China Commodities Update – Rising expectation of supply cut for the Winter Olympic and infra-push
- Tighter aluminium supply is expected during Winter Olympic amid Shanxi, Henan and Shandong planned curb production capacity
- Stabilising property market amid monetary measures and Infra-push support cement demand outlook; China cement producers are investing for their own clean energy sources amid latest power tariff reform
- Slow steel demand approach CNY to cloud price outlook; latest Chinese steel product GP lowered to RMB700 per ton level
- Top picks Hongqiao (1378 HK, BUY, Business expansion on track) and Conch (914 HK, BUY, Best green cement producer) amid Opportunities from tighter supply in 1Q22
What’s New
Aluminium – tighter supply into Winter Olympic
Shanxi, Henan and Shandong plan to halve their alumina production during the Winter Olympics period, according to industry sources. That would bring lower net impact on China market the latest smelting capacity resumed this month. As CNY holidays approach, the downstream operating rate, including aluminium profile, cable and alloy products have declined. Chinese aluminium stock reported drop to less than a week consumption and the recent PBoC rate cut would support an optimistic outlook.
Cement – infra-support demand; transition accelerates
Cement consumption is expected to benefit from 1Q22 infrastructure investment growth in a market estimated 10%. Cement producers are investing for their own renewable energy supply. The move would help the industry increase clean power source since the adoption of residual heat power technology during production. Along with the new electricity price mechanism (peak-valley time-of-use) starting 2022, the new power source could also help producers mitigate the production cost.
Coal – stock back to safe level
China coal supply increased since 4Q21. Coal stock in power plants has been kept available for 21 days since Dec. It should help to moderate power generation output decline due to lacking coal supply since Oct-21. In 2022, not only environmental reason and gradual withdrawal of coal mine would see a lower local supply increase, but also dual control and slower industrial trim consumption growth. Thus, the domestic coal price should see less fluctuation in view of the import market remain stable.
Steel – slow demand approach CNY
Trader feedback low enthusiasm for winter storage at current high market price level. Production suspension for the Winter Olympics would reduce steel market supply in the near term. On supply chain news, BHP Billiton warned the pandemic may affect iron ore production fueling iron ore future price increase. Overall, latest unit GP of Chinese steel products simulated lowered to RMB700 per ton level.
Lithium and Cobalt – Robust lithium power battery shipments growth in 2021
Research institute GGII data, China power battery shipments grew 175% on year in 2021 to 220GWh. Lithium iron phosphate power battery shipment growth was 270% and ternary lithium battery 127% during the period. Focus on Ministry of Industry and Information Technology would reveal/clarify a new version of the tax incentive scheme for new energy vehicles this year. China lithium carbonate price is approaching to multiple year high of RMB350,000 mid-January 2022.
