Since the first quarter of 2021, domestic raw materials and other bulk commodities have witnessed a surge across the board. The prices of iron ore, coking coal, rebar and other categories have hit record highs, which have attracted great attention. In the past month, it has been mentioned many times by relevant national ministries and commissions.
On April 8, 2021, the Financial Stability and Development Commission of the State Council made its first external voice, emphasizing that "it is necessary to maintain basic price stability, especially paying attention to the price trend of bulk commodities."
On April 9, 2021, the State Council held a symposium of economic situation experts and entrepreneurs, which also discussed the pressure on enterprises caused by the sharp rise in international commodity prices.
On May 12, 2021, the executive meeting of the State Council also requested, "We must track and analyze the domestic and foreign situation and market changes, effectively respond to the rapid increase in commodity prices and its associated effects, strengthen the coordination of monetary policy and other policies, and maintain the stable operation of the economy. "
The high frequency of attention shows that this round of unexpected price hikes of raw materials has attracted the attention of the country and has had varying degrees of impact on different industries in the domestic economy.
Next, we take the coal industry as an example to analyze some of the reasons for the sharp increase in raw material prices this year.
First, insufficient supply. In the context of increasingly stringent production safety inspections, it is more difficult to release the supply of coal production capacity. The overall decline in coal production capacity, mergers and reorganizations of coal enterprises in various provinces, and strong alliances will also further increase industry concentration. Under this circumstance, production capacity will be limited, the bargaining power of the coal industry will become stronger, and the profitability of coal companies will be very impressive.
Coal K-line chart
Coal K-line chart
In addition, in the context of “carbon neutrality”, coal companies are weak in willingness to build new production capacity. Currently, only Xinjiang and other places have new production capacity. At present, the total production capacity of large, medium and small coal mines in my country is about 523 million tons. Such coal mines still have the problem of resource exhaustion and are expected to withdraw before 2030. It is estimated that by 2060, my country's coal production capacity will remain about 370 million tons, which is about 1/3 of the current coal production capacity.
Second, the demand is strong. Coal demand is mainly related to factors such as economic growth and the development of alternative energy sources. 2021 is the first year of my "14th Five-Year Plan", and the economy of various industries across the country continues to rebound. Affected by the epidemic, the economic conditions of many foreign countries have not yet recovered, and a large number of industrial orders have returned to the country, which has stimulated the growth of domestic electricity demand. According to statistics, the national electricity consumption in the first quarter of 2021 reached 1921.9 billion kilowatt-hours, an increase of 21.2% year-on-year, and the growth rate was much higher than the same period in 2019; the national thermal power generation in the first quarter reached 1,437.9 billion kilowatt-hours, an increase of 21.1% year-on-year , The growth rate is also much higher than the same period in 2019; the coal sector achieved operating income of 295.788 billion yuan in the first quarter, an increase of 26.25% year-on-year.
On the demand side, if the foreign epidemic situation still does not improve significantly, the domestic industrial electricity load will remain strong. In terms of transportation, the Bohai Rim port stocks are currently tight, and some stocks will be replenished after the overhaul of the Daqin line. However, under the situation of tight supply across the country, the inventory improvement may not be ideal. Therefore, the coal market in the second half of the year is expected to be in tight balance or equilibrium.
Third, environmental protection pressure. Under the background of “carbon neutrality”, the national and local ecological environment groups have been conducting environmental protection inspections to varying degrees. Major coal mines are facing great environmental protection pressure, and there are also cases where rectification is not in place. According to relevant laws and regulations, criminal responsibility will be pursued for violations of environmental protection standards and real dangers, which will also affect the coal industry's enthusiasm to increase production capacity to a certain extent.
Fourth, imports are shrinking. Recently, the National Development and Reform Commission decided to suspend indefinitely all activities under the China-Australia Strategic Economic Dialogue mechanism jointly led by the National Development and Reform Commission and relevant departments of the Australian Federal Government. Australia used to be my country's second largest coal importer. In 2020, my country imported 300 million tons of coal, of which 78.09 million tons were imported from Australia, accounting for 25.7%, second only to Indonesia (14.99 million tons, accounting for 46.4%). The change in the cooperation relationship with Australia will also change the coal supply demand.
Therefore, countries are actively looking for alternatives, such as Mongolia. Judging from the coal production and export data in the first quarter, Mongolia may become the new best partner for cooperation. According to the recent electronic conference on "Coal Exports in 2021" held by China and Mongolia, it is expected that my country will import a total of 555 million tons of coking coal this year. It is expected to import 30 million tons from Mongolia, more than 8 million tons from Canada, 7 million tons from the United States, and 8 million tons from Russia.
Why are raw material prices crazy?
The continuous recovery in demand does exist, but it is more that supply-side factors have the upper hand. First, overseas production capacity has been slow to recover due to the continuing impact of the epidemic; second, “carbon neutrality” has been combined with environmental protection and emission reduction, and industries with large carbon emissions are expected to limit production. With global liquidity flooding and good assets becoming more and more scarce, speculative funds have also flooded into the most deterministic bulk commodities represented by raw materials such as steel and coal.
According to the latest report on the implementation of China's monetary policy for the first quarter of 2021 released by the central bank, the forecast: global inflation may continue to rise. The global economic recovery has driven higher demand for bulk commodities and raw materials. Coupled with ample liquidity conditions, the prices of international bulk commodities such as iron ore, copper, and crude oil have risen rapidly. Superimposed on the low base effect last year (2020), the year-on-year readings of global inflation indicators may generally tend to rise in the future, further boosting inflation expectations.
Construction machinery industry under the background of rising raw material prices
Similarly, with the rise of raw materials such as steel, the costs of construction machinery companies have gradually increased. In the operating cost structure of construction machinery companies, raw materials account for an average of 60% to 85%, of which parts and components account for 60%. Around, steel, as the most important direct raw material for construction machinery companies, accounts for 15% to 20% of overall operating costs.
Companies in the construction machinery industry that are more affected by the price increase of raw materials mainly include the following categories: First, the closer the raw material companies to the upstream of the industrial chain, the more obvious the impact; the second is the company with a large proportion of steel; the third is the market structure A highly competitive enterprise. Ways to resolve cost pressures include direct price increases, cost transfers, and economies of scale. The prices of raw materials continue to rise, especially the prices of steel and rubber, which are mainly used in construction machinery. The national environmental protection inspections continue to increase, the shortage of supply resources caused by production restrictions in the upstream of the supply chain, the increase in environmental protection costs of outsourcing and outsourcing factories, etc. The superimposed influence of factors has made the price increase of the major OEMs in the industry already on the verge of an arrow, and it is imperative.
Of course, the biggest impact on the construction machinery industry may be the changes in the supply and demand pattern. Low-price competition among peers may be the most important factor in accelerating industry optimization and clearing, until the emergence of oligopoly companies or multi-oligopoly companies.
