The long story of commodity markets is still telling. After the crude oil price hit a seven-year high, aluminum futures did not let up, setting a new high of nearly 14 years in one fell swoop. It is reported that a number of international institutions are flocking to the aluminum market. In addition, the news of inventory contraction makes copper in the future ready to move. Will non-ferrous metals be the next outlet?
Analysts pointed out that from the current supply and demand situation, the tight supply situation in the aluminum market is difficult to alleviate in the short term, and the rising demand in the copper market has brought support to the price, so they are optimistic about the investment opportunities in the sector.
low inventory drives nonferrous metal market
Recently, the sharp rise of non-ferrous metals in the external market once led to the rise of China’s non-ferrous futures and stocks. In the intraday trading on February 10, the main contract of Lun aluminum futures reached as high as US $3333 / ton, a new high since July 2008. As of 15:00 on February 11, the contract has increased by more than 13% this year, closely following the increase of us WTI crude oil futures in the same period (an increase of more than 18%); At the same time, the main contract of tonglun futures also resumed its rise, breaking the $10000 mark on February 10.
Nonferrous assets in China’s market are moving at the sound of the wind. According to Wenhua financial data, as of the closing on February 11, all China’s non-ferrous metal futures closed up this week. Among them, Shanghai tin hit a record high in the week, Shanghai nickel led the rise with an increase of 5.08%, followed by Shanghai aluminum, up 3.28%. On the A-share market, the non-ferrous metal index showed signs of rebound recently. According to wind data, as of the closing on February 11, the non-ferrous metal index rose 7.53% for the whole week.
Similar to the reasons for the rise in crude oil, the supply side shortage has once again become the behind the scenes driver of the rise in commodities.
“The reason for stimulating copper prices to rise is the market’s concern about inventory tightening.” Jinyuan futures analysts said that taking copper as an example, the LME inventory report showed that the warehouse has had a regular warehouse receipt cancellation of 2500 tons per day for 12 days since mid January. This happened last October. The aluminum inventory registered by LME has dropped to about 760000 tons from about 2 million tons in March last year, the lowest level since 2007.
From the perspective of China, Citic Securities Company Limited(600030) metal analyst Ao Zhen said that since January 2022, the aluminum inventory in the previous period has continued to decline and there has been no accumulation in previous years. The social inventory of aluminum ingots increased by 140000 tons during the Spring Festival, which is smaller than that in previous years. Under the low inventory effect, China’s aluminum price has risen strongly since the beginning of the year.
supply side disturbance is the main cause
From a fundamental point of view, the disturbance at the supply end at home and abroad has become the main factor in the operation of copper and aluminum prices.
Xie Honghe, an analyst in the nonferrous metals industry, said that since the summer of 2021, the energy problem in Europe has become increasingly serious, and the energy shortage has led to the soaring electricity charges in Europe. The proportion of power cost in aluminum production cost has gradually increased, resulting in passive production reduction of European aluminum plants. According to Shanghai Aladdin Biochemical Technology Co.Ltd(688179) data, the annual capacity loss of electrolytic aluminum in Europe has exceeded 650000 tons since October 2021. With the gradual tension between Russia and Ukraine, it is difficult to alleviate the energy problem in the short term, or it will increase the possibility of production reduction and shutdown of European aluminum plants. The global electrolytic aluminum supply side is under further pressure.
In China, it is an indisputable fact that electrolytic aluminum production continues to be affected by the dual control policy of environmental protection. It is understood that at present, alumina enterprises in Shanxi, Shandong and Henan have reduced or stopped production to varying degrees. In addition, affected by the recent epidemic in Guangxi, the local alumina export was blocked. “During the Spring Festival, electrolytic aluminum plants mostly consume the inventory in the plant. At present, the alumina inventory in some electrolytic aluminum plants can maintain the production for about 7 to 10 days. The shortage of alumina supply and the slow resumption of electrolytic aluminum production may further support the rise of aluminum price.” Lei Huihua, a nonferrous metals industry analyst at Anxin securities, believes that in addition, with the rise of overseas aluminum prices, the closure of import windows will also exacerbate the tight supply situation in China’s aluminum market.
“Affected by environmental protection and other factors, Shanxi, Shandong, Henan and other provinces have reduced alumina production capacity by more than 15 million tons. Chinese electrolytic aluminum enterprises are facing the challenges of shortage of raw materials and rising costs.” Ao Zhen said that copper prices are currently affected by multiple factors such as tightening liquidity, fluctuations in the US dollar index and low inventories, and have shown a volatile trend since the beginning of the year; With the strong consumption after the Spring Festival, the low inventory effect is expected to catalyze the rise of copper prices.
optimistic about sector investment opportunities
Looking forward to the investment opportunities of nonferrous metals in the future, Lei Huihua analyzed that the overseas aluminum price remained high, and the import of electrolytic aluminum was lower than expected, resulting in the low inventory in China, while China’s supply recovered slowly, the raw material and energy costs supported the price of electrolytic aluminum remained strong, and he continued to be optimistic about the electrolytic aluminum company with cost advantage in the integration of raw material and energy processing.
“As the tight supply of electrolytic aluminum may continue, the aluminum price is expected to remain high. It is expected that the tight supply and demand situation will continue in 2022, and the aluminum price may continue to be high in 2021.” Xie Honghe said.
Ao Zhen said that it is expected that the supply side disturbance of aluminum will not be alleviated in the short term, the demand side will pick up under the background of good export and steady growth, and the rise of aluminum price is expected to continue. Under the low inventory effect, the copper price is expected to regain its rise with the expected landing of phased monetary regulation, and the upward breakthrough of the price is expected to drive the sector to rebound. Recommend the elastic target of electrolytic aluminum price increase and the copper mine target with growth.
