas. Since the natural gas energy crisis since 2021, some European aluminum companies have begun to gradually formulate shutdown plans, the total shutdown scale is currently expected to be about 500,000 tons, but there is still a possibility of production reduction in the future of the scale of up to 2 million tons, if the supply of European aluminum companies is further tightened will once again stimulate the rise in aluminum prices.
In 2021, with the continuous rise in European electricity prices, overseas zinc smelters have already reduced production production three times. The electrolytic zinc smelting capacity in Europe is about 2.3 million tons, accounting for about 15% of the total global production capacity. In December 2021, Nyrstar, an overseas zinc smelter, said it would close its smelter in France from January 2022 due to high electricity costs. In addition, Glencore has also said it will suspend its zinc smelter in Italy, which produces about 100,000 tons per year, and the Plovdiv zinc smelter in Bulgaria has also been closed. In the short term, zinc smelters in overseas developed countries are heavily dependent on electricity, and the problem of rising electricity costs caused by the European natural gas energy crisis may be difficult to solve quickly, and the interference of zinc and lead supply in Europe may continue.
03 Global inventory is low, and the accumulation of inventory expectations is gradually reflected
The recovery of the global economy in 2021 has shown a significant improvement in copper consumption in overseas markets, and China's copper consumption has also performed strongly. Due to the impact of the epidemic in South America, copper minerals recovered slowly in the early stage and gradually grew rapidly in the second half of the year. In 2021, the new capacity of domestic copper smelting is limited, the new production capacity of Daye Nonferrous Metals is postponed to 2022, and the copper concentrate may maintain a high growth rate in 2022, and the domestic smelting capacity will expand by more than 800,000 tons, and it is expected that the production of refined copper will maintain high growth, or to a certain extent alleviate the pressure of the low level of global copper inventories.
According to SMM data, the actual operating capacity of domestic electrolytic aluminum is currently about 38.3 million tons, and it is expected that the annual aluminum output in 2021 will be 38.95 million tons, compared with the obvious decline in the output of electrolytic aluminum in the second half of the year. Under the background of the domestic "double carbon" strategy, the enthusiasm of electrolytic aluminum plants that have been reduced by the energy consumption double control index last year is not as good as before. According to market research, yunnan, Shanxi, Inner Mongolia and other places of aluminum enterprise feedback, considering that the first quarter is still in the heating season and dry water period, the resumption of production progress of electrolytic aluminum plants is relatively slow, it is expected that the growth of electrolytic aluminum supply will still be relatively slow, inventory accumulation or less than expected in previous years.
In 2021, the tin market showed a clear pattern of external strength and internal weakness. In April 2021, the overseas Malaysian MSC smelter announced that half of its tin production capacity will be discontinued until the end of the year. Affected by this, global tin stocks fell to a record low in the middle of the year. Stimulated by the tight overseas supply situation, the price of Lenster has strongly refreshed the record high. Domestically, tin ingot inventories have continued to decline since the beginning of 2021. The peak season of tin consumption in March was gradually started, superimposed on the impact of southwest power curtailment and cloud tin maintenance in May, resulting in the rapid destocking of domestic inventories since the second quarter, and the higher level of domestic tin inventories fell by more than 75%.
At present, tin prices have hit a record high, the price is at an absolute high, and tin smelting capacity is mainly subject to the shortage of concentrates. Recently, tin smelters in Yunnan, Guangxi and other places will reduce production before the holiday in January, and the tin concentrate imported from Myanmar is expected to increase after the Spring Festival, and domestic refined tin production may recover again. Under the background of the continuous prosperity of downstream consumer demand for tin, it is expected to maintain a destocking state after the Spring Festival, supporting the operation of a strong price range.
Overall, in 2022, the pace of global recovery will slow down. Under the goal of stable domestic growth, infrastructure or become an important driving point for economic growth, the necessity of stabilizing real estate is relatively obvious, and the consumption of non-ferrous metals throughout the year is expected to form a certain support. The strength of accumulation during the Spring Festival and the consumption of the peak season after the festival will determine the upward space above the price of non-ferrous metals.
04 Downstream spring stocking, smart use of "right trade"
At present, in the context of the off-season of downstream consumption seasonality during the Spring Festival holiday, the cumulative expectation of most of the non-ferrous metal inventories has gradually increased. After the speculation of the supply side in the early stage, the non-ferrous price rebounded higher and then fell back again, and it is expected that the upper space is relatively limited, and the overall or show a trend of wide fluctuations in the range. Then, when downstream enterprises face the procurement demand after the Spring Festival, they can flexibly use futures and option derivatives to risk the price of raw materials.
Non-ferrous metal downstream processing enterprises, because the Need to purchase raw materials for production after the Spring Festival, if you are worried about rising prices, you can take dips to establish virtual long inventory in the futures market. Or use over-the-counter options to buy an imaginary call option, while avoiding the risk of price increases, you can also avoid the adverse effects of price declines, but this kind of individual approach also has certain limitations.
If the enterprise expects the market price to fluctuate in the range before and after the Spring Festival holiday, then the non-ferrous metal processing enterprises with procurement needs can adopt the method of "basis price + right trade" to avoid the risk of market price fluctuations. For example, a downstream aluminum ingot processing enterprise, in order to lock in the raw material price cost range before and after the Spring Festival, to avoid the risk of rising aluminum prices, traders can buy a one-month call option from the futures risk subsidiary, considering that the premium of buying a call option alone is higher, it can be combined with a sell put option to reduce the premium.
At the same time, if the customer has a large purchase willingness when the price of aluminum ingot is low, then a buy call option can be combined with multiple sell put options, and the purchased call option can be designed to be knocked out of the structure when it is touched, and the product is designed as an option contract that is observed daily. Aluminum ingot procurement enterprises can gradually establish long positions around the Spring Festival according to market changes to achieve the purpose of low-price batch procurement. This combination of cumulative options can help customers manage futures price fluctuations while also locking in basis risk, and can enjoy relatively favorable premiums, so the cumulative option structure is widely used in rights trading.
If an enterprise needs to further manage the basis risk of purchasing aluminum ingots, it can sign a basis procurement contract with the spot trading team of the risky subsidiary for the next month during the cumulative option execution, and choose to purchase a certain amount of aluminum ingot spot with a fixed basis. Cumulative option trading and fixed basis trade contracts are jointly integrated into a new type, which helps enterprises to purchase spot goods according to a fixed price within a certain price range, avoid the risk of price fluctuations, and help enterprises to make post-holiday production plans in advance.
The innovative model of "basis spread + right trade" is a new trade model that combines futures derivatives into spot trade, converts options and option combinations into spot pricing methods, and reflects them in spot purchase and sale contracts to help enterprises achieve price risk management. The hedging means of entity enterprises have gradually evolved from simple basis margins, futures trading, and over-the-counter options to a more mature right-bearing trading model, which is the result of joint exploration between futures risk management subsidiaries and entity enterprises, which provides a reference for a richer hedging model for entity enterprises in the non-ferrous metal industry.
Risk Warning:
1. The overseas epidemic has once again interfered with the rhythm of global recovery;
2. During the Spring Festival, the base of non-ferrous varieties greatly exceeded expectations;
3. The recovery of downstream consumption in the non-ferrous metal industry in the spring is less than expected.
This article originates from the macro financial research of Shenyin Wanguo Futures