The effect of multiple factors on the differentiation of non-ferrous metals is becoming more and more obvious.

Recently, there has been a general rise in non-ferrous metals, and the price of nickel has reached an all-time high. What are the factors that ignite the "fire in winter" in the non-ferrous market? Will the rally continue in the later period? How do enterprises achieve stable operation under the background of rising raw material prices? In this regard, the Futures Daily reporter interviewed people in relevant industries and listened to them answer their doubts one by one.

Global inventories are generally low

A reporter from the Futures Daily learned in an interview that non-ferrous varieties have generally risen recently, on the one hand, because positive signals at the macro level have once again boosted market expectations for terminal demand; on the other hand, because various varieties have appeared varying degrees of interference on the supply side.

In 2021, the global economy continued to recover, and the economies of China, Europe and the United States maintained rapid growth. The demand for industrial raw materials in major economies is relatively strong. As an important industrial commodity, non-ferrous metals are periodically in short supply of copper, aluminum and other raw materials. Various varieties of non-ferrous plates continued to rise in the first half of the year, and declined in the second half of the year as policy regulation and the contradiction between supply and demand eased.

"most of the inventories of non-ferrous varieties have continued to fall back to historically low positions since last year, mainly because consumption took the lead in recovering after the epidemic, which led to a phased mismatch between supply and demand, and the industry entered a replenishment cycle, which in turn brought about a general low inventory in the industry. At present, the energy shortage in Europe has led to a continuous reduction in production in European smelters, while the recent overall demand resilience of non-ferrous metals is more obvious, there is stock and replenishment demand before the festival, and non-ferrous metal inventories still decline to varying degrees. " Hu Pan, a non-ferrous researcher at Haitong Futures, said.

It is worth noting that LME copper inventories have recovered strongly due to overseas demand, and refined copper production has been reduced due to the epidemic, resulting in a continuous decline in inventories. Domestic copper stocks have continued to decline since May last year, mainly because domestic smelters have entered the maintenance period since May, resulting in a decline in production due to superimposed power limitations. in addition, the tight supply of scrap copper has led to a narrowing of the price gap between refined copper and refined copper, which is also conducive to the elimination of domestic stocks. Approaching the Spring Festival, entering the off-season, inventories show performance to stop falling.

The reporter found that in terms of electrolytic aluminum, LME aluminum as a whole was in a state of continuous de-stocking last year, and there was no obvious accumulation in the traditional off-season in July and August, mainly because of the resilience of demand, at the same time, rainstorm, epidemic and other factors affected the early arrival of aluminum ingots. After September, the restraining effect of persistently high aluminum prices on the downstream began to be reflected, and power cuts also began to affect downstream construction. It further suppresses consumption, and social inventory continues to accumulate. Since December last year, electrolytic aluminum inventory has fallen from the previous high of more than one million tons to the current level of 724000 tons, mainly because as aluminum prices have stabilized and downstream sentiment has improved, aluminum ingots and bars have been released from the warehouse continuously well. At the same time, the transportation of some aluminum ingots has been held up in the domestic epidemic, and the goods have not arrived. Social inventory has gradually fallen back from the phased high to the low position again.

Hu Pan said that the domestic social inventory of zinc has continued to decline since the second quarter of last year, and the global explicit inventory is now at its lowest level in nearly a decade. As of January 14, the total inventory of SMM zinc ingots in Seven places was 123100 tons, which continued to drop by 2400 tons compared with last Friday. Among them, the supply of domestic zinc on the way in Shanghai will be put into storage next week, and there is a certain demand for inventory before the downstream festival, and the inventory continues to decline.

The global explicit inventory of nickel has continued to decline to 100000 tons from 260000 tons in May 2021, which is mainly used to make up for the gap in the new energy industry chain. At the same time, the domestic nickel social inventory has also dropped from 26000 tons to less than 10,000 tons, and the demand of the alloy and electroplating industry has moved up to drive the nickel plate to the warehouse.

In fact, due to the overall shortage of tin ingots in 2021, global supply and demand showed that the total tin inventory of LME and the previous period was less than 2000 tons during the year. Although the current inventory has rebounded, it is still at a historically low level.

