"Copper Bull" Unable To Stop The Car: Cost Transmission Leads To Price Rise Of White Electricity In Off-Season

On April 15, LME copper price of $9050 / T in March is still a certain distance from the 2011 high of $10190 / T.

However, if the high and low points of copper price in nearly 20 years are set as a range, the current copper price is not low, and now it is about 87% of the quantile. We should know that this round of copper price rise started in late March last year, and has doubled in February this year. The rate of increase is rare in history.

As the most typical industrial metal, the rise of copper price on the one hand drives aluminum, zinc, lead and other products, on the other hand, it also significantly changes the prosperity of the whole nonferrous industry and the profit distribution relationship of the whole industry chain.

As far as A-share listed companies are concerned, as of April 14, a total of 15 industrial metal listed companies have issued the first quarter performance forecast. According to the lower limit of the predicted profit, the average increase of net profit is as high as 419%. Among them, the performance elasticity of the leading companies in copper and aluminum industries is particularly prominent.

In contrast, the sharp rise in raw materials such as industrial metals and plastics directly pushed up the cost of home appliances and other downstream industries, which was very similar to the price rise of home appliances in the first quarter of 2017.

The 21st century economic report's previous visit found that the prices of air conditioners, refrigerators and other white household appliances have increased to varying degrees. At the same time, companies including Midea, Gree and Oakes have also increased their product prices since the end of last year.

In addition, according to the data of ovey cloud and deppon Research Institute, according to the statistics of online channels, the average sales price of Midea refrigerator in the second quarter of 2020 is 2252 yuan, and the average price of Gree air conditioner has risen from 2821 yuan to 3546 yuan in the same period.

The reason is that there is a high correlation between the raw materials of white goods such as refrigerators and air conditioners and the above-mentioned bulk commodities such as industrial metals, steel and plastics.

From this point of view, under the background of high raw material prices, the cost transmission ability and risk hedging ability of the middle and lower industries have become one of the core competitiveness of enterprises.

This round of copper price rise started in late March last year, and has doubled in February this year. The rate of increase is rare in history. -Visual China

LME copper led the rise, industrial metals appeared systematic market

Since 2018, industrial metals had been on a downward trend, but with the global spread of the new crown epidemic, the operation trend of related commodities has been directly changed.

In the early stage of the epidemic, the prices of copper, aluminum and other metals highly related to the manufacturing industry were once greatly reduced due to the shutdown and shutdown of the middle and lower reaches. Under the effect of the relationship between supply and demand, the copper price continued to plummet in the first quarter of 2020.

Compared with other assets, commodities have the characteristics of "no ceiling at the top and a bottom at the bottom". The sign of bottoming out includes that the product price falls below the break even line of production enterprises. At that time, with the expansion of the scope of losses, the production capacity at the supply side will be cleared up, and the relationship between supply and demand will be rebalanced, leading to a new round of price rise.

Therefore, after the epidemic situation in China was effectively controlled and the manufacturing industry began to recover, the prices of industrial metals and bulk commodities showed a strong rebound trend.

Take LME copper as an example. Before the outbreak of the epidemic, the copper price fluctuated around 6200 US dollars / ton. In the epidemic stage, the lowest price dropped to 4371 US dollars / ton. In the economic recovery stage, the price of LME copper rose rapidly, reaching a high of 9617 US dollars at the end of February this year, which is close to the peak in 2011.

In this regard, "21 hard core investment research" column pointed out that this round of copper price rise is closely related to its financial attributes.

Jing Chuan, now chief economist of CUHK futures, pointed out that in order to cope with the epidemic situation and the maturity of large-scale treasury bonds, the money supply of the Federal Reserve will reach a record level in 2020.

"Historically, the growth of money supply has never been so fast. The 1970s was the only period close to this level. The liquidity of the US dollar further triggered the flooding of currency liquidity in various countries around the world. Under the environment of low interest rates, excess liquidity inevitably leads to the soaring of asset prices and the rise of commodity prices, which is reasonable. " Jingchuan said.

