In mid-september, copper prices fell again after a brief and strong rebound. At present, the key factor in commodity price movements is the supply side. In fact, the demand side can hardly perform under the restraint of high prices, through the investigation also did not find “Gold nine silver ten”the performance of the traditional peak season. In addition, last year’s increase in commodity prices was mainly imported, but the current situation may be due to the double control of energy consumption and output constraints, some commodity prices have spillover effects on other commodity prices. Therefore, the author believes that the current situation of weak supply and demand at the macro level, under the “Double carbon”and green environment, on the one hand, it has raised the emission cost of the whole society, and high prices have affected small and medium-sized enterprises, on the other hand, supply constraints in turn lead to the suppression of demand, and the supply-create-demand transmission chain may have a negative feedback effect. 1. Macro indicator shows 01. “Weak supply and demand”in the domestic economy according to the macro-economic indicators released in August, in addition to the return of China’s export substitution brought about by the resurgence of overseas epidemics, no matter from the aspects of credit, financing, industrial output and investment, the domestic economy has appeared the characteristics of “Weak supply and demand”, the characteristics of stagflation is obvious. Supply constraints: industrial output was constrained by double controls on energy consumption and power rationing. In August, industrial value-added above the scale increased by 5.3% year-on-year in real terms (the growth rates of value-added below are all real price-adjusted growth rates) , growth fell 1.

1 percentage points from July to 11.2 percent from the same period in 2019 and averaged 5.4 percent over the two years, down from 5.6 percent in July and 0.2 percent in July. Data on electricity generation and consumption also show that industrial output is slowing. Power generation grew 0.2 per cent year-on-year in August, down from 9.6 per cent in July and 7.4 per cent in June. From June to August, the electricity consumption of the whole society was 7.8% , 12.8% and 3.6% respectively. The two-year average growth rates were 8.4% , 7.8% and 6.0% respectively. The main reasons for the decline of industrial output include the following: First, under the dual control of energy consumption, some high energy-consuming industries were forced to reduce production, such as coal, steel, cement and electrolytic aluminum industries; Second, the epidemic has also had an impact on industrial output in some regions. Third, some industries have accumulated stocks of finished products and low consumption downstream, forcing enterprises to reduce output to cope with the pressure of capital occupation. Mainly in cars and consumer electronics (mainly smartphones) . Smartphone production fell 0.2 per cent year-on-year in August, up from-6.9 per cent, but was in negative territory for the third month in a row. Retail sales of communications equipment were-14.9% in August, down from 0.1% in the previous month and 22.4% in the january-july period. In August, the sales rate of industrial enterprises was 97.8 percent, down 0.4 percentage points from the previous year, and the value of export deliveries by industrial enterprises reached 1,205.5 billion yuan, up 14.8 percent in nominal terms from the previous year, up 3.8 percentage points from July, that’s up from 1.2% a year ago. 02. Weak demand: both capital demand and investment are weak, and total demand for the economy can be measured by two indicators, one is capital demand, which is financing, and the other is fixed asset investment. Both indicators were weaker in August, implying weaker demand in the economic sector, further evidence that industrial price increases were mainly supply-driven, leading to a stagflation-like economy. On the credit front, the balance of Renminbi loans at the end of August was 187.8 trillion yuan, up 12.1% year on year, 0.2 percentage points lower than at the end of last month and 0.9 percentage points lower than at the same time last year. Renminbi loans increased by 1.22 trillion yuan in August, 63.1 billion yuan less than a year earlier and 140 billion yuan more than in July. In August, loans for the household sector increased by 575.5 billion yuan, 266 billion