Hu Pan believes that the overall low inventory of non-ferrous metals is mainly affected by the epidemic. Due to the continued prevention and control of the global epidemic, mine output has been affected to a certain extent, most obviously the production of non-ferrous metals in Southeast Asia has been affected. In addition, the epidemic also brought about overall poor global logistics and frequent disturbances, coupled with the global labor shortage, rising labor costs, unstable shipping conditions and other factors, which began to be reflected in inventory data in the first half of last year.

In fact, since the second half of last year, the market has focused on the supply of non-ferrous sectors. Since the second quarter of last year, natural gas prices in Europe have skyrocketed, global energy shortages and high prices have intensified, and Europe has become the focus of the energy crisis. The shortage of natural gas, coal and electricity spread to the non-ferrous sector. The European energy crisis triggered production reduction and overhaul of large European zinc smelters in October last year, and the impact further increased at the end of the year, and the affected areas expanded from the zinc industry to the two major industries of zinc and aluminum. the production of Europe's largest zinc and aluminum smelters has been greatly affected, and energy problems have caused tension in the overall mood of non-ferrous metals.

Supply interference factors vary

The current inventory of non-ferrous metals is generally low, what is the current situation on the supply side?

Hou Yahui, a senior analyst at Shenyin Wanguo Futures, told reporters that the interference factors at the supply side of non-ferrous metals are different. Since the beginning of 2021, the global economy has continued to recover, and the periodic shortage of energy has become a global problem. In overseas markets, the natural gas energy crisis in Europe is constantly simmering. On the one hand, the local natural gas supply in Europe declined during the year; on the other hand, due to geopolitical influence, Russia's natural gas supply to Western Europe continued to decrease, making European natural gas imports significantly lower than in previous years. In the third quarter, overseas natural gas prices continuously set new record highs. ICE natural gas prices rose by more than 7 times this year, and the electricity cost of metal smelting in Europe soared, causing many large European smelters to announce a reduction in the output of industrial products such as aluminum and zinc, and overseas production cuts had a greater impact on the non-ferrous metals market.

"at present, the interference on the copper supply side has subsided compared with the previous period. In 2022, the long single benchmark has been settled at 65 US dollars, and the spot TC has also maintained an oscillatory rise, always maintaining the level above 60 US dollars, and the supply of copper concentrate tends to be relaxed. In terms of production, China's refined copper production increased by 5.38% month-on-month in December last year to 870000 tons, exceeding market expectations and reaching the highest level since the second half of last year, mainly because the smelter overhaul is basically coming to an end. From the refinery plan, it is expected to remain high in January. " Hu Pan said.

According to Hu, the supply side of aluminum and zinc is mainly disturbed by the energy shortage in Europe. The European energy crisis is mainly due to the escalation of the geopolitical game between Europe and Russia, the two sides cannot reach an agreement on the Nord Stream 2 pipeline project, and Russia has cut off the supply of natural gas to Europe, which has aggravated the problem of energy shortage in Europe. at the same time, the extreme cold weather also makes the supply of alternative energy insufficient. Zinc and aluminum are high energy-consuming industries, and the upward price of electricity has a great impact on their production costs.

In fact, the market is still concerned about the low inventory of natural gas in Germany, and there are still hidden dangers in electricity prices in Europe. If the problem of high electricity prices continues unabated, the global supply of primary aluminum and zinc will still face the risk of further contraction, requiring continued attention to the impact of geopolitical problems between Russia and European countries on energy prices.

The reporter found that the aluminum supply side of Yunnan, Inner Mongolia and other places continue to slowly resume production, and at present, Yunnan's production capacity has recovered to about 300000 tons. At the same time, with the recovery of smelting profits and the marginal relaxation of the "double carbon" policy, the scope of resumption of production has been gradually expanded to Shanxi, Guangxi and other places, with operating capacity continuing to rise slightly. By the beginning of January 2022, the operating capacity of domestic electrolytic aluminum was 37.695 million tons, and the completed capacity was 43.774 million tons. The operating rate of national electrolytic aluminum enterprises was 86.1%, and the production capacity was expected to increase slightly in January. With regard to zinc, at present, except for enterprises that have reduced and stopped production due to environmental protection factors, there are smelters that have controlled production due to mine pressure, and at the same time, some smelters in Hunan have been overhauled beyond the usual time. China's refined zinc output reached 513300 tons in December last year, and the refined zinc output in January is expected to be 513400 tons, which is much lower than the previous expectation. The main increment is the re-production of Wenshan zinc indium after overhaul. And the production increase of Gansu Refinery.

