One of the impacts of the conflict between Russia and Ukraine on the non-ferrous metal market – sanctions against Russian metal producers
Russia is an important metal producer in the world. Russia’s nickel production accounts for 5.6% of the global output and 7.2% of the output outside China; Russia’s electrolytic aluminum production accounts for 5.8% of the global output and 13.5% of the output outside China; Russia’s copper concentrate production accounts for 4.1% of the global output and 4.4% of the output outside China. Rusal is the largest producer of primary aluminum abroad, with an electrolytic aluminum production capacity of 4 million tons. In 2021, the output of electrolytic aluminum was 3.76 million tons, accounting for 5.8% of the world and 13.5% of the output outside China. Resuming the US sanctions against Rusal in 2018, the sanctions were targeted and the sanctions were severe. At present, the European and American sanctions against Russia caused by the conflict between Russia and Ukraine have not been directly targeted at Rusal. At present, Rusal aluminum ingots are in normal trade circulation, and the purchase of raw materials has not been heard to be affected. Therefore, the business is far less affected than the sanctions in 2018. However, the recent increase in European and American sanctions against Russia may further affect Russian Aluminum production and operation. On March 20, Australia said it would stop exporting alumina and bauxite to Russia from now on. Rusal announced that the company is currently assessing the impact of the above events. According to Shanghai Ganglian E-Commerce Holdings Co.Ltd(300226) data, Russia imported 138 tons of alumina from Australia in 2020, accounting for 30% of alumina imports. In 2021, Australia shipped 1.4 million tons of alumina to Russia. We believe that the closure of Rusal’s alumina plant in Ukraine and the disturbance of global alumina trade flow will push up foreign alumina prices. As of March 18, the FOB price of alumina in Western Australia had risen to US $525 / ton, the price of alumina in Shandong was 2900 yuan / ton, the price of alumina outside China was upside down, and Chinese alumina was ready to be exported, which led to the rise of domestic alumina prices.
The second impact of the conflict between Russia and Ukraine on the non-ferrous metal market – the rise of global energy prices and the rise of metal smelting costs
Russia accounts for nearly 40% of European natural gas supply. Even if Russia continues to supply, European natural gas inventories will reach the lowest value at the end of April. According to the data of the International Energy Agency, Russia is the third largest oil producer in the world. In December 2021, the export volume of Russian crude oil and petroleum products reached 7.8 million barrels / day. According to the prediction of relevant institutions, the global crude oil will maintain a tight balance between supply and demand from 2022 to 2023, with an average daily surplus of only 200000 barrels in 2022 and 700000 tons in 2023. In the context of low inventory, the disturbance at the supply side is easy to cause large price fluctuations. The conflict between Russia and Ukraine has pushed up the global energy cost and raised the global non-ferrous metal smelting cost. The electricity price center in Europe has increased from 40 euros / MWh in the past to 200 euros / MWh at present. The zinc smelting capacity in Europe accounts for 16% of the world and the aluminum smelting capacity accounts for 6% of the world. The rise in energy prices has pushed up the cost of global marginal production capacity, thus raising global commodity prices. At present, the low inventory of global non-ferrous metals has increased price elasticity.
Investment suggestion: focus on high energy consuming metals
Foreign energy prices soared, but China released a clear signal to ensure supply and stabilize prices, and China’s coal prices are expected to operate within a relatively reasonable range. Chinese electrolytic aluminum enterprises have the advantage of energy cost, and foreign high-cost production capacity, i.e. marginal cost pricing, so the high smelting profit of electrolytic aluminum can be maintained for a long time. Focus on electrolytic aluminum enterprises with cost advantages and output growth in 2022: Henan Shenhuo Coal&Power Co.Ltd(000933) , Yunnan Aluminium Co.Ltd(000807) , Tianshan Aluminum Group Co.Ltd(002532) , China Hongqiao. We are optimistic about the supplement of recycled aluminum industry to the gap of raw aluminum for a long time. We recommend Ye Chiu Metal Recycling (China) Ltd(601388) , which has the advantage of low-cost raw material procurement channel, and Chongqing Shunbo Aluminum Co.Ltd(002996) , which has deeply cultivated the Chinese market and transformed into deformed recycled aluminum.
Risk tip: international energy prices fall, China’s economic growth is lower than expected, and metal prices rise higher than expected to curb demand.
