The influence of Energy consumption "double Control" Policy on Commodities

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On August 17, the National Development and Reform Commission issued a barometer on the completion of double control targets for energy consumption in various regions in the first half of 2021. In terms of the reduction of energy consumption intensity, in the first half of this year, the energy consumption intensity of 9 provinces (regions) in Qinghai, Ningxia, Guangxi, Guangdong, Fujian, Xinjiang, Yunnan, Shaanxi and Jiangsu increased rather than decreased compared with the same period last year, and the reduction rate of energy consumption intensity in 10 provinces did not meet the schedule requirements. The national energy conservation situation is very grim. The document requires that nine provinces (regions) whose energy consumption intensity is not falling but rising, and that prefectures, cities and states under their jurisdiction will suspend energy conservation reviews of "two high" projects other than major projects planned by the state this year, and urge all localities to take effective measures to ensure the achievement of the annual energy consumption double control target, especially the task of reducing energy intensity.

I. the policy of "double control" of total energy consumption and intensity

(1) introduction to the concept

The double control system of energy consumption, that is, the dual control system of total energy consumption and intensity, sets the total energy consumption and intensity control targets according to the administrative areas of provinces, autonomous regions and municipalities directly under the Central Government, and supervises and examines local governments at all levels. Bring energy-saving indicators into the performance evaluation index system such as ecological civilization and green development, and guide the transformation of the concept of development. Decompose energy consumption double control targets for key energy use units, carry out target responsibility evaluation and assessment, and promote key energy use units to strengthen energy conservation management. The Fifth Plenary session of the 18th CPC Central Committee proposed to implement the "double control" action of total energy consumption and intensity. With the landing of the "double carbon" strategy, the "double control" policy has become an important starting point for energy conservation and emission reduction, and the effectiveness of the policy has been strengthened day by day.

(2) early warning mechanism

The National Development and Reform Commission implements the "red, yellow and green" light early warning mechanism for the "double control" of energy consumption in all provinces, municipalities and autonomous regions. The details are as follows:

The red light is a first-level warning, indicating that the situation is very serious, which refers to the areas where the double control progress target has not been achieved, and the gap between the actual value and the target value is greater than 10% of the target value.

The yellow light is a second-level warning, indicating that the situation is grim, which refers to areas where the double control progress target has not been achieved and the gap between the actual value and the target value is less than 10%.

The green light is a three-level warning, indicating that the dual-control progress target has been achieved, indicating that the overall progress is smooth.

(3) after early warning, the local government will take substantive measures.

The "double control" mechanism of energy consumption is a strict environmental regulation policy. Looking back in history, we can see that once there is an early warning of the local performance assessment, the region will certainly use administrative means to control it and strive to achieve the annual goal. We believe that the trigger mechanism of "early warning-rectification-reaching standards" is strengthened with the continuous strengthening of the concept of "ecological civilization" and the goal of "double carbon".

On February 7, 2021, the National Development and Reform Commission released the assessment results of the total energy consumption and intensity double control targets of various regions in 2019. The announcement criticized the Inner Mongolia Autonomous region (the only one) for not completing the dual control task. The Inner Mongolia government immediately held a press conference on February 10 in Inner Mongolia to first set the goal of reducing energy consumption per unit of GDP by 3% in 2021 and controlling the increase in energy consumption within 500 tons of standard coal, and said that it would formulate a "package" policy system. On March 9, Inner Mongolia issued a number of safeguard measures to ensure the completion of the dual energy consumption control targets of the 14th five-year Plan, clearly requiring: 1) to control the industrial scale of high energy-consuming industries; 2) to improve access standards; 3) to speed up the elimination of backward production capacity and other measures (see chart 1 for details).

Judging from the details of the dual control policy in Inner Mongolia, the focus of regulation covers a variety of commodities. Some of them are listed on the futures market, such as ferroalloy, electrolytic aluminum, PVC, ethylene glycol, soda ash and coke, while others are related to the listed varieties, such as calcium carbide, thermal power and so on. By controlling the scale and suppressing production capacity, the supply of related varieties is bound to be gradually reduced.

Obviously, Inner Mongolia, as an important commodity producing area in the country, its strict production capacity control has enhanced the rigidity of product supply and played a certain role in promoting the rise of the commodity market in the first half of the year. At present, with the sustained economic recovery and strong demand, many commodities are in tight balance or even in short supply. Under the high pressure of energy consumption control, local governments attach great importance to green development and energy consumption assessment. In this way, the provinces with poor performance evaluation of double control in the first half of the year are likely to be like Inner Mongolia, and the most effective way in the short term is to take measures to limit production. This feedback mechanism will be further transmitted to commodity markets, strengthening expectations of tight supply.