yuan less than in the same period last year and 169.6 billion yuan more than in July. Of this total, short-term loans increased by 149.6 billion yuan, an increase of 134.8 billion yuan over the same period last year, and an increase of 141.1 billion yuan over July. medium-and long-term loans increased by 425.9 billion yuan, an increase of 131.2 billion yuan over the same period last year, and an increase of 28.5 billion yuan over July. On the whole, compared with the same period last year, new loans for the household sector, both short-term and long-term loans, are declining. In particular, the area of commercial housing sales fell sharply in August as property regulation accelerated, passive deleveraging in the residential sector. In August, medium-and long-term loans for the household sector as a whole fell to 34.9 per cent of new Renminbi loans, down from 43.5 per cent a year earlier. And short-term lending rose less than a year earlier, largely as a result of the outbreak in August and uncertainty about revenue growth. In August, loans to enterprises and institutions increased by 696.3 billion yuan, 116.6 billion yuan more than in the same period last year and 202.6 billion yuan more than in July. Of this total, short-term loans to non-financial enterprises decreased by 114.9 billion yuan, up by 4.7 billion yuan in the same period last year, while medium-and long-term loans increased by 521.5 billion yuan, down by 203.7 billion yuan compared with the same period last year, and up by 27.8 billion yuan compared with July. Therefore, from the point of view of loans to enterprises and institutions, corporate sector bills financing increased more and tended to be short-term financing, and medium-and long-term loans increased less than the same period last year, which further verified that enterprises’long-term capital demand was insufficient, in Favor of short-term note financing to ease the pressure of funds. In August, new medium-and long-term loans for enterprises and institutions accounted for 42.8 percent of new loans in all sectors, down from 56.7 percent in the same period last year. In social finance, due to the reduction of financing demand, banks and other financial institutions have to impulse through bills, and the structure continues to deteriorate. According to preliminary statistics, the volume of social financing increased by 2.96 trillion yuan in 2021,629.5 billion yuan less than in the same period last year and 1.9 trillion yuan more than in July. With the acceleration of the issuance of special bonds, government bond financing reached 973.8 billion yuan in August, an increase of 791.8 billion yuan compared with July, but a decrease of 405 billion yuan compared with the same period last year. Local government bonds issued in August totaled 879.7 billion yuan, of which 636 billion yuan was earmarked, up 227.2 billion yuan from July, but down 83.929 billion yuan from the same period last year, the data showed. In my view, despite the strength of the special debt in August, it was still insufficient compared with the same period last year. The government’s intention to hedge the decline in private sector demand through public sector investment is obvious, but it is constrained by fiscal and debt constraints, fiscal post-positioning is limited to improve social integration. The reasons are: on the one hand, the weak demand for medium-and long-term financing by enterprises, the gradual improvement of the supply-demand mismatch brought about by the 2020 epidemic, the high prices of raw materials and the accumulation of finished products mean that enterprises’demand is weak; on the other hand, fiscal expenditure is constrained, the issuance of special debt has been accelerated, but there is a lack of high-quality projects. On fixed asset investment, in addition to the relatively stable investment in manufacturing, real estate investment and infrastructure investment growth continued to decline. From January to August, fixed asset investment (excluding rural households) totaled 346913 billion yuan, up 8.9 percent year on year, down 1.4 percentage points from January to July, and up 8.2 percent from January to August 2019, with a two-year average increase of 4.0 percent, according to the National Bureau of Statistics of the People’s Republic of China, growth averaged 4.3% in July. Nationwide fixed asset investment (excluding farmers) rose just 0.23 percent in August from a year earlier, continuing to stagnate.

