2021 is destined to be a year of thrill for all futures traders, with commodity prices taking turns to set records.
First of all, the iron ore and steel prices in the first half of the year hit a record high, and the steel composite index closed at 6633.84 yuan on May 12, 2021. Then in the second half of the year, the continuous high level of coal prices made the major coal users cry bitterly, and the power companies were facing the dilemma of "losing a dime of electricity once", which made people wonder what would make iron ore and coal, which are not surprising commodities, become "crazy stones".
CCTD Bohai Rim Thermal Coal Spot 5500K Reference Price Index
With the end of the new crown epidemic, the economic recovery stimulated the recovery of coal prices, and last year's heating season coal prices soared, CCTD Bohai Thermal Coal Spot 5500K reference price index once broke through 1,000, reaching a record high of 1005 yuan / ton, and then with the end of the heating season, coal prices returned to a relatively reasonable level.
In March this year, coal prices are rising as fast as a rocket. In May 2021, Premier Li Keqiang instructed at the National Standing Meeting to regulate commodity prices, and coal prices have since fallen slightly. After entering the peak period of electricity consumption in July, although there is state regulation, the reference price of 5500K spot of thermal coal in the Bohai Rim has also risen to a level of nearly 1,000 yuan and has been maintained until now.
We don't need conspiracy theories, saying that the rise in commodity prices led by iron ore and coal is due to some kind of fictitious financial war, and the strange theories of the big chess party and Song Hongbing can be put to rest.
People who have experienced the "four trillion stimulus plan" ten years ago will be familiar with the words "sugar gaozong", "garlic you fierce" and "jiang you jun" of that year, and the economic stimulus plan has driven the rise of upstream commodities and then promoted the rise in downstream daily necessities prices. If you have a memory of what happened in the previous decade, why can't you understand the recent rise in commodity prices?
Similarly, in the face of the impact of the NEW CROWN pandemic a decade later, from a macroeconomic point of view, countries must use strong stimulus plans to strengthen the economy, then relatively loose monetary policy must be on the agenda.
In the face of the economic crisis caused by the epidemic, the Trump administration's large-scale water release economic stimulus plan has thrown trillions of dollars into the market. The European Central Bank also quickly followed suit, pursuing ultra-loose monetary policy to help the economy recover. While accommodative monetary policy would cause inflation, central banks in major economies have not yet made a decision to raise interest rates.
The massive release of water from the upstream developed countries has doubled the global inflationary pressure, the downstream developing countries have only to raise interest rates to reduce the money supply, and the central banks of Brazil, Turkey and Russia have announced interest rate hikes. In the macroeconomic context of inflation, the rise in commodity prices is inevitable.
In addition, the economic stimulus plans of various governments also mean that large-scale infrastructure projects follow up and a large increase in manufacturing orders, and the boom in infrastructure and the roar of manufacturing machines have directly led to the growth of commodity demand.
On May 27, Biden proposed a $6 trillion budget plan to boost the economy, with a lot of money going to infrastructure and new energy. The U.S. stock Dow Jones index rose 200 points on the day, and the infrastructure sector immediately responded, with U.S. steel rising 4%, while the auto sector led by GM also immediately followed suit.
Within a year, the landed price of imported iron ore iron ore once soared from 86.83 US dollars / ton to 230.59 US dollars / ton, and recently fell due to China's "de-capacity", "carbon peak" and Sino-Australian confrontation and other reasons. The price of coal has soared, due to the sharp rise in coal prices, the CCTD Bohai Thermal Coal Spot Reference Price was even stopped for a time. Internationally, the Newcastle Port thermal coal price index has directly tripled, soaring from less than $60/ton to nearly $190/ton.
Chart of changes in the Thermal Coal Price Index of the Port of Newcastle in the past year
Chart of changes in the Baltic Sea Index for 2017-2021
In addition, rising transportation costs have also driven up coal prices. The Baltic Index has also been at an all-time high in the past year, and the global coal market and the shipping market are seriously out of balance between supply and demand, which has also raised coal prices.
Approaching the fourth quarter, in the face of heating pressure and industrial production, it is foreseeable that coal prices will still run high or even rise sharply. In September 2021, Goldman Sachs raised its thermal coal price forecast for the fourth quarter of 2021 from $100 per ton to $190 per ton and the 2022 average price forecast from $106 per ton to $137. Raise the benchmark metallurgical coal price forecast for the fourth quarter of 2021 from $155 per tonne to $230 and the 2022 average price forecast from $155 per tonne to $175 per tonne.
As a country that is "rich in coal, gas and oil", China's proven coal reserves rank fourth in the world, behind the United States, Russia and Australia. China ranks first in the world in coal production, with China's domestic coal production in 2020 reaching 3.84 billion tons, accounting for 51% of the world's total, far exceeding the rest of the world.
