Zang Xiaosong/Photo courtesy of Chen Jinxing/Graphics
Securities Times reporter Zhao Liyun, Zang Xiaosong, Nie Yinghao
In the past month or so, the international gold price has continued to refresh its historical highs, setting off a capital carnival and bringing about a gold buying boom.
Different from the unique financial attributes of precious metals, a variety of non-ferrous commodities represented by copper, when the price rises at the same frequency, also affects the cost line fluctuations of many downstream manufacturing enterprises, and has a butterfly effect on the market supply and demand pattern.
Recently, the Securities Times E Company reporter interviewed a number of non-ferrous industry chain enterprises and analysts and learned that the current non-ferrous commodities have risen relatively quickly and rapidly, which has put pressure on the profitability and liquidity of some downstream enterprises. It is understood that through a variety of effective financial tools, relevant enterprises have gradually formed the ability to avoid the risk of upstream raw material price fluctuations.
As for the recent slight pullback in the prices of non-ferrous commodities, industry insiders believe that with the steady release of demand and the expectation of contraction on the supply side, the prices of copper, aluminum and other commodities may still maintain a high shock pattern.
High copper prices erode downstream profits
Every morning when he enters the office, Wu Xieliang, chairman of Yixing Huayong Motor Co., Ltd. (hereinafter referred to as "Huayong Motor"), will stare at the big screen on the wall to observe the trend of copper futures.
As the largest private wind turbine manufacturer in China, Huayong Motor has become a qualified supplier of large-scale wind turbine manufacturers at home and abroad, such as Envision Energy, Guodian United Power, Sany Renewable Energy, and Vestas. Just recently, the company ushered in the peak season for wind turbine orders.
In the assembly workshop of Huayong Motor, the reporter of Securities Times E Company saw that the running cars came and went frequently, and the motor rotor and stator were successively transported to the assembly line for assembly. In the past few years, Huayong Motor's orders have continued to rise, and the installed capacity will exceed 10,000 units in 2023, and the output value will exceed 700 million yuan that year.
Although the business is booming, in the current market environment, Wu Xie Liang also expressed his concern to reporters, "In recent years, the kilowatt cost of wind power motors has been falling, and the overall price has also dropped after bidding this year." ”
He mentioned that the wind power plant will complete the annual bidding and production in the first quarter of each year, after the winning bid price is determined, if the price of copper and steel falls, wind power companies can make more money, "in fact, our selling price can not be adjusted, if the price of copper rises all the way, it is to directly 'eat' our profits." ”
According to reports, in the fourth quarter of last year, the copper price stabilized in the range of 65,000 yuan to 69,000 yuan per ton, and now the copper price has risen to 78,000 yuan to 79,000 yuan per ton, "if the next long-term stability is above 80,000 yuan, the gross profit margin will definitely decline by about 5%." Wu Xie Liang said.
"We are not afraid of copper prices, but the timing of this rise is not good. Wu Xie Liang bluntly said that if copper prices rose in the fourth quarter of last year, it would be reflected in the bidding price in the first quarter of this year. However, this round of price increases occurred after the end of the bidding, and suddenly rose during the company's production scheduling, so that the company was equivalent to being "accurately sniped".
"For companies that earn processing fees, the obvious increase in copper prices will definitely have an impact on us, the main thing is that the cash flow pressure and financial costs have increased significantly. Recently, the person in charge of a copper processing enterprise in Zhejiang revealed the same concern in an interview with a reporter from Securities Times E Company.
According to the person in charge, the company often leaves a three-month account period for downstream customers. In the process of purchasing copper raw materials and finally paying customers, companies generally need to advance funds first. During this period, copper prices, processing cycles and account periods are all costs. For example, the customer placed an order at the cost of 69,000 yuan/ton of copper, but the price of copper in the company's production process has risen to 79,000 yuan/ton, which means that the cost of a single ton has increased by 10,000 yuan. This will undoubtedly affect the cash flow of the enterprise and increase the resulting financial costs such as borrowing and financing.
The price of non-ferrous metals has a chain reaction
Driven by the continuous rise in international gold prices, copper prices continued to rise, with the LME (London Metal Exchange) main copper futures contract price once touching 9,900 US dollars / ton, a new high since the end of April 2022, and the main Shanghai copper contract once broke through the 80,000 yuan / ton mark, refreshing the high point in nearly 18 years.
In addition to copper metal, according to the data of the business community, the spot price of aluminum rose as a whole in April, and the average price of domestic aluminum ingots in East China on April 21 was 20,400 yuan/ton, up 4.14% from the average market price of 19,600 yuan/ton at the beginning of the month, and before that, on April 15, the average market price once reached 20,800 yuan/ton.