The inflow of funds driven by global excess liquidity into the capital market and the impact on the US dollar due to the unprecedented monetary over issuance of the Federal Reserve have become the main driving forces for the recent rise in commodities.

Compared with LME copper trading data, it can be seen that since the copper price bottomed out in March 2020, the position size and transaction activity have increased significantly.

In March 2020, when LME copper fell to a low of $4371 / T, its daily position and turnover remained at 280000 and 15000 to 20000 hands. In February this year, the peak position increased to 345000 hands, and the trading volume was enlarged to nearly 40000 hands.

It should be pointed out that copper is the leader of the basic metal, and its price rise has a pull effect on other non-ferrous products. Aluminum and other varieties have also seen different degrees of rise in the above-mentioned period according to the strength of their respective fundamentals.

According to statistics, since the second quarter of 2020, LME copper has increased by 79.75%, and aluminum, zinc and lead have also increased by 50.26%, 46.18% and 14.07% in the same period.

Upstream a collective outbreak of quarterly report, nonferrous metals will still run high

The rise of copper price has also given great flexibility to the improvement of operation ability of related enterprises, especially those enterprises with certain mineral resources advantages.

According to the performance forecast of Jiangxi copper, the first quarter of this year is expected to achieve a net profit of 831 million yuan to 879 million yuan, a year-on-year increase of 419%.

This profit scale has basically recovered to the level when the copper price fluctuated around 7200 US dollars / ton in 2013, slightly lower than the profit peaks in 2011 and 2012.

It is not difficult to see that the overall change trend of the company's performance has maintained a high positive correlation with the international copper price.

It can be predicted that if copper prices remain high from the second quarter to the end of this year, the average market price of copper products will be significantly higher than that of the first quarter. At that time, the company's profitability in the second quarter will continue to improve month on month, which is still expected to be realized.

So, the key variable is how the copper price will work next?

Since the LME copper reached a high of 9617 US dollars / ton on February 25 this year, this variety has been in high consolidation for nearly two months, and it still fluctuates around $8900.

Further, facing the 10-year high in 2011, step back, the accumulated absolute increase in the early period is considerable, and the falling space is also huge.

According to the prediction results of the 21st Century Capital Research Institute at the end of February, the core logic of the current round of international pricing commodity prices, such as copper, and the release of intensive economic policies in various countries, still lies in the development and control of the epidemic worldwide.

Compared with the trend of new cases in foreign countries, it can be seen that the inflection point of overseas epidemic situation is relatively large, and it is expected to be 6-9 months behind that in China.

In the first half of 2020, after the domestic epidemic situation was effectively controlled, some orders were transferred to the domestic market due to work stoppage overseas, adding to the demand for replenishment of inventory brought by the return to work later than in previous years. In the second half of 2020, domestic self pricing bulk commodities rebounded significantly.

In January 2021, the inflection point of overseas epidemic situation appeared, and the number of new cases continued to decline in February, and the inflection point was further verified. The overseas market began to experience the domestic market. Since April 2020, the manufacturing industry began to recover.

The improvement in demand side, supported by overseas excess liquidity, has accelerated the rebound of raw material prices such as copper and crude oil, and has become the leading commodity market.

Considering that the global economy is still in the process of slow recovery, the continuity of economic stimulus policies in various countries will bring support to copper from the demand side, and the upward trend of copper price is difficult to reverse in the short term.

However, standing at the current node, has the relationship between market supply and demand changed? Has the core logic of copper price rise changed? Accordingly, the above expectations need to be revised?

This needs to grasp the main contradiction. In the case of copper, the core logic of its price rise, or call it the direct driving force, lies in loose liquidity on a global scale.

In Jingchuan's view, the recent impact of Chile's "closed country" on local copper export and local copper production is relatively limited. It is an accidental event and will not have a significant impact on the main logic of copper price operation.