In the context of global carbon reduction, Europe actively uses natural gas instead of coal, and natural gas accounts for a large proportion in the European power structure, while new energy power generation is difficult to make up for the power gap in the short term, and French nuclear power generation is also declining because of strikes and other factors. As a result, the surge in natural gas prices has also led to a surge in electricity prices in Europe. "before the end of winter, natural gas prices in Europe are expected to rise and fall easily. Power shortages and high electricity charges will continue to disrupt the supply of non-ferrous metal smelters in Europe, and will also support prices such as zinc and aluminum to maintain a strong trend." Hou Yahui said.

Hu Pan told reporters that from the point of view of nickel supply, the mine end is still tight at present. Indonesia's nickel mine FOB prices rose in January, and some nickel and iron plants have maintenance plans from January to February. At the same time, Southeast Asia has entered the rainy season, and seasonal factors also have a certain impact on production. Meanwhile, Indonesian officials said on January 13th that the government may start imposing export duties on ferronickel and nickel pig iron in 2022. If the price of nickel is more than $15000 per tonne, a tax of 2 per cent, or $300 per tonne, may be levied, and the tax will increase in direct proportion to the price of nickel. In 2021, China imported about 3076389 physical tons of ferronickel (including nickel pig iron) from Indonesia, accounting for 24% of the total supply of ferronickel in China. The Indonesian government is considering imposing tariffs, which once again triggered market expectations of a reduction in supply. But in the medium term, Indonesia since December last year, Delong Phase II, Phase III put into production a total of 5 production lines, a total of 3, 000 tons of nickel metal NPI, Indonesia capacity continued to release. With the recovery of Russian nickel and Vale capacity and the release of Indonesian NPI capacity, long-term nickel supply concerns are low.

In addition, in terms of tin supply, the ore end is mainly affected by the epidemic in Myanmar. From November to December last year, the import port was completely closed, affecting the import of about 4000 metal tons of tin ore, which had a greater impact on the domestic ore supply. At present, ore imports have basically recovered, and the tension of domestic ore supply has been alleviated. Since January, the resumption of Burmese mine imports has been conducive to the increase in the operating rate of smelters in Yunnan, and the resumption of production in Kaimeng has also supplemented a certain amount of tin ingot supply, but in view of the approaching Spring Festival, smelters in Yunnan, Guangxi and other places have gradually entered the stage of holiday and production reduction, so the supply in January will still be slightly lower than the previous month.

In the view of the above interviewees, in the short term, zinc smelters in overseas developed countries are heavily dependent on electricity, and the problem of rising power costs caused by the European natural gas energy crisis may be difficult to solve quickly, and the interference from the supply side of zinc and lead in Europe will continue.

The expectation of accumulation in the off-season is expected to appear.

"since December last year, the overall demand for non-ferrous metals is more resilient, but as the Spring Festival approaches, the replenishment of non-ferrous metals is gradually coming to an end, and the overall demand will face seasonal weakening. However, the demand for varieties closely related to real estate and infrastructure is expected to be optimistic, mainly because the National standing Committee proposes to speed up the implementation of major projects and implement special debt funds to specific projects as soon as possible, as well as positive signals such as the Ministry of Housing and Construction to expand the supply of indemnificatory rental housing, which has once again boosted the market's expectations for terminal demand, which is expected to be completed after the beginning of spring and infrastructure demand is still resilient. In addition, varieties involved in the field of new energy, such as nickel, copper, tin and so on, are also expected. On the whole, the non-ferrous demand presents the situation of weak reality and strong expectation. " Hu Pan said.

Copper consumption in overseas markets has improved significantly in 2021, and copper consumption in China is also relatively strong. Affected by the epidemic in South America, the output of copper mines recovered slowly in the early stage and increased rapidly in the second half of the year. "the new production capacity of domestic copper smelting in 2021 is limited, and the new production capacity of 400000 tons of non-ferrous metals in Daye will be postponed to 2022, the copper concentrate may maintain a high growth rate in 2022, the domestic smelting capacity will expand by more than 800000 tons, and the production of refined copper is expected to maintain high growth. or to some extent ease the low-level pressure on global copper inventories." Hou Yahui said.

