In the first half of 2023, global commodity prices fell sharply, with non-ferrous metal prices leading the decline. The general decline in commodity prices is closely related to factors such as the economic slowdown in advanced economies such as Europe and the United States, global monetary tightening, and the dissipation of supply disruptions caused by the pandemic and geopolitical crisis. Looking forward to the future market, the author believes that after the domestic non-ferrous metal market has experienced a period of active destocking, the inventory pressure in the future will weaken, and even there will be replenishment activities, while the overseas Federal Reserve rate hike has slowed down, which means that the financial attribute of commodities has weakened, and the price of non-ferrous metals has the possibility of a stage rebound. However, the European and American economic growth prospects are not good, especially the banking crisis to the European and American economy in the fourth quarter of the risk of recession, the second half of the non-ferrous metal prices may only stage rebound, rather than have reached the bottom.
Relatively stable supply
From the perspective of the domestic economy, from January to April, the growth rate of industrial added value rebounded in stages, of which in April, industrial added value rebounded to 5.6%, mainly due to the recovery of manufacturing output, but the lack of demand. From the perspective of different industries, the upstream mining industry has slowed down the growth rate of industrial added value due to insufficient demand, and even recorded negative year-on-year growth in April. The midstream processing manufacturing industry, such as non-ferrous metal smelting and rolling processing industry added value increased steadily, in April, the value increased to 7.4 percent, higher than the 1.4 percent growth in the same period last year.
From the official manufacturing PMI sub-index, the production index fell more slowly than the new orders index fell. In May, the domestic manufacturing production index fell to 49.6%, but the new orders index fell to 48.3%, which also indicates that the output growth of the manufacturing industry is still higher than the growth of demand, and the impact is that the manufacturing industry is forced to take the initiative to destock. Inventories of finished goods rose to 10.7 per cent year-on-year in February and have since fallen gradually to 5.9 per cent by May, returning to a relatively reasonable level.
The production of non-ferrous metals is relatively stable, and the production of electrolytic aluminum and electrolytic nickel has declined in stages, but the cumulative production of non-ferrous metals increased year-on-year from January to April. Data released by the National Bureau of Statistics show that from January to April, the cumulative production of refined copper, electrolytic aluminum, refined lead and refined zinc increased by 12.9%, 3.9%, 9.7% and 8.2% respectively. Data show that from January to April, domestic electrolytic nickel production increased by 36.4% year-on-year. In order to further verify the growth of domestic refined copper production, the refined copper production of 22 mainstream copper smelting enterprises in China increased by 18.5% year-on-year in April.
For electrolytic aluminum, due to the promotion of the "dual carbon" goal and the limitation of the 45 million tons of production capacity "ceiling", the expansion of domestic electrolytic aluminum production capacity has slowed down in the past five years. Coupled with the transfer of electrolytic aluminum production capacity to clean energy areas such as hydropower, the instability of clean energy such as hydropower has led to fluctuations in electrolytic aluminum production. In February, Yunnan lost another 20 percent of its production due to an ongoing drought. Because the domestic electrolytic aluminum production capacity is in surplus as a whole, the impact of the production reduction caused by the instability of water and electricity on aluminum supply is relatively limited.
From the perspective of overseas markets, although the European natural gas prices continue to fall sharply, European non-civil electricity prices have fallen sharply, in 2023, the European electrolytic aluminum and refined zinc industries will resume production, which means that the situation similar to that caused by the energy crisis in 2022 will not be repeated. In terms of copper, data from the International Copper Research Group show that in the first quarter, global refined copper production increased 7.5% year-on-year to 6.69 million tons. Data released by the International Aluminum Association show that in April, global primary aluminum production was 5.628 million tons, up from 5.609 million tons in the same period last year.
Demand continues to weaken
From the point of view of economic growth, in the first quarter, overseas economies are slowing down, which means that overseas demand for non-ferrous metals is weakening. According to the OECD, GDP growth in the G7 countries fell to 1.2% in the first quarter from 4% a year earlier.