From April 1 to 22, 2024, the market price of tin ingots in East China has risen sharply. Among them, the market price of tin ingots on April 1 was 225,000 yuan/ton, and the market price reached 281,300 yuan/ton on the 22nd, a cumulative increase of 25.05%, of which the 22nd rose by 6.31% in a single day.
"The recent sharp rise in the prices of non-ferrous metals such as copper, aluminum, and nickel is the result of the resonance of supply and demand, but because the rise is too fast, and some of the profits need to be matched by downstream demand, the impact on the downstream manufacturing industry still exists. Cheng Xiaoyong, deputy general manager of Guangzhou Financial Holding Futures Research Center, pointed out in an interview with a reporter from Securities Times E Company that from the perspective of manufacturing PMI sub-indicators, the rise in raw material prices in March has squeezed corporate profits.
According to the data, the manufacturing factory price index fell to 47.4% in March, down 0.7 percentage points from the previous month, and the purchase price index of major raw materials rose to 50.5, up 0.4 percentage points from the previous month, resulting in the price difference between the purchase price index of major raw materials and the factory price index widening to 3.1 percentage points.
Taking the copper industry as an example, in response to the sharp rise in copper prices, traders do not dare to receive goods at a high level, and most of them purchase according to orders. Some processing enterprises purchase on demand, and set production by sales, mainly to ensure the supply of long orders. From past experience, it takes time for downstream to bear high prices.
Liu Peiyang, an analyst at Zhongyuan Futures Nonferrous Metals, also said that the sharp rise in raw material cost prices has a significant impact on the downstream processing industry.
According to SMM data, as of the week of April 18, the weekly operating rate of major domestic refined copper rod enterprises decreased by 2.2 percentage points month-on-month, recording 69.75%.
High raw material prices are likely to continue
Although the high point of non-ferrous commodity prices represented by gold has fallen in the past two days, most of the industry and analysts in the interview believe that the prices of copper, aluminum and other metals may remain high.
"According to the feedback information obtained by the company, the terminal demand for tungsten alloy in the domestic market has not shrunk due to the price increase in the near future, and the downstream customers purchase on demand as a whole. Due to factors such as the tight supply of raw materials, the downstream is gradually accepting the adjusted price. "Regarding the impact of the recent rise in non-ferrous commodity prices on the demand side of enterprises, the relevant person in charge of the upstream mining giant China Molybdenum told the reporter of Securities Times E Company.
Thanks to the release of production capacity of its overseas mines, the output of all products of CMOC copper, cobalt, molybdenum, tungsten, niobium, phosphate fertilizer and gold increased year-on-year in 2023, among which copper, cobalt and other major products have grown explosively. According to public forecasts, CMOC's new copper production will become an important source of new copper production in the world, and the company may have surpassed Glencore to become the world's largest cobalt producer.
For the copper market in 2024, CMOC believes that the current global economy is still facing challenges, but as the Fed's interest rate hike cycle comes to an end, the macro pressure will gradually ease. At the same time, the Chinese government will continue to introduce measures to stabilize the economy by introducing measures to stabilize the economy, and policy expectations continue to be positive. With the introduction of more economic policies, it is expected that the macroeconomic control on the policy side will continue to support the recovery of the real economy and end consumption, especially in industries such as electric vehicles, renewable energy, power transmission and distribution networks, and the demand for copper will further increase, thereby supporting the performance of copper prices.
"This round of non-ferrous metal bull market is the result of the resonance of financial attributes and commodity attributes, and non-ferrous metals are also facing good financial attributes, and high prices will continue. In addition, due to the development of new energy in the world and the rising demand for electricity in the AI industry, it is expected that the demand for power equipment will increase significantly. At the same time, the supply side of non-ferrous metals can not be solved in the short term, for example, the supply of copper ore is tight, electrolytic aluminum is limited by Yunnan's power constraints and the capacity ceiling of 45 million tons, and the decline in zinc ore processing fees is also due to the decline in zinc ore supply. Therefore, the imbalance between supply and demand behind this round of rally is not something that can be reversed in the short term, and if we take into account the financial attribute of the Fed's interest rate cut in the second half of the year or next year, the non-ferrous metals bull market will not end soon. Cheng Xiaoyong analysis, the current demand for some varieties due to high price suppression, there is a continuous accumulation, such as the nickel and zinc inventories in the previous period rose to 23,200 tons and 132,000 tons on April 19, respectively, 1,496 tons and 120,000 tons in the same period last year. And some varieties are still destocked, such as copper and aluminum. Although copper prices continued to hit new highs in mid-to-early April, global explicit copper inventories fell back to 446,000 tonnes in the week of April 19, after exceeding 450,000 tonnes in the previous week. Aluminum social inventories continued to fall, falling to 848,000 tons on April 22 and hitting a year-to-date high of 870,000 tons in March, but far lower than the level of about 1.1 million tons in the same period last year.