In the first half of 2021, China's coal production was 1.949 billion tons, an increase of 6.4% year-on-year, and the cumulative import of coal in the country in the same period was 140 million tons, down 19.7% year-on-year.
Table of coal production in the world from 2018 to 2019
China is not only the largest coal producer, but also the largest coal consumer, in China's energy consumption structure, coal has always occupied the largest proportion.
In China's disposable energy consumption in 2018, coal consumption was 81.67 EJ, accounting for 57% of the annual primary energy consumption, while coal consumption in the United States accounted for 12% of the annual primary energy consumption and 8% of Australia's annual primary energy consumption in the same period, and the proportion of coal in China's energy consumption was much higher than the proportion of coal in other countries in energy consumption.
Unlike iron ore, which has a high degree of dependence at this stage, if the production capacity is increased and the environmental impact is not considered, China's coal resources can be completely self-sufficient, and the coal gap is not large, because the lack of coal and the lack of electricity are unlikely.
However, in the context of "carbon peak" and "carbon neutrality", "3060" is the Chinese government's environmental protection commitment to the world, so coal production capacity will not continue to increase, and in the first half of this year, only Xinjiang has new production capacity in China. It is foreseeable that under the background of "carbon peaking" and "carbon neutrality", the supply side of China's coal will reach a peak and gradually decline.
Histogram of China's coal resource production from 1985 to 2019
Although China imports a relatively small proportion of coal, domestic coal prices are still affected by international coal prices. By comparing the Newcastle Port Thermal Coal Price Index with the Qinhuangdao 5500K Coal Price Index, it can be seen that domestic coal prices are closely related to international coal prices.
It can be seen from the figure that the international coal price has been lower than the domestic market price for a long time, which is due to the difficulty of domestic coal mining, so the domestic mining cost is higher; at the same time, based on the characteristics of China's current "east coal west transportation" and "north coal south transportation", the domestic coal railway transportation cost is higher than the shipping cost of imported coal from Australia and Indonesia.
Taking the second quarter of 2020 as an example, affected by the epidemic and customs clearance policies, the FOB price of 5500 kcal coal in Australia hovered below $40 per ton, while the domestic coal price in the northern port was as high as more than 550 yuan per ton, and the cost difference was as high as more than 200 yuan.
In addition, the quality of imported coal is also better than that of domestic coal. From the perspective of environmental protection, with the increasingly strict national environmental protection policy, many regions in China have put forward higher requirements for the use of clean energy. The content of harmful elements and ash in imported coal is less, which can reduce the pollution of the atmospheric environment during combustion. For example, the standard 5500 kcal bituminous coal shipped from the port of Newcastle, Australia, has a typical value of 0.8% for sulfur and 21% for ash. Indonesia's standard 3800 kcal coal, the typical value of sulfur is only 0.35%, and the typical value of ash is only 6.5%, which is better than the domestic coal index of China's northern production areas.
In addition, trace element indicators such as chloride ions also have greater advantages than domestic coal and are more in line with the requirements of the environmental protection department.
For the coking coal required for iron and steel metallurgy, the dependence on imports is even higher. Before the policy of restricting the import of Australian coal was introduced, imported coking coal accounted for about one-third of the total imported coal. In order to maintain the longevity and stable progress of large blast furnaces, it is not easy to make a substantial adjustment to the ratio of raw fuel.
For advanced large steel companies, the purchase of high-quality coke has almost become a just demand. Once the relatively inferior coke is used, there will be great challenges to the cost control of steel plants.
Therefore, although China's coal production can achieve self-sufficiency and the total amount of foreign imported coal is small, based on the impact of international coal prices and the characteristics of cheap and high quality of purchased coal, the impact of the international market on the domestic market is also very large, and China's right to speak on the pricing of the international coal market is not in its due position.
After the epidemic, due to the impact of international relations and epidemic closures, short-term coal prices are often subject to sudden events and soaring, in October last year, due to China's suspension of imports of Australian coal caused market panic, Dalian coking coal futures rose for the sixth consecutive trading day; in August this year, due to the outbreak of the epidemic in Mongolia, China closed the Ganqi Maodu port, and domestic coke futures rose and stopped.
The economy is like a spider's web, involving the whole body. When the price of upstream coal rises, the downstream industry will naturally be affected.
