Nonferrous Metals Industry: how to interpret the situation of Russia and Ukraine

The rise of natural gas continues to raise the cost of overseas electricity, and the reduction of aluminum and zinc production in Europe continues.

As the conflict between Russia and Ukraine continues to ferment, energy prices represented by crude oil and natural gas have risen sharply. Among them, TTF benchmark Dutch natural gas rose to 122.9 EUR / MWh (data on March 1), returning to the high price range in the fourth quarter of 21 years. Driven by the cost, the electricity price in Europe has further risen to an all-time high recently. The electricity prices in Britain, Germany, France and the Netherlands have all risen to more than 300eur / MWh (data on March 4), among which the electricity prices in Germany and France are lower

At the end of 21 years, the growth rate reached 62% and 34% respectively

Based on the current electricity price of Germany and France (March 4), compared with the end of 2012, the power cost of electrolytic aluminum has further increased by more than 2000 and 1300 US dollars / ton (the power consumption per ton of aluminum is calculated as 13500kwh), and the aluminum plant is still in a state of loss; The cost of zinc smelting increases by more than 500 and 350 dollars / ton (the power consumption per ton of zinc is calculated as 3500kwh). European aluminum and zinc smelters continue to face greater smelting cost pressure, or lead to the postponement of production resumption of reduced production capacity, while causing more smelters to take action to reduce production.

Multi party sanctions may reduce the export of Russian copper, aluminum and other industrial metals.

European and American sanctions against Russia have been further increased, among which swift sanctions may form a certain restriction on Russian metal exports. Specifically, Russia exported 3.48 million tons of aluminum (primary aluminum and aluminum alloy) in 2021. In 2021, Russia exported 460000 tons of copper (refined copper and alloy). When the settlement system may be restricted, Russian aluminum exports may be disturbed in the short term, further affecting the global metal supply pattern.

In addition, hydro and Alcoa announced the suspension of cooperation with Rusal on March 2; At the same time, shipping logistics may further affect the flow of Russian metals. At present, LME inventories of copper and aluminum in Europe are at historical lows. Supply disturbance may further aggravate the spot tension under the low inventory level.

Overall, in the short term, the situation in Russia and Ukraine continues to be tense or leads to high energy prices. The cost pressure of high energy consuming metals such as aluminum and zinc is prominent and still faces certain pressure to reduce production; At the same time, the logistics impact caused by the superposition of direct sanctions against Russia by Europe, America and other countries and the tense situation may lead to restrictions on Russian metal exports, and the scale and structure of overseas metal supply may face great uncertainty in the short term. Before the situation in Russia and Ukraine eases, the prices of industrial metals represented by aluminum, zinc and copper are expected to remain high.

Investment suggestion: pay attention to upstream enterprises with resource advantages. It is suggested to pay attention to: Yunnan Aluminium Co.Ltd(000807) , Henan Shenhuo Coal&Power Co.Ltd(000933) , Yunnan Chihong Zinc & Germanium Co.Ltd(600497) , Shenzhen Zhongjin Lingnan Nonfemet Co.Ltd(000060)

Risk tips: changes in the situation in Russia and Ukraine; Significant changes in overseas energy prices; Downstream demand is lower than expected

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