In addition, there are also some varieties that have reduced production, which has contributed to the price increase, mainly in the copper and aluminum markets. As the spot processing fee of copper concentrate fell to single digits, the loss of smelters using copper ore as raw materials expanded, triggering an increase in smelter maintenance, and it is estimated that the output will be reduced by about 70,000 tons in April. In terms of aluminum, the resumption of production of smelters in Yunnan has slowed down, with several aluminium smelters originally scheduled to complete production in April, but due to power constraints, it was postponed to full production in May.
He said that the current demand has seasonal positive support for non-ferrous metal prices. April and May are the peak seasons for traditional manufacturing consumption. At present, new energy industries such as new energy vehicles, home appliance exports and photovoltaics still have a pull on non-ferrous metals. From the demand side, the downstream due to high prices into the wait-and-see stage, in the short term may trigger the market to adjust the demand for high prices to worry about whether the demand can bear high prices, in the medium term, the manufacturing industry will also face the profit pressure brought by the rise in raw material prices.
Liu Peiyang also believes that from the perspective of spot discount performance, in the process of the sharp rise in copper and aluminum prices in this round, copper and aluminum spot prices have turned into a large discount, while social inventory is at a high level, the spot supply is relatively abundant, the operating rate of the downstream processing industry has not been significantly stronger, and the demand side has failed to match the performance of the price in the short term. However, in the long run, domestic and foreign economic data are still strong, and the policy side is also supportive, so the market is still relatively optimistic about long-term demand.
"Copper is the leader of this round of non-ferrous market, both in terms of start-up time and volatility. From a fundamental point of view, when the mine end continues to be tight, the smelting end is expected to reduce production, and the time comes when the cycle of active replenishment at home and abroad comes, the copper supply and demand pattern has gradually become a market consensus, and it is difficult to completely reverse it in the short term. Whether from the perspective of asset allocation or capital speculation, copper is a good target, and the bull market in copper prices is expected to continue with the participation of a large number of funds. He said.
Use of financial instruments
Hedge the risk of price fluctuations
For enterprises that are solely engaged in bulk commodity processing business, hedging and long-term price locking are the basic ways to deal with the risk of raw material price fluctuations. The recent rise in the price of non-ferrous commodities has undoubtedly put forward higher requirements for the hedging business of downstream processing enterprises.
"Hedging is our core competitiveness, but the fluctuation of copper prices increases, and the actual operation of the company's hedging requirements is higher, especially for small and medium-sized enterprises, the rise in copper prices will not only increase costs, but also have the risk of loss if there is no long-term hedging experience and mature team. The person in charge of the copper processing enterprises in Zhejiang said that the most important thing for enterprises is to strengthen management, and improve the speed of cash flow turnover, and strengthen inventory management, "we can not control the rise in copper prices, the more we speed up the efficiency of capital and product turnover, the less economic pressure will be, we can only work hard from this aspect." ”
In order to cope with market price fluctuations, not only downstream enterprises, but also mining enterprises have also used a variety of financial means to avoid risks in recent years.
According to CMOC, the spot trade of the company's IXM company mainly seeks low-risk arbitrage opportunities in the value chain, and hedges the price change risk of spot positions through derivative financial instruments such as futures contracts, so as to reduce potential price risks and obtain returns.
The reporter of Securities Times E Company noticed that in the face of price fluctuations in the non-ferrous market, a number of listed companies in the industrial chain have recently responded to the relevant impact and countermeasures on the interactive platform.
Cable company Jinbei electrician said that the rise in copper prices will drive the cost of raw materials up, but the company's business is divided into direct sales and distribution of two sales models, of which the direct sales model makes full use of the hedging function of the futures and derivatives market to avoid the risk caused by commodity price fluctuations.
Wanma said that the company effectively reduced the operating risks caused by copper price fluctuations through pricing mechanisms, signing forward contracts with copper suppliers, hedging, and production according to orders.
Xin Hongye also said that the company's sales product pricing model adopts the general "copper price + processing fee" in the cable industry, and the pricing strategy of linkage transmission through product sales price and raw material purchase price can basically reflect the impact of copper price fluctuations, and the company's main business income has also risen due to the impact of rising copper prices.
In the interview, Cheng Xiaoyong suggested that for manufacturing enterprises, the use of futures and options for hedging and managing the risk of raw material price fluctuations is the most important and effective way to deal with the cost pressure caused by rising raw material prices.
"For example, for long-term purchases, under the post-settlement method, the price of raw materials is locked in by buying non-ferrous metal futures and call options, and for spot purchases, futures are used to point the price, and futures are used to lock in the benchmark price. Businesses can also build virtual inventories through futures and options, saving on capital costs. Similarly, if the needs of the enterprise are personalized, risk management products can be customized through OTC options to hedge the cost pressures caused by rising prices. He said.