The downstream industries of China's coal industry mainly include electric power, steel, chemical industry and building materials, and the total coal consumption accounts for up to 90%. Among them, the power industry uses the most coal, accounting for about 54%, which is because China's thermal power generation accounts for 73%, and thermal power generation must consume a lot of coal; the steel industry accounts for about 17%, which is due to the consumption of a large amount of expensive coking coal in the steel smelting process; the chemical industry and building materials industry total 19%. Then when coal prices rise, the power and steel industries are the most affected.
Steel pricing has been marketized, even if the price of metallurgical coke rises, although the steel industry has pressure, it can also transfer the pressure through price increases. However, the price of electricity has been locked up by the state because it concerns thousands of households. If the price of coal is too high, it will raise the cost of coal power, and the power industry will face the risk of loss. The recent news that "the power plant once lost a dime" entered the public eye also reflects this phenomenon.
So is the current situation of "lack of electricity and curtailment" across the country due to the rapid rise in coal prices? The author does not think so, first of all, from the perspective of power generation in the first half of the year, even in the case of high coal prices, the power generation from January to June this year did not decrease but rose steadily, compared with the same period last year, there was even a growth rate of 13.7%. This shows that the cost pressure faced by the six major power generation groups has not reduced power generation, so this shows that it is not the "lack of electricity" problem caused by the reduction of power generation.
As a central enterprise, it is natural to bear certain social responsibilities, and even if there is a loss, it is necessary to ensure the supply of electricity. At the same time, as a member of the bureaucracy, if the technocrats of the power system cannot guarantee supply, they will not be able to guarantee the stability of the local area.
But it is worth noting that with the rise in coal prices, the willingness of power plants to replenish coal is not strong. This year, the coal inventory of China's key power plants has been lower than the same period in previous years, and this situation has not been alleviated in the near future.
There are news reports that the "lack of electricity and curtailment" is due to the "small wind year" in some areas, so according to the proportion of China's power generation structure above, coal power generation accounted for 73.00%; hydropower generation was 482.67 billion kWh, accounting for 12.47%; wind power generation was 281.92 billion kWh, accounting for 7.28%; nuclear power generation was 195.09 billion kWh, accounting for 5.04% Solar power generation was 85.820 billion kWh, accounting for 2.22%. From the above analysis, it can be seen that the proportion of wind power generation in total power generation is not high, and if there are so many regional power outages due to "small wind years", this statement is also worth verifying.
So what is the reason for the "blackout and power curtailment" in so many regions, the author believes that it may be due to the recent restrictions on "two highs" policies brought about by "carbon peaking" and "carbon neutrality". The "two highs" industry refers to the high pollution and high energy consumption industry, including six industries such as thermal power, petrochemical, chemical, iron and steel, non-ferrous metal smelting, and building materials. In order to achieve the "3060" goal of "carbon peaking" and "carbon neutrality", the development of the "two high" industries has been strictly restricted.
First of all, as a large emitter, the development of thermal power is strictly restricted. In the first half of 2021, the approved coal power projects fell by 78.8% year-on-year, and Xi Jinping also announced at the UN General Assembly that no new coal power projects would be built abroad. Not only the power industry, but also the steel and coal industries have imposed restrictions on new projects. This not only reflects the significant significance of the "double carbon" goal to guide investment decisions, but also reflects China's determination to take carbon reduction as the key strategic direction and realize the transformation of energy structure de-coal.
While restricting the "two highs" industry projects, the NDRC also inspected the dual control of energy consumption in various regions in the first half of the year, of which the energy consumption in Guangxi, Guangdong, Jiangsu, Zhejiang and other places did not drop but rose, in the context of the double carbon policy, local governments inevitably made "sports carbon reduction" related policies, which can also explain the recent "power cuts" and shutdowns in these areas.
At the same time, last month, the central inspection team also inspected the Jilin area and criticized the local energy consumption dual control work. After this round of inspections, there has been a large-scale phenomenon of so-called "orderly electricity consumption" in the northeast region, which also makes the author have to suspect that the phenomenon of "sports carbon reduction" has also appeared in the northeast region.
Despite the central government's directive to correct "campaign-style carbon reduction" and the state media are also criticizing local governments for "campaign-style carbon reduction" in order to complete emission reduction targets, this problem can hardly be corrected under China's current power operation model and assessment mechanism.
There is no doubt that the current series of economic policies will inevitably cause temporary fluctuations in China's economy. There will inevitably be contradictions between the promotion of the dual-carbon policy by the central government and the pursuit of economic development by the local government, and the transformation of the economy and energy structure will still take time, and it will inevitably experience some twists and turns.
Considering the big goal of environmental protection, the dual control of energy will continue, and the transformation of the energy structure will not be stopped because of temporary problems.
In the end, I only hope that China's economy in the transition period will embark on the road of high-quality development as soon as possible, and may ordinary Chinese live their happy and satisfactory days.