"at present, the copper consumption structure has been divided, of which air conditioning exports, photovoltaic and other maintain a relatively high bearing, but real estate orders have not yet significantly improved." Hu Pan said that at present, the operating rate of refined copper rod enterprises remains low. In addition, orders in hand this year are not as good as last year, and some copper rod and cable enterprises will have a holiday around mid-January, and stock may come to an end before the end of the year.

The reporter learned in the interview that at present, the pressure on the aluminum consumer side is gradually emerging, the start of profile construction continues to decline, aluminum ingots and bars are slowing out of the warehouse, aluminum bars have entered an obvious accumulation cycle, at the same time, processing fees continue to decline, and the traditional off-season of pre-festival consumption gradually appears.

In addition, the recent intensive landing of infrastructure projects, zinc demand is expected to improve, but the short-term epidemic in Tianjin has some disturbance to the demand. During the week, galvanized pipe orders rose continuously with steel prices, and enterprise sales orders improved, leading to a decline in finished product inventory, but the epidemic in Tianjin led to a two-day suspension of production in Tianjin, and an increase in the number of employees returning home near the Spring Festival holidays. it is more difficult for enterprises to improve their work, and the mood of preparing stocks before the terminal festival is not as good as in previous years.

"at present, the lower reaches of Xi City is not very receptive to the rising quotation of nickel sulfate, and the upside-down profits of nickel sulfate enterprises put pressure on the price of nickel. The output of stainless steel is relatively low, and the production schedule is declining, but there is still a demand for pre-festival replenishment. Fundamental support is still there, while there are expectations of stronger consumption of new energy vehicles and stainless steel after the festival. " Hu Pan said.

The above-mentioned people believe that the operating rate of solder enterprises in the main areas downstream of tin is relatively stable. In December last year, the operating rate of domestic tin solder enterprises was 88.36%, an increase of 6.33 percentage points over November. At the same time, due to the low raw material inventory of enterprises in the early stage, the demand for stock before the year has driven short-term consumption. As the holiday is approaching, the consumption of holidays downstream will gradually weaken. After the continuous surge in tin prices, it is expected that the downstream market will gradually enter a wait-and-see period. It is expected that the capacity utilization rate of solder enterprises will fall back to 77.5% due to seasonal effects in January. In the medium to long term, with the support of policies such as a large photovoltaic base, the prospect of new photovoltaic installations in the next three years will optimistically drive tin demand.

"at present, the price of tin is at an all-time high again, and the price is absolutely high, while the capacity of tin smelting is mainly restricted by the shortage of concentrates. Recently, tin smelters in Yunnan, Guangxi and other places cut production during the January holiday. Myanmar's imports of tin concentrate are expected to increase after the Spring Festival, and domestic refined tin production will resume again. In the context of the continuous prosperity of consumer demand downstream, it is expected that Xi City will maintain the state of going to the warehouse after the Spring Festival, supporting the strong operation of prices. " Hou Yahui said.

Hou Yahui believes that the first quarter belongs to the off-season of traditional consumption of non-ferrous metals. During the Spring Festival holiday, because non-ferrous smelting enterprises maintain continuous production, while downstream processing and terminal enterprises will have holiday arrangements. Therefore, there is an obvious expectation of accumulation of most kinds of non-ferrous metals before and after the Spring Festival. Copper, aluminum and zinc in non-ferrous metals are closely related to real estate, infrastructure and other industries, which generally have obvious off-season characteristics of consumption from January, and the expectation of accumulation during the Spring Festival holiday is also relatively strong. However, the off-season of nickel market is not obvious, and the inventory before and after the Spring Festival generally does not show obvious seasonal change. at present, the main contradiction between nickel supply and demand lies in the tight supply of nickel sulfate raw materials, the demand for new energy downstream boosts the demand for electrolytic nickel, and there is little room for nickel inventory accumulation. Tin current internal and external inventory levels are historically low, coupled with domestic smelters early inspection and shutdown arrangements, the current spot market supply tends to be tight, the Spring Festival seasonal accumulation this year may not be as expected.