Coincidentally, some provinces that were warned on August 17 immediately declared their position on "dual control." Guangxi Province has issued new double control measures, requiring that from September, high energy-consuming enterprises such as electrolytic aluminum, alumina, iron and steel, cement and so on will be subject to production restrictions, and clear standards for production reduction have been given. Xinjiang, Ningxia and other autonomous regions that have been warned have also made rectification and reform arrangements. These measures will have a significant impact on products in the second half of the year.

Second, which commodities are affected by the double control of energy consumption

(1) the energy consumption intensity of the nine provinces increased instead of decreasing in the first half of the year.

The General Office of the National Development and Reform Commission issued a barometer on the completion of energy consumption double control targets in various regions in the first half of 2021 on August 17, which pointed out that in terms of reducing energy consumption intensity, the energy consumption intensity of Qinghai, Ningxia, Guangxi, Guangdong, Fujian, Xinjiang, Yunnan, Shaanxi and Jiangsu provinces (regions) increased instead of decreasing in the first half of the year, which was a first-level early warning. In terms of total energy consumption control, eight provinces (regions) of Qinghai, Ningxia, Guangxi, Guangdong, Fujian, Yunnan, Jiangsu and Hubei are first-level early warning.

It is concluded that Qinghai, Ningxia, Guangxi, Guangdong, Fujian, Yunnan and Jiangsu provinces are the two first-level early warning provinces for the reduction of energy consumption intensity and the total energy consumption. Xinjiang and Shaanxi have made great progress in controlling the total energy consumption, but the growth rate of GDP has been greatly dragged down due to the problems of economic structure in the province, and the reduction of energy consumption intensity has not reached the standard. Hubei is the first-level early warning for the control of total energy consumption, probably because Hubei Province has been most affected by the epidemic, and its desire to restore the economy is more urgent, as can be seen from Hubei's GDP growth rate of 28.4% in the first half of 2021, so it launched more projects that had been shelved because of the epidemic in the first half of 2021, resulting in total energy consumption below the standard.

The NDRC pointed out that the energy conservation review of the "two high" projects will be suspended in 2021 for the provinces (regions) where the energy consumption intensity is reduced to the first level, that is, Qinghai, Ningxia, Guangxi, Guangdong, Fujian, Xinjiang, Yunnan, Shaanxi and Jiangsu provinces. For the provinces (regions) with early warning of total energy consumption, the NDRC has not taken measures, which means that reducing energy intensity is a more urgent task at this stage. By combing the production capacity ratio of the main industrial products in these nine provinces, it can be found that non-ferrous metals, ferroalloy, PVC and soda ash will be greatly affected. According to the order of production capacity proportion of these nine provinces, the order of influence is as follows: ferroalloy > non-ferrous alloy > soda ash > PVC > rebar.

(2) which provinces (regions) should be concerned about in the future

In addition to the nine provinces (regions) that fail to meet the standards listed in half a year, the provinces (regions) with the marginal deterioration of the completion of dual control goals are also worthy of attention. By combing the barometer of the completion of energy consumption double control targets in various regions in the first quarter and half a year, it can be concluded that Fujian and Shaanxi have changed from second-level early warning to first-level early warning in terms of energy intensity reduction; in terms of total energy consumption, Fujian, Qinghai and Ningxia have changed from second-level early warning to first-level early warning, while Xinjiang, Shaanxi and Sichuan have changed from second-level early warning to second-level early warning. The possible reason is that there are many production projects in these six provinces in the second quarter, and it is expected that the subsequent production capacity will slow down under the semi-annual warning.

(3) which commodities are affected by the dual control policy

The dual control policy is mainly aimed at high energy consumption industries, and there are mainly six types of high energy consumption industries that need to be paid attention to. they are: chemical raw materials and chemical products manufacturing, ferrous metal smelting and Calendering processing industry, non-ferrous metal smelting and Calendering processing industry, non-metallic mineral products industry, petroleum processing, coking and nuclear fuel processing industry, electric power production and supply industry. Corresponding to the listed futures, there are soda ash, PVC, rebar, ferroalloy, non-ferrous metals, glass, coke and so on. We summarize the regional distribution of production capacity of the above futures.

As for the double control of energy consumption, the document issued by Inner Mongolia in February 2021 is of great reference to us. It points out six measures: (1) to improve the access standards for new projects; (2) to increase efforts to reduce excess capacity; (3) to implement total energy consumption control for some high energy-consuming industries; (4) to speed up the pace of energy-saving technology transformation; (5) to adjust the current electricity market trading policy; (6) to clean up and rectify the construction of high energy-consuming projects without approval. To sum up, it is to review and control the stock of high energy-consuming projects, shut down those stocks that do not meet the energy consumption requirements, and raise the approval threshold for newly increased energy-consuming projects, so it is difficult to land high-energy-consuming projects in a short period of time.

Third, the specific impact of double control of energy consumption on commodities.

After the publication of the barometer on the completion of double control targets for energy consumption in various regions in the first half of 2021 on August 17, due to the relatively high production capacity of ferroalloys and non-ferrous metals in the nine provinces, ferroalloys and non-ferrous metals rose significantly stronger than other varieties on the same day and in the later period. Although rebar and PVC fell on the same day due to the domestic economic downturn, they quickly returned to the upward trend within a week, generally benefiting from the supply-side suppression of energy consumption.

Reviewing the trend of non-ferrous metals and other industrial products after the NDRC announced the results of dual energy consumption control in February and June this year, it is found that most industrial products still tend to rise. Overall, the dual control of energy consumption will suppress the supply side of some industrial products, which will help their prices to rise. However, in the actual situation, varieties will also differentiate in price due to their different fundamentals. For example, for the varieties of aluminum and zinc which are limited by electricity and production, the double control of energy consumption will undoubtedly add fuel to the fire, and the impact will be greater. We focus on the analysis of electrolytic aluminum and ferroalloys which are greatly affected.

(1) Aluminum: double control of energy consumption adds fuel to the fire, and aluminum prices are easy to rise but difficult to fall.

The impact of dual energy consumption control on the supply end of electrolytic aluminum is undoubtedly "adding fuel to the fire". After the supply-side reform in 2016-2017, the ceiling of electrolytic aluminum production capacity has been set at about 45.538 million tons, which means that the new electrolytic aluminum production capacity will be limited. With the promotion of carbon neutralization, enterprises with large carbon emissions will be more severely regulated. From the double control of Inner Mongolia at the beginning of the year to the occurrence of power and production restrictions in Guangxi and Yunnan, and recently Changji in Xinjiang had to limit the production of electrolytic aluminum plants due to double control of energy consumption, so it is difficult for the new production capacity of electrolytic aluminum to fall to the ground.

The supply side is still the main contradiction of aluminum price at this stage. The output of electrolytic aluminum decreased slightly in July compared with the previous month, and the output of electrolytic aluminum in August is not optimistic. Changji in Xinjiang requires that the total monthly output of five enterprises in the region should not exceed 238000 tons. Guangxi requires that the output of electrolytic aluminum in September should not exceed 80% of the average monthly output in the first half of 2021. Strict double control of energy consumption aggravates the tension at the supply side of electrolytic aluminum. In the early stage, electrolytic aluminum plants in Inner Mongolia, Henan, Guizhou and other places have reduced production one after another, and it is expected that local power production restrictions will continue to have an impact on the supply side. On the consumer side, domestic and foreign electrolytic aluminum consumption shows strong toughness, the current electrolytic aluminum inventory has dropped to less than 750000 tons, terminal consumption shows strong toughness, it is expected that the follow-up inventory will continue to decline. Generally speaking, the supply end of electrolytic aluminum is continuously impacted, while the downstream consumption toughness is strong. The nine provinces named this time account for a relatively high proportion of electrolytic aluminum production capacity, and there is greater pressure on energy consumption control in the second half of the year, which is expected to help electrolytic aluminum prices rise further.

(2) Ferroalloy: the "double control" of local energy consumption is upgraded, and the supply will be tightened again.

Guangxi and Ningxia, as the main producing areas of ferroalloys, will tighten the supply again by limiting production and electricity. Since the National Development and Reform Commission announced the early warning of "double control" of energy consumption, Guangxi and Ningxia have issued energy consumption "double control" programs one after another. Guangxi requires that the output of allowable enterprises in September should not exceed 50% of the average monthly output in the first half of the year, while Ningxia will step up peak production, saying that it is necessary to reverse the situation of poor energy consumption control. The production capacity of manganese and silicon in Guangxi and Ningxia accounts for 31% of the country's total. Under the pressure of the first-level early warning of "double control" in energy consumption, it is expected that the supply side of manganese and silicon will continue to tighten in the second half of the year, forming a strong support for prices. In terms of ferrosilicon, the three energy consumption "double control" first-level early warning areas of Ningxia, Qinghai and Shaanxi account for 61% of the country's ferrosilicon production capacity. With the same logic as above, the price support brought by the supply side in the second half of the year is also worthy of continuous attention.