In the first quarter of this year, domestic bulk commodities saw a surge across the board, and the prices of iron ore, coking coal, rebar, hot coil, copper and other varieties hit record highs. In the past month or so, it has been named and followed three times by the national senior management.
On April 8, 2021, the Financial Committee made its first voice this year. The senior management emphasized the need to maintain the basic stability of prices, 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 required to track and analyze the domestic and foreign situation and market changes, make market adjustments, and respond to the excessively rapid rise in commodity prices and its collateral effects. Strengthen the coordination of monetary policy and other policies to maintain the stable operation of the economy. The high frequency of attention shows that this round of unexpected price hikes has aroused national vigilance and has had varying degrees of impact on different industries in the domestic economy.
Next, we first analyze the coal industry as an example.
1. Insufficient supply
In the context of strict safety inspections, it is more difficult to release supplies from production areas. The overall coal production capacity has declined, while the concentration has been increased. The merger and reorganization of coal enterprises in various provinces, and the combination of strong forces will also further increase the concentration. Once again, 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.
In addition, in the context of “carbon neutrality”, coal companies are weak in willingness to build new capacity, and currently only Xinjiang has new 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.
2. Strong demand
Coal demand is mainly related to this factor in economic growth and the development of alternative energy sources. 2021 is the first year of my country's 14th Five-Year Plan, and the national economy continues to rebound. Due to the unsatisfactory economic conditions of foreign countries due to the epidemic, a large number of industrial orders returned to the country, which stimulated the growth of domestic electricity demand. According to statistics, in the first quarter, the country's electricity consumption in the whole country reached 1921.9 billion kilowatt-hours, an increase of 21.2% year-on-year, and the growth rate was much higher than the level of the same period in 2019. In the first quarter, the national thermal power generation capacity reached 1,437.9 billion kilowatt-hours, an increase of 21.1% year-on-year, and the growth rate was also much higher than the level of the same period in 2019.
In the first quarter, the coal sector realized operating income of 295.788 billion yuan, a year-on-year increase of 26.25%; realized net profit attributable to the parent company of 32.131 billion yuan, an increase of 62.84% year-on-year.
On the demand side, it is predicted that if there is no major change in the foreign epidemic situation, 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 is expected to be tightly balanced or balanced in the second half of the year.
3. Environmental pressure
In the context of carbon neutrality, the eco-environmental groups in various regions have been conducting various levels of environmental protection inspections, and major coal mines are facing great environmental pressure. In many coal mines, rectification is not in place. In accordance with relevant laws and regulations, criminal responsibility for illegal activities that exist in real dangers is brought, which directly causes coal mines to reduce their enthusiasm for increasing production capacity.
4. Shrinking imports
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 is my country's second largest coal importer. In 2020, my country imported a total of 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 cooperation with Australia has also led to a shortage of coal.
Why are raw material prices crazy?
From the coal, we can see that the raw material prices continue to rise in this round. The continuous recovery in demand does exist, but it is more that supply-side factors have the upper hand. One is the slow recovery of production capacity due to the continuing impact of the epidemic abroad; the other is carbon neutrality and environmental protection and emission reduction, and industries with large carbon emissions have expectations of production restrictions. With global liquidity flooding and good assets becoming increasingly scarce, speculative funds have also rushed into the most certain commodities that seem to be the most certain, carnival and hype.
According to the forecast in the first quarter monetary policy report released by the central bank: global inflation may continue to rise. The global economic recovery has driven up the demand for bulk commodities and raw materials. Coupled with the extremely ample liquidity environment, the prices of international bulk commodities such as iron ore, copper, crude oil, soybeans and other products have risen rapidly. Superimposed on last year's low base effect, 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, accounts for 15% to 20% of the overall operating cost; the remaining 20% comes from equipment depreciation and some other expenses.
Companies that are more affected by the price increase of raw materials mainly have the following points: The first is the position of the industrial chain: the closer the upstream raw materials are, the more obvious the impact will be. The second is the enterprises with a large proportion of direct steel; the third is the enterprises with fierce competition. In terms of resolving cost pressures, it includes direct price increases, cost shifts, 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, and the supply chain is limited in the upper reaches of the supply chain caused by the shortage of supply resources and outsourcing. The impact of factors such as the increase in environmental protection costs of outsourcing factories has made the price hikes of 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 is the change in the supply and demand pattern. The fierce competition at low prices in the same industry may be the most important factor in accelerating industry optimization and clearing, until the emergence of oligarchs.