Skillfully use Futures to avoid risk

"the trend of non-ferrous metals will show some differentiation at the beginning of this year, as the substantial shortage of supply is obvious and persistent, aluminum, zinc and tin are strong, while the price of copper, which is highly sensitive to the macro economy, continues to be disturbed by the disorderly US dollar. In the later stage, with the gradual start of the peak consumption season, the overall trend of non-ferrous metals will tend to be consistent. " Fan Rui, a non-ferrous metals analyst at Guoyuan Futures, said that since the beginning of 2022, the tight supply has clearly supported the price of the non-ferrous sector and promoted the strong performance of non-ferrous metals at the beginning of the year, but there are obvious signs of weakening the upward momentum. Due to the high risk of overseas markets during the Spring Festival holiday, the increasing disturbance of the US dollar to the market, terminal demand is mostly in the traditional off-season, spot demand and price support is insufficient, so it is not recommended to pursue too much.

However, Hou Yahui believes that at present, under the background of the seasonal off-season of consumption in the lower reaches of the Spring Festival holiday, the accumulation of most stocks of non-ferrous metals is expected to rise gradually. Non-ferrous prices after the early supply-side speculation, the stage rebounded higher and then fell again, it is expected that the upper space is relatively limited, the overall or showing a wide range of fluctuations.

At present, the non-ferrous market is full of spring. When facing the post-holiday purchasing demand, how should downstream enterprises flexibly use futures and option derivatives to manage the risk of raw material prices?

"processing enterprises downstream of non-ferrous metals, because they need to purchase raw materials for production after the Spring Festival, if they are worried about rising prices, they can take bargain-hunting to establish virtual long inventory in the futures market. Or use over-the-counter options to buy a virtual call option, which can avoid the adverse effects of falling prices while avoiding the risk of rising prices, but this separate approach also has some limitations. " Hou Yahui said.

A relevant person from the Futures Department of a domestic aluminum ingot enterprise told the reporter that if the enterprise expects a large probability of price fluctuation before and after the Spring Festival holiday, then non-ferrous metal processing enterprises with purchasing demand can adopt the method of "basis price weighted trade" to avoid the risk of market price fluctuation.

Hou Yahui said that if the downstream aluminum ingot processing enterprise, in order to lock in the raw material price cost range before and after the Spring Festival and avoid the risk of rising aluminum prices, traders can buy one-month call options from futures risk subsidiaries, considering that the royalties for buying call options alone are higher, which can be matched with a put option to reduce the royalty. At the same time, if customers are willing to buy a lot of aluminum ingots when the price is low, they can buy a call option with multiple put options, and the call option can also be designed as a hit-and-knock structure. at the same time, the product is designed as an option contract for daily observation. Aluminum ingot purchasing enterprises can gradually establish long positions before and after the Spring Festival according to market changes in order to achieve the purpose of purchasing in batches at low prices. The cumulative options of this kind of combination can help clients manage futures price fluctuations and lock in the basis risk at the same time, and can enjoy relatively preferential royalties. Therefore, the cumulative option structure is widely used in weighted trade.

The reporter found in the interview that if the enterprise needs to further manage the basis risk when purchasing aluminum ingots, the enterprise can sign a basis procurement contract with the spot trade team of risk subsidiaries for the coming month during the implementation of cumulative options. choose to purchase a certain amount of spot aluminum ingots with a fixed basis. Cumulative option trading and fixed basis trade contracts are integrated into a new type of help enterprises to purchase spot goods according to a certain price range, avoid the risk of price fluctuations, and help enterprises to make post-holiday production plans in advance.

"We are mainly for the group's air-conditioning enterprises to do the corresponding hedging, combined with the needs of enterprises, to develop relevant hedging programs. Instead of letting copper prices stop boiling, it is better for enterprises to take a strategy to deal with the rise in prices. " A person from the futures department of a trading company under a domestic air-conditioning enterprise told the reporter.

The above-mentioned people believe that the model of "basis price weighted trade" is a new trade model that combines futures derivatives into spot trade, converting options and option combinations into spot pricing, which is reflected in spot purchase and sale contracts to help enterprises achieve price risk management. The hedging means of entity enterprises have gradually evolved from simple base difference price, futures trading and over-the-counter options to a more mature weighted trade model, which is the result of the joint exploration of futures risk management subsidiaries and entity enterprises. it provides a reference for the development of richer hedging models in the futures and derivatives market.