This growth mode has never appeared in decades, and more and more small and medium-sized enterprises around the world are not accepting orders because they can't afford this business. Since July 2020, upstream suppliers have continuously issued price adjustment letters, requesting price increases without exception. From gypsum board, board, pipe, concrete and light steel keel, etc., and more than once. The rising trend of commodity prices seems to be getting stronger and stronger. The rising trend of commodity prices has risen from 1% to 8% every day. The rise in steel prices dominates.
At present, the price of one ton of steel is more than 2,000 yuan higher than that of one ton of silver. The price of copper for the industrial backbone has exceeded RMB 7,000 per ton from RMB 35,000 per ton in March 2020, and has now reached RMB 75,000 per ton. In April last year, ordinary PP raw materials were about 5,800 yuan per ton in plastic raw materials, and it has reached 9,000 yuan per ton. The news of production cuts once again detonated the overall price of industrial metals. Recently, the world's largest zinc smelter Nyrstar announced that the output of European refineries may drop to 50%, which stimulated the overall price of zinc to soar. The weekly increase in the price of zinc in London exceeded 20%, which directly set the record for the largest weekly increase in history and the highest record in 14 years since 2007.
The prices of copper and aluminum also started a pattern of skyrocketing. The Shanghai Aluminum Index rose by 1.5%, setting a new high of a double. Since January this year, the Shanghai Aluminum Index has increased by 66%. The price of copper in London has risen even more drastically, with a cumulative increase of more than 9% last week, and the price has risen to US$10,000 per ton again. It said that copper is currently the most undervalued commodity. The market ignores the important factor of inventory reduction, and copper prices may continue to rise. At present, the collective rise in the prices of raw materials in the upstream of the global market is shifting to downstream consumer goods, which has aggravated investors’ concerns about inflation. The International Monetary Fund has asked the central banks of developed economies, including the Federal Reserve, to be ready to strengthen monetary policy at any time, and global giants have reduced With 50% of the output, the price of zinc has skyrocketed, and the price of raw materials has risen continuously. Recently, Belgium-based nyrstar, one of the largest zinc smelters in the world, announced that the output of European refineries may be reduced by 50%, which directly detonated the overall price of zinc. A period of 14 years from 2007. The price of zinc in Shanghai rose again, immediately rising by 7% at the opening quotation and quickly reached the daily limit. In the end, it closed at 27,517.47 yuan per ton with a closing price of 7.01%, winning Lianyang for seven consecutive times. In addition, the foreign LME zinc in London has also continued to rise. The US stock market rose 12% to 3,944 US dollars some time ago, the highest level since May 2007.
Zinc is a slightly bluish silver-white metal. It has active chemical properties. When the temperature reaches 225 degrees Celsius, zinc will oxidize violently. Zinc is widely used in steel, liquid crystal, machinery, electric power chemical industry, light industry, military industry, medicine and other fields. Of course, the most direct trigger for the increase in zinc prices in this cycle is the reduction in supply-side output. The world's largest zinc producer Nyrstar will reduce the output to 50% at its three zinc foundries in Europe. The flowering period is estimated to be before the output declines. The entire zinc market should be roughly balanced, but the decline in nyrstar's production may reduce zinc supply by about 2.5% annually. According to agency data, the refined production of zinc in Europe in 2020 is 2.41 million tons. Except for nyrstar, Glencore’s zinc output is 800,000 tons, Tektronix’s zinc production is 300,000 tons, and Boliden’s zinc production is about 500,000 tons. The rise in global energy prices has led to a rapid increase in the cost of giant production and threatened the profits of smelting companies. The agency predicts that if energy prices remain high in the fourth quarter, other large factories may still reduce production, zinc prices should continue to rise, and zinc production in China is also facing a reduction in production. According to the analysis of Big Oil Futures, the zinc smelting industry in Hunan, Yunnan, Guangxi and other regions has problems with production reduction, and the upper limit of production reduction is 20% to 40%. According to the National Bureau of Statistics, Hunan, Yunnan and Guangxi’s zinc production accounts for about 42% of the country’s total production.In addition, the low overall inventory of zinc is also an important factor supporting price fluctuations. The total inventory of deposit centers recorded by the LME fell by 1,475 tons to 189,600 tons, the lowest level since January. Therefore, the LME zinc spot price is US$42 per ton higher than the three-month zinc spot price, which is the highest level in the past two years since November 2019.
