As the head of a copper processing company in Wuxi, Jiangsu province, Fu Lin (not his real name) complained about the sudden price rise of raw materials. “Many downstream customers, some suspended production, and some even gave up orders in default.” FuLin said. Reporters found that with the change of interest pattern, cyclical industries in the middle and lower reaches of the upstream price increase acceptance gradually reduced.
For months on end, rising copper prices made Fu Lin feel like an eternity. As copper prices rise, the company’s downstream orders are fewer and fewer. To make matters worse, competition from peers is fiercer than in previous years as the industry releases capacity. “The industry competition in 2021 can be described as fierce.” He said.
“We are mainly to earn processing fees, purchase and sale of all the operation process to adopt hedging, income is more stable than downstream enterprises.” With that model, Mr. Fu said, the company is now struggling to break even. However, he worries that the current trend of higher raw material prices and lower competitive prices for intermediate products will keep the company in limp for a long time.
In the manufacturing industry, raw material costs have risen sharply, and the middle and lower reaches of enterprises can hardly escape the fate of “profit at a loss”. However, Fujian Jingwei New Fiber Technology Industrial Co., Ltd. (hereinafter referred to as “Jingwei New Fiber”), as a midstream chemical processing enterprise, escaped the disaster.
Zhu Shaowei, the person in charge of the operation of the company, told reporters that although the price of crude oil rose this year and the price of the upstream chemical industry increased, the acceptance of the middle and downstream was not high and failed to translate into actual costs. In addition, the terminal textile and other industries picked up and the downstream demand was strong, so the life was not sad. At the same time, short fiber futures and other tools to protect profit is very effective.
Industrial chain game
“In this round of rise, non-ferrous smelting plate profits are mainly concentrated in the industry chain source mine area.” Liu Chao, chief researcher at Bank of China International Futures Nonferrous Metals, said the average profit of the domestic electrolytic aluminum industry is close to 4,000 yuan per ton, which is at a historic high level.
Galaxy Securities chemical industry analyst Ren Wenpo told reporters that the early chemical rise is mainly three varieties: soda, viscose staple fiber, chlor-alkali products – PVC. “The recent rise in PVC has been significant and has exceeded our expectations,” he said.
“Profits in the chemical industry are expected to improve significantly in the first quarter of this year, compared with the same period last year, because the base was too low; Compared with previous years, the current price of chemical products fluctuates, and the overall profitability of the industry is expected to be at a mid-high level in the first quarter of this year, but not up to the record high.” Ren Wenpo said.
From the industry chain game, in this round of price rises, compared with the non-ferrous industry, the upstream power of the chemical industry seems to be a little weak. “This year is a boom year for polyester staple fiber,” said Zhu Shaowei. “We require a fee of more than 1,800 yuan per ton.” The words all revealed the mid-stream chemical enterprises in the industrial game of strength. Corresponding, the recent upstream PTA, MEG, staple fiber spot price increase failed, the price soared and then plunged.
When is the inflection point
Reviewing the rise of this round of cyclical varieties, Liu Chao believes that its driving factors are mainly from the impact of the epidemic and economic repair. The supply side has not yet come out of the epidemic, the rapid recovery of demand, supply and demand mismatch superposed by abundant liquidity jointly contributed to the bull market.
For the time being, business people believe that the price rise has yet to be digested. “The price rise of upstream products in the chemical industry has not been effectively transmitted to the downstream terminal, and the market needs time to digest it before it is possible to bring the next wave of demand.” Zhu Shaowei said.
“The current copper price has exceeded the expectations of many companies,” Fu said. “A price of 67,000 yuan to 70,000 yuan a tonne is difficult to accept and digest. He thinks the current round of price rises will last for more than six months or a year.
For the changing signal, Liu Chao said that the first thing to pay attention to is the change of the mine processing fee. If the processing fee of copper and zinc concentrate increases significantly, it means that the supply side recovers and the price has adjustment pressure. At the same time, we should pay attention to the marginal impact of economic growth rate and liquidity changes on demand.
Industry chain related enterprises for this round of the peak of the logic is more direct. Zhu Shaowei said that if the processing fee of staple fiber is more than 1800 yuan/ton, we will consider locking profit in the futures market. The implication is that more profit is not desirable. When companies start to stop in front of profits, they may not be far off the top of the trend.