2. Carbon reduction and energy consumption double control 01. Supply problems may spill over from the policies issued by the National Development and Reform Commission and various departments in September, in an environment of high energy consumption and double control, the policy of reducing production in some industries will not be adjusted but will be strengthened, this means that the future PPI growth rate will continue to remain high, energy consumption double control led to high energy consumption and high carbon emissions of the industry or industrial output continue to be limited, thus continuing to drive up industrial prices. On September 16, the National Development and Reform Commission issued a circular on the improvement of the dual control system of energy consumption intensity and total amount. The overall goal is that by 2025, energy consumption double control system will be more perfect, energy resources allocation will be more reasonable, and utilization efficiency will be greatly improved. By 2030, the dual-control system for energy consumption will be further improved, energy intensity will continue to drop substantially, the total amount of energy consumption will be rationally controlled and the energy structure will be further optimized. By 2035, the system for optimizing the allocation of energy resources and comprehensive conservation will be more mature and formalized, effectively supporting the realization of the goal of reducing carbon emissions steadily after reaching the peak. The author is concerned about the related measures in the plan to continue to strengthen carbon reduction measures. First, we will resolutely manage and control high-energy-consuming and high-emission projects. Each province (autonomous region or municipality directly under the Central Government) is required to set up a list of high-energy-consuming and high-emission projects (hereinafter referred to as “Two high”projects) under construction, make clear their disposal opinions, and submit timely reports on their adjustment to the National Development and Reform Commission. For New Energy consumption of 50,000 tons of standard coal and above “Two high”projects, the NDRC and relevant departments contrast energy efficiency levels, environmental protection requirements, industrial policies, related planning and other requirements to strengthen window guidance; For New Energy consumption of 50,000 tons of standard coal under the “Two high”projects, according to the energy consumption of the dual target task of strengthening management, strict gatekeeping. For the “Two high”projects that do not meet the requirements, all regions should strictly enforce the energy-saving review, environmental impact assessment and other access to customs, financial institutions shall not provide credit support. Second, local governments are encouraged to exceed their energy intensity reduction targets. The total energy consumption of provinces (autonomous regions and municipalities directly under the Central Government) whose energy intensity has been reduced to meet the national incentive targets will not be examined in the current energy consumption double-control examination of the five-year plan. This means that in the future petrochemical, chemical, coal chemical, coking, steel, building materials, non-ferrous metals, coal and electricity and other industries will continue to be subject to the dual control of energy consumption and related policies, output is difficult to put. Although the NDRC has put forward proposals including selling stocks, strengthening market price monitoring and early warning, strengthening market price supervision and timely and full payment of temporary subsidies to achieve guaranteed supply and asking prices, at present, many industries are no longer over-capacity, this means that output is not being measured, and these measures will hardly solve the problem of insufficient supply. From the history of several energy revolution, new energy in the initial stage, but may bring the traditional energy demand intensity to climb, only wait for the new energy technology to mature will lead to the traditional energy demand decline. The current development of new energy sources, such as PV, risk and new energy vehicles, but these capacity investments require the consumption of traditional industrial raw materials such as Non-ferrous metal, silicon, and stainless steel, and are difficult to wean off coal power in the short term. In addition, the “Key areas 2021-2022 Autumn and winter air pollution control program”issued by the Ministry of ecological environment will further strengthen the production limit for some industries, especially steel and other industries. The programme has expanded further than the region covered last year. The plan calls for a comprehensive review of the “Two-high”projects planned for construction, under construction and in stock, with the focus on petrochemical, chemical, coal chemical, coking, steel, building materials, nonferrous metals, coal and electricity, and other industries. The “Two-high”projects will be subject to list management, classified disposal, dynamic monitoring. Strict implementation of energy consumption “Double control”, production capacity replacement, regional reduction of pollutants, coal reduction and other requirements, does not meet the requirements of the “Two high”project to be resolutely rectified. Seriously carry out self-examination and self-correction, strict investigation of illegal start-up, construction projects without approval, strictly investigate and punish illegal enterprises in accordance with the law. The advanced level of energy efficiency and environmental protection of products at home and abroad will be marked, and the energy efficiency and environmental protection levels of the “Two high”projects under construction and those to be built will be promoted. We will severely crack down on all kinds of illegal activities such as unlicensed and illegal discharge of pollutants by “Two high”enterprises, and promptly expose typical cases of violations of the pollution discharge permit system.