The reason for the rapid growth of zinc spot is that the market is worried about tight supply. In 2020, among the global zinc importing countries, China has the largest import volume, with an annual import volume of 2.9 million tons, accounting for 40% of total demand. If zinc prices continue to rise, it will have a significant impact on China's domestic price system. Institutional sources predict that due to the impact of the energy and energy crisis, the supply side will reduce production and superimpose low inventories, and the prices of industrial metals driven by copper, zinc and aluminum will remain high. It should be pointed out that industrial metal prices are always closely related to inflation. , The prices of important metals such as zinc and aluminum continue to rise, which will further increase the level of global inflation, and inflation can continue at least until the winter of the entire northern hemisphere this year and early 2022. The prices of aluminum and copper can no longer be concealed. Among the major industrial metals, in addition to zinc, the prices of copper and aluminum have also started a downward pattern. Recently, the Shanghai Aluminum Index rose again, breaking the 2006 high by 1.5% at a time and setting a new high. The highest price was 24719.34 yuan per ton.From the perspective of cycle extension, since January this year, the Shanghai Aluminum Index has risen by 66%. Behind the soaring aluminum price, there is still a continuous decline in output caused by the impact of the energy crisis. Aluminum smelting has always been a huge consumer of electricity. The production of each ton of aluminum requires about 14 megawatt-hours of electricity. The rise in electricity and natural gas prices has led to a rapid increase in the cost of aluminum smelters. For example, a German founder must currently pay about $4,000 for the energy required to produce one ton of metal, which is much higher than the current aluminum price. Although the price of aluminum has soared, the increase in electricity costs has dispelled the confidence of smelters to increase production, so the supply of aluminum cannot be released quickly.
Based on this logic, market funds are frantically suppressing the rise in aluminum prices. In recent weeks, investors have purchased aluminum options with operating prices as high as US$4,000 per ton. This is actually a bet that aluminum prices will greatly exceed the current level. Reach the highest level in history. The same drama was also staged in the copper market. After three months of horizontal trading, the Shanghai Copper Futures Index rose again and achieved positive results for three consecutive months. At the end of trading on Friday night, the Shanghai Copper Price Index rose again, 1.72%, to 75020.98 yuan per ton, close to the previous level. The cumulative increase in London's copper reached 9.45%, the largest weekly increase in five years, and the price rose again to US$10,000 per ton. Earlier, it emphasized in its report that copper is currently the most undervalued commodity. The market ignores the important factor of inventory reduction, and copper prices may continue to rise. At present, copper stocks on the spot market are declining rapidly, having fallen by about 40% in the past four months, and overall copper stocks may reach the lowest level in history by the end of the year. If copper prices continue to maintain current prices, copper inventories are expected to be exhausted in the second quarter of 2022. With the decline in inventories and the need to deliver contracts on time, the supply of copper will be further reduced, which will eventually increase copper prices.
According to China's refined copper consumption in 2020, 14.23 million tons, the inventory is only equivalent to less than two days of domestic refined copper consumption, which shows that the clear internal inventory is in a very tight situation. With the reduction of global inventories, the copper spot in London will reach the highest level in the past ten years. As far as the group is concerned, Trafigura Group is the world's largest copper trader. Due to the continuous decline in global inventories, the group's confidence in the prospects of copper prices remains unchanged. Although so far, with the decrease in the number of high-energy smelters, the energy crisis is more and more risky to hit manufacturers, but the copper supply has been more affected. It is emphasized that the global energy shortage has exacerbated the shortage of copper resources. There is a strong positive correlation between the sharp decline in inventory.
Energy consumption data shows that the impact on the industry is far more serious than the downstream manufacturing industry. Energy demand has fallen by 1% in the year since the energy problem began.In short, the reduction in copper supply caused by power problems has exceeded downstream demand. In addition, copper extraction has entered an opportunity for more than four seasons. Since the third quarter of last year, copper mining volume has stabilized and peaked in December last year. Since this year, the number of minerals has declined slightly. It is expected that global mineral supply growth will slow down in the second half of this year until the second half of 2022. Will be restored. With the rapid decline of copper inventories, overall copper inventories may reach a low level at any time at the end of the year, and their copper price expectations will be raised to US$10,500 per ton at the end of this year.
Is the inflation crisis approaching? Like the most important industrial metals, the prices of copper, aluminum and zinc are also rising rapidly, putting pressure on downstream producers. According to the CAR Statistics Bureau, the raw material and industrial product spot index is even at an unprecedented high level, reflecting the soaring price of raw materials such as leather, butter and metal scrap. A series of price increases have intensified investors’ concerns about inflation. Citi’s most zinc global inflation surprise index has risen to the highest level on record in 1999. The index measures how unexpected the inflation data is to market expectations. A positive value indicates that the current inflation is higher than expected. Now that this index has exploded, the potential inflation risk cannot be ignored. At present, the collective rise in the prices of upstream raw materials is being transmitted to downstream consumer goods.