He pointed out that the current U.S. infrastructure is still in the overweight stage, and the economic stimulus policy is still continuing, "even if there are changes, it is expected to be after the fourth quarter of this year."

In other words, the increase in terminal demand brought about by the global economic recovery and the support effect of abundant liquidity on the commodity market continue to exist.

The inflection point will be based on the withdrawal of the large-scale economic stimulus policy of the United States. It is only too early to discuss the withdrawal at this time.

In 2016 and 2020, the manufacturing industry needs to make up for the short board of risk control

Under the background of non-ferrous metals maintaining a high level, the cost side of the conduction is also gradually to the downstream conduction.

The reporter of 21st century economic report has learned that white goods are more sensitive to the fluctuation of raw materials due to the large amount of steel, copper, plastic and other materials needed in the production process.

Take the important parts of refrigerator as an example, including compressor, motor, injection parts and shell. The main materials of compressor and motor are copper and steel. The injection molding parts for thermal insulation are made of foamed material and plastic, and the shell is composed of cold-rolled sheet.

In this regard, the previous calculation results of Tianfeng securities showed that the above components accounted for more than 70% of the production cost of refrigerators.

When the prices of copper, plastic and cold-rolled sheet often rise by 50%, the raw material cost of refrigerator manufacturers will rise accordingly, and the profit margin will be compressed.

In this context, the most direct and effective way is to increase the ex factory price of household appliances and transfer the cost to the terminal consumer market.

Taking the Wenhua commodity index, which tracks a package of domestic commodities as an example, the low point in early April 2020 was 127.24 points, and the highest point rose to 189.07 points on February 25, 2021, with the maximum increase of 48.59%.

Accordingly, the downstream appliance enterprises began to adjust prices.

Taking refrigerators and air conditioners as an example, the average online sales prices of Midea refrigerators are 2252 yuan, 2438 yuan and 2725 yuan in the second, third and fourth quarters of 2020, while the average online sales prices of Gree air conditioner are 2821 yuan, 3183 yuan and 3441 yuan, respectively.

The cost transmission through the above methods needs to be supported by the strong demand of the terminal. Otherwise, with the continuous increase of product prices, it will have a certain inhibitory effect on terminal consumption. This has been verified many times in the profit distribution process of other cyclical upstream and downstream industries.

In contrast, there is a more active response method for manufacturing enterprises such as household appliances, that is, risk transfer through derivatives market.

Gree Electric appliance is a typical one.

According to the public information, as early as 2010, the company had planned to carry out the hedging business of bulk materials futures. At that time, the contract amount of hedging business was no more than 1.5 billion yuan.

"Due to the large demand for copper materials in the company, the price fluctuation of materials directly affects the company's operating performance. Therefore, it is necessary to carry out hedging in the futures market to assist normal production and operation activities..." Gree Electric pointed out.

In the first quarter of 2016, the bulk commodity market bottomed out, and the structural rise to the end of 2018 was opened, driving the price of non-ferrous metals upward. During this period, the price of copper in LME period rose from US $4300 to a high point of US $7300. The manufacturing costs including household appliances and electrical equipment increased significantly.

At that time, home appliance enterprises also adopted the same way of price adjustment. For example, Gree air conditioner once adjusted the price of 50-100 yuan in December 2016.

In April of the following year, Gree Electric Appliances further increased the position contract amount of hedging business from 1.5 billion yuan to 6 billion yuan in its special hedging business report.

Taking the past five years as an example, nonferrous metals have experienced two rounds of obvious rise in 2016 and 2020, which undoubtedly provides a vivid risk education lesson for the enterprises in the middle and lower reaches, even the entire industrial chain.

Under the above background, the ability of cost control and risk control has become a compulsory course for the middle and lower reaches of enterprises, as well as the basic conditions for stable operation.

So, in addition to passively raising product prices and shifting costs, should we also consider locking the prices of raw materials in advance through the "virtual inventory" in the derivatives market?

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