3. Copper consumer demand will further weaken 01. Leku is only a matter of time, from the copper consumption, “Nine silver ten gold”consumption season has not been reflected. Copper prices began to fall in mid-september after rebounding. According to the survey data, as of September 18, the processing fee for 8mm copper rod dropped to 570-770 Yuan/ton, and at one point rose to 590-790 Yuan/ton at the end of August. In the automobile sector, the value added of the automobile industry also showed a negative growth of 12.6% in August, which is related to the lack of core, on the other hand, the production and sales of traditional fuel vehicles are declining under the replacement of consumption of new energy vehicles. In fact, in the current high car ownership and disposable income growth rate can not be rapid increase in the case of the auto industry production and marketing there will be a trade-off characteristics. The current energy structure, including wind power, photovoltaic power generation is difficult to completely replace coal-fired power, in the case of coal-fired power can not be completely replaced, the development of new energy vehicles is difficult to reduce the carbon emissions of the whole society, therefore, the author thinks that the development path of new energy vehicle is too single, mainly because the technology of electric vehicle and hydrogen energy vehicle is not mature. As a result, production and sales of new energy vehicles continued to grow at a high rate in August, mainly due to a decline in the number of alternative fuel vehicles, and the short-term increase in copper consumption was still too small in absolute terms to change the pattern of copper supply and demand. The Ministry of Commerce issued a notice on Sept. 16 to support the accelerated development of new energy vehicles, and will conduct in-depth activities with relevant departments to send new energy vehicles to the countryside. The author thinks that the current rural charging pile is insufficient, the current electric vehicle endurance is more suitable for the city, not necessarily suitable for the rural areas, short-term new energy vehicles in rural areas will encounter difficulties. In addition, in the “Lack of core”and the case of soaring raw material prices, supply constraints in turn restrict the growth of consumption. The federation said that overseas outbreaks caused more upstream chip capacity damage than previously expected, the response time is still uncertain, less likely to be alleviated within the year. The price increase caused by the shortage of terminal supply leads to the deepening of consumers’wait-and-see mood, which affects the sales rhythm. The retail market of narrow sense passenger cars was estimated to be around 1.58 million in September, down about 17.4 percent year on year. It is worth noting that the real estate sector officially became a drag on economic growth in the second half of the year. From January to August, China’s investment in real estate development totaled 9.806 trillion yuan, up 10.9 percent year-on-year, down 1.8 percentage points from January to July. The two-year average growth rate was 7.7 percent, and the two-year average growth rate was 8.0 percent. In August, National Investment in real estate development slowed to 0.54 per cent year-on-year, and growth also stalled. Historically, every previous cycle of copper price increases has been in the real estate cycle, with downstream sectors such as home appliances, construction materials and automobiles. In the sales area of commercial housing increased year-on-year decline, mortgage loans, deposits and prepayment growth rate of the year-on-year decline, real estate development enterprises gradually reduced sales. Under tighter financing conditions, the sales call-back is the only way to “Deleverage”and improve the financial position. At present, real estate sales have problems, including Evergrande and other large real estate development enterprises have debt default risk, real estate has just entered the cold winter, the future real estate cycle will drive down further copper consumption. Taken together, according to the macroeconomic indicators already released for August, in addition to the return of China’s export substitution brought about by the resurgence of overseas epidemics, both in terms of credit, financing, industrial output and investment, domestic economy has appeared “Supply and demand weak”characteristics, such as obvious stagflation characteristics, it is difficult to play a role of copper prices last year, copper market accumulation is only a matter of time. It is worth noting that the real estate sector officially became a drag on economic growth in the second half of the year. In the sales area of commercial housing increased year-on-year decline, mortgage loans, deposits and prepayment growth rate of the year-on-year decline, real estate development enterprises gradually reduced sales. Under tighter financing conditions, the sales call-back is the only way to “Deleverage”and improve the financial position. At present, real estate sales have problems, including Evergrande and other large real estate development enterprises have debt default risk, real estate has just entered the cold winter, the future real estate cycle will drive down further copper consumption. Copper prices may be buoyed by the spillover effects of surging prices for other industrial products as supply problems, such as energy rationing and power cuts, remain unresolved. In the previous regular session of the National People’s Congress, the government said it wanted to correct the campaign of carbon reduction. However, according to the policies introduced by the National Development and Reform Commission and various departments in September, the policy of reducing production in some industries will not be adjusted but will be strengthened, this means that the future PPI growth rate will continue to remain high, energy consumption double control led to high energy consumption and high carbon emissions of the industry or industrial output continue to be limited, thus continuing to drive up industrial prices. From the point of view of many consumer areas, copper consumer demand will be further weakened, the reservoir is only a matter of time. On the one hand, “Gold nine silver ten”consumption season has not been reflected. Copper prices began to fall in mid-september after rebounding. On the other hand, the current energy structure, including wind power, photovoltaic power generation is difficult to completely replace coal, coal power can not be completely replaced in the case of new energy vehicle development is difficult to reduce the carbon emissions of the whole society. At present, the development of new energy vehicles is on the “Tuyere”, but the path may be too single, supply constraints are obvious, there are variables in the future. 

Source: POSǒNG  Boseong Futures, by Cheng Xiaoyong