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SunSirs: Impact of the Epidemic on the Nonferrous-Industry

February 05 2020 12:47:30     SunSirs (Linda)

According to data statistics, LME metals generally fell during the long holiday, copper-7.72%, aluminum-4%, lead-4.48%, zinc-6.24%, nickel-5.78% and tin-3.61%. Copper fell the most and tin the least. During the holiday, the metal market fell sharply, but the supply and demand fundamentals of non-ferrous metals changed little in the short term, mainly due to the epidemic panic. In order to prevent the spread of the epidemic, the state has introduced measures to postpone the resumption of work after the festival, which will slow down the economic growth in the first quarter. In the first trading day after February 3, except for gold and silver, all other metals declined due to the small rise in risk aversion.

Overall influencing factors:

1. Raw material supply, warehousing and distribution affected

Domestic smelting enterprises did not stop production during the Spring Festival. They kept normal production according to the plan and were not affected by the epidemic. However, due to the implementation of traffic control in some areas and the tight logistics and transportation resources, the raw material supply and storage distribution of smelting enterprises will be affected.

2. Downstream consumption and terminal consumption have a great impact

Generally, the downstream construction is postponed to February 10. According to the downstream construction of non-ferrous metals industry, the short-term demand will decrease. Especially in Hubei Province, Hubei Province is one of the most important production areas of air conditioning and automobile in China. Air conditioning and automobile account for a large proportion in the terminal manufacturing industry, and the downstream demand has a great impact. In addition, the population of Hubei Province is more than 59 million, accounting for 4.21% of the total population of our country, which has a great impact on the terminal consumption of non-ferrous metals in the short term.

3. Metal inventory increases

At present, LME copper inventory is 180,000 tons, and Shanghai copper inventory is 134,000 tons, all of which are at a low level. At present, the inventory pressure is not large. LME aluminum inventory is 1,288,000 tons, and the overall inventory of LME aluminum has recovered recently. Domestic aluminum social inventory recently remained at 600,000 tons, at a low level. Metal inventory may increase due to the slowdown of production capacity.

Individual product impacts vary:

Copper: the start-up of domestic copper smelting enterprises was relatively normal, but the downstream manufacturers delayed the start-up due to the impact of the epidemic, and the weakening demand led to the lower copper price. In terms of import, refined copper and scrap copper accumulated before and after the festival are declared for import in a centralized manner. In a short time, there is a pressure of rapid increase in inventory, active selling by traders and expansion of spot discount. Almost all the downstream major consumer areas, such as East China, South China and North China, have announced that the resumption of work for enterprises should not be earlier than February 9, which is consistent with the tradition of enterprises and construction sites returning to work after the Lantern Festival. It is optimistic that the epidemic situation will be better controlled, and the actual resumption pace will be slower. In terms of terminal demand, the annual demand has little impact, but there is a short-term impact and the demand is delayed. On the whole, the import increased rapidly after the festival. The demand is expected to be delayed one to two weeks from the normal year according to the optimistic expectation. The total inventory is still at a low level compared with the previous year. In the second quarter, it is still possible to enter the destocking cycle quickly due to the limited import of scrap copper, so there is little room for further decline of copper price.

Aluminum: affected by the epidemic situation, domestic aluminum processing enterprises generally delayed the start-up, and the demand side was hit. The production characteristics of the refinery determined that its capacity remained stable during the Spring Festival. In November and December last year, the new capacity of the refinery started to speed up. In the first quarter, the stock accumulation speed will accelerate. It is estimated that by March, the domestic social stock may increase by 400,000 to 900,000 tons, which is equivalent to the average stock accumulation in the past few years. In terms of downstream consumption, similar to copper, consumption of completed area of real estate, infrastructure construction, automobile and household electricity will maintain a recovery momentum, but the average monthly export volume of aluminum materials is 400,000-500,000 tons, and the postponement of export orders and the slowdown of logistics have a greater impact. In addition, although the electrolytic aluminum plant has a high smelting profit, when the aluminum price falls below 13,800 yuan, North China alumina plant will face a comprehensive loss, and the cost support begins to show.

Zinc: the price of zinc fell sharply on February 3. Most of the zinc smelting enterprises are in normal production or have personnel on duty, and some of them will return to work on February 10. However, due to the limited transportation, it is difficult for goods to be delivered; in terms of raw materials, most of smelting has inventory from January to February, and the supply of raw materials is stable. Affected by the logistics and transportation, the situation of finished products piling up in the factory often occurs. In the downstream, most of the galvanizing plants went to work on February 10. The sales situation of zinc ingots was poor, and the social stock of zinc ingots increased a lot. In terms of external market, during the Spring Festival, LME zinc price dropped by about $150/ton, down as much as 6.24%, which is a big negative pressure on domestic zinc market.

Nickel: the downstream demand for nickel brought by the new epidemic is weak, which severely hit the rebound market in spring, with the risk of falling and stopping. If the epidemic is effectively controlled before March, the rebound market can still be expected, but this week will continue to be weak.

Lead: on February 3, the first trading day after the festival, London lead rose on Friday, and rose 2.71% to close at $1,877/ton. Today, Shanghai's lead market started to make up for the decline, and the price of spot lead market was lower affected by the epidemic, about 700 yuan/ton lower than that before the festival. In the downstream main user lead battery industry, most of the construction was delayed to 10 days later, most of the provinces and cities in the transportation sector suspended the foreign transportation, and the overall spot market has no price.

Cobalt: on February 3, the price of domestic metal cobalt fell sharply, the macroeconomic environment was poor, the domestic market of cobalt fell in shock, and the international price of cobalt rose sharply, which was good for the domestic market of cobalt. The overall supply and demand environment of cobalt market was bad. After the production of Glencore cobalt mine was stopped, ERG planned to suspend the production of its Chambishi Metals copper and cobalt refinery in Zambia, the global supply of metal cobalt was expected to fall, and new energy was expected Automobile sales have been declining for months. Automobile sales continue to decline. Customers are generally motivated to purchase. During the epidemic period, logistics is limited, shipment is difficult, transportation is difficult, downstream customers stop production and wait for work, and downstream procurement is reduced. Overall, the future cobalt market has mixed advantages and disadvantages. The current drop in cobalt price does not reflect the real supply and demand of the market, which is caused by the risk aversion psychology in the special period of the current stage In the future, there is still room for cobalt price to rise.

Future forecast:

On the one hand, the epidemic delayed the resumption of work in the downstream, extended the accumulated storage period after the festival, and delayed the arrival of the peak season; on the other hand, the macroeconomic concerns led to lower pricing of non-ferrous metals. In the first quarter, the operation range of non-ferrous metals moved down. If the epidemic situation can be controlled quickly, there is little room for further decline in metal prices, and prices may gradually stabilize and recover. If the control effect is not obvious, strict personnel control will be forced to extend, which will hit the recovery of downstream production and confidence in the macro economy, forming a new decline.

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