In terms of countries, in the first quarter, the real GDP growth rate of the United States fell to 1.6% year-on-year, and the annualized rate fell to 1.3%, from 2.6% in the fourth quarter of last year. Copper consumption in the United States is mainly distributed in construction, durable goods and home appliances, while the United States real estate from January to April has been weakening under the condition of mortgage loan rates continuing to rise, among which, in April, the United States new home construction fell 22.3% year-on-year. The International Copper Research Group found that in the first quarter, the global refined copper market was oversupplied by 332,000 tons, compared with a surplus of 8,000 tons in the same period last year. Aluminum consumption in the United States is mainly distributed in transportation, construction and packaging, which account for 39%, 25% and 16% of its total aluminum consumption, respectively. Core capital orders, a barometer of U.S. transportation sentiment, rose just 2.6 percent in April from 5.8 percent a year earlier.
From the perspective of the domestic market, the main consumption areas of non-ferrous metals are electricity, construction, home appliances and transportation. From January to April, home appliances and automobiles benefited from exports, and production and sales did not decline significantly; Sales of household appliances and audio equipment in social retail sales fell 0.3% year-on-year; Domestic automobile production increased by 8.6% year-on-year, mainly driven by the growth of new energy production, while the output of traditional fuel vehicles increased by only 5.6%.
Construction copper accounts for about 8% of domestic copper consumption, or about 64,000 tons per month. From January to April, the cumulative real estate investment fell by 6.2%, the cumulative housing completed area increased by 18.8%, copper consumption in the real estate field is mainly the completion of the decoration stage, but from January to April, the domestic social retail sales of construction and decoration materials fell by 4.5%, which means that the completion of housing decoration on copper consumption is weak. From January to April, power investment and grid investment increased 53.6% and 10.3% respectively, mainly benefiting from the rise of photovoltaic and wind installed capacity, but after April, photovoltaic and wind installed capacity growth began to decline, showing that the growth rate of power investment growth on non-ferrous metal consumption lack of sustainability.
Rebound height limitation
From the current inventory of finished goods of domestic industrial enterprises above designated size, the growth rate dropped to 5.9% in April, indicating that the initiative of industrial enterprises to destock has come to an end. Considering that the peak season of "gold nine silver ten" is gradually approaching, midstream processing and manufacturing and downstream terminal enterprises may appear phased replenishment, driving a phased rebound in non-ferrous metal prices. However, the height of the rebound in non-ferrous metal prices is limited.
On the one hand, from the perspective of overseas markets, the credit crunch brought about by the banking crisis in Europe and the United States, the continuous high interest rate, the suppression of consumer consumption and the debt repayment pressure of the corporate sector pose a challenge, which means that the fourth quarter of Europe and the United States economy will have a high probability of recession. In the United States, for example, industrial and commercial credit continued to weaken due to the banking crisis in the industrial manufacturing sector, while the strong labor market continued to provide U.S. residents with the funds to keep spending. Personal consumption expenditure rose 0.8 per cent in April from zero in the previous month. However, judging from the consumer confidence index, the probability of personal consumption expenditure of US residents will decline again in May. From the author's economic forecast model, it is deduced that the fourth quarter of the United States consumer spending may enter negative growth, thus making the economy recession.
On the other hand, the overseas Federal Reserve is difficult to cut interest rates during the year, and the domestic monetary policy is estimated to be difficult to relax, mainly through reform to release dividends and industrial policies to provide economic growth momentum. From the central bank's first quarter monetary implementation report, it can be seen that the formulation of "prudent monetary policy should be accurate and powerful, the total amount is moderate, and the rhythm is stable" means that the monetary total is unlikely to be loose. In addition, it also mentioned that "do a good job of cross-cyclical adjustment, maintain reasonable and sufficient liquidity, and keep the growth rate of money supply and social financing basically match the nominal economic growth rate", which means that the central bank's monetary policy should consider cross-cyclical factors, different from the previous counter-cyclical operation.
In summary, the second half of the non-ferrous metal prices have the opportunity to appear a wave of rebound, however, the poor economic prospects in Europe and the United States, meaning that the non-ferrous metal rebound height is still limited.
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