Recently, American retailer Costco announced that due to increased cost pressure and shortage of raw materials, the price of raw materials sold by Costco may increase between 3.5% and 4.5%, and some products may increase by more than 10%.At the same time, it imposes purchase restrictions on bottled water, sanitation and other daily needs. According to the latest news from foreign media, the two major consumer goods producers Pepsi and Levi’s agreed to announce at the third quarter income conference that they will raise prices to compensate for the increase in input inflation. According to the latest data from the US Bureau of Labor Statistics, the US annual CPI rate rose to 5.4% in September, again exceeding market expectations of 5.3%, reaching the highest level since 2008. In view of the above situation that once again raised US inflation expectations at the end of 2021, PCI is expected to reach 4.25%, which is much higher than last month's 3.8%. With the chaos of the supply chain, the increase in energy prices and the decrease in the total demand for services, it is expected that the total personal consumption expenditure will be increased to more than 5.0%. In addition, national consumer goods companies are also preparing to increase prices.
On the other hand, the ongoing epidemic has also affected the recovery of the world economy. Today, the fate of the global supply chain is the same, affecting the entire body. At present, the epidemic situation in many countries in the world is still very serious, and the epidemic situation in some countries is about to get out of control. The situation is very serious. Therefore, raw material manufacturers in some countries or regions stop production or reduce production, resulting in serious capacity delays and conflicts between supply and demand. After all, scarcity is more expensive This is another reason for the rise in raw material prices. How does production break the rising tide of raw material prices? Manufacturing is the main source of the collective increase in raw material prices. High raw material prices will increase cost pressures on manufacturing companies and reduce existing profit margins.
Profit margins are compressed, which is very suffocating for companies, so many companies will use price increases to absorb the pressure of upstream raw material prices. For example, major manufacturing companies such as Gree and Midea have increased terminal sales prices.Of course, not all companies have the confidence and strength to wave the banner of price increases. This depends on whether the degree of market competition in the private sector of the company, market share, product market advantage, and other factors have a certain basic and significant impact. Many small, medium and micro enterprises have a low market share, serious product homogeneity, and no obvious market advantage. If they insist on being dominant, the price will be quite low. If you raise prices to customers now, you will basically lose customers.
In the context of the current collective price increase of raw materials, manufacturing companies need to take a series of parallel measures to deal with price increases and release cost pressures through price increases. The first is to optimize product design and strengthen precise management of the production line. Scientifically control production and link costs, reduce waste, improve production efficiency, and reduce management and management costs. Second, continue to build and expand brand influence, further improve domestic and foreign market service levels, and increase market share. Third, increase investment in research and development, improve product technology content, and win market share in high-level markets such as 5G new energy and Internet of Things and emerging strategic industries. The unprecedented surge in raw material prices has had an impact on Lingke. The raw materials of Lingke products mainly include polymer copper, steel wires, and the number of wire harnesses. These materials are also floodplains for rising raw material prices. However, Lingke Electric did not lower the raw material selection standards or replace existing suppliers, but always insisted on selecting high-level raw materials, and the pursuit of high quality and high quality will never compromise: we will not transfer the price pressure of raw materials to raw materials As for the increase in quality compromise, this is the bottom line that Lingke has always respected.
Regarding the pressure on the operation of the company caused by the increase in raw material prices, we will only rebalance by appropriately increasing product sales prices and improving management to improve efficiency.Production is the cornerstone of the real economy. Today, under the impact of rising prices of raw materials, the manufacturing industry is facing short-term and operating difficulties.
However, manufacturing companies must stabilize their mentality, balance their mentality, unite and keep warm, face short-term difficulties together, and actively respond to them. As required by national macroeconomic policies, we will continue to optimize the industrial layout, eliminate outdated production capacity, increase R&D investment, strengthen brand building, serve the real national economic development strategy with a high degree of national awareness and business service awareness, and jointly respond to the challenges of the global economic situation. When the fog dissipates, it must be unrestricted light.
As long as all manufacturing companies have only one trusting, scientific and orderly response, it can stimulate the new vitality of the manufacturing industry, overcome the environmental challenges that are unfavorable to the economic situation, and play an important role in the national strategic decision-making process. With support, we will ride the wind and waves to deal with the good stage of global economic recovery.