Under the background of large inflation, the hedging properties of precious metal and industrial metal assets appear. China added 6.17 trillion yuan of social finance in January, an increase of 984.2 billion yuan year-on-year. The social finance data significantly exceeded expectations, reflecting the initial success of the steady growth policy, and the beginning of infrastructure investment. The CPI of the United States in January increased by 7.5% year-on-year, the previous value was 7%, and the market expectation was 7.2%; CPI increased by 0.6% month on month, and the market expected 0.4%. Us CPI exceeded expectations on a month on month basis, reaching a new high in the past 40 years, reflecting that inflationary pressure continues to rise. Both non-agricultural and CPI exceeded expectations. The Fed’s expectation of raising interest rates in March was more sufficient, and the inhibition on non-ferrous metals gradually weakened; At the same time, under the background of large inflation, the asset hedging (Inflation Hedging) attribute of industrial metals and precious metals will appear. In addition, the historical interest rate increase cycles of the Federal Reserve have been accompanied by the high boom of industrial production, and the demand for bulk commodities has strong support. We believe that non-ferrous metals will still have strong fundamental support in this interest rate increase cycle. On the demand side, on the one hand, it is supported by China’s stable growth policy, and on the other hand, the global development of new energy continues to boost the marginal demand increment of new energy metals; On the supply side, global metal mining activities have been in deep adjustment since 2012. Global mining exploration investment and mining investment have remained low in the past eight years, and are expected to improve from 2021. It takes a long period for metal minerals to be discovered and put into production. In the foreseeable future, metal minerals will be subject to the decline of output growth caused by long-term low input at the front end of development, and the supply elasticity will gradually weaken. At present, the inventories of various non-ferrous metals generally return to historical lows. We expect that the low inventory phenomenon will continue in the next few years, and the overall metal price will remain high, providing strong support for the release of sector performance and valuation repair.
Aluminum price center is expected to continue to rise, while copper remains volatile. SHFE aluminum price rose 2.2% to 22890 yuan / ton, and the average gross profit of the industry increased by about 12.6%. According to wind data, the aluminum ingot has accumulated from 211000 tons to 916000 tons. The reduction of overseas electrolytic aluminum production capacity has closed China’s aluminum ingot import window. It is expected that the accumulation pace in the off-season will be slow. In China, due to the slow resumption of production capacity due to double control of energy consumption in the early stage, the electrolytic aluminum production capacity in Guangxi Province is about 500000 tons / year. Considering that China accounts for a large proportion of alumina and electrolytic aluminum production capacity in Guangxi (electrolytic aluminum 2.635 million tons / year, accounting for 6.2%; alumina 12.45 million tons / year, accounting for 13.9%), the supply of electrolytic aluminum is tightening, The superimposed alumina price or the rise affected by the Guangxi epidemic will jointly support the upward trend of aluminum price. In terms of demand, downstream aluminum processing enterprises have resumed work and production after the festival, and the demand of aluminum sector, strip and foil enterprises is strong, so there is still support for going to the warehouse. Considering that the European energy crisis is difficult to solve in the short term, the strong demand for aluminum for new energy in the downstream and the disturbance of the Guangxi epidemic, the aluminum price center is expected to continue to rise. SHFE copper price rose 0.8% to 70890 yuan / ton. The US CPI data greatly exceeded expectations, superimposed on the European Central Bank‘s more than expected hawks, and the market interest rate increase is expected to heat up. The more than expected economic data also reflected high inflation. At the same time, China’s relatively loose policy also formed support in the macro face of copper prices. LME + SHFE copper inventory increased by 12000 tons to 109000 tons, mainly due to the accumulation of inventories during the Chinese Spring Festival. The inventory is still low, but there is still an increase at the mine end. Considering that the current demand is still in the off-season, the copper price is expected to fluctuate around 70000 yuan / ton.
Lithium prices continued to maintain an upward trend after the Spring Festival. After the Spring Festival, the price of lithium and pyroxene rose to rmb4.39 million / ton of carbon dioxide in Wuxi, and the price of lithium and pyroxene rose to rmb4.55 million / ton, with a rise of 0.25% this week. On the supply side, the operating rate and output of lithium carbonate increased by 13% to 42% and 3808 tons respectively month on month, and the inventory increased by 0.18% to 4939 tons month on month. Limited by the shortage of lithium concentrate and lithium carbonate at the raw material end, the operating rate and output decreased by 4.73% to 39.51% and 2910 tons month on month, and the inventory decreased by 0.89% to 780 tons month on month. It is expected that the total output of lithium hydroxide in February will continue to decrease due to the overhaul of large factories. MRL released the fy2022 interim report. It is expected that the mtmarion mine will undergo technical transformation in the future to increase the production capacity by 20% ~ 30%. Meanwhile, the production capacity of 250000 tons of lithium concentrate in phase I of wodgina mine is expected to be started in April 2022, and the 25000 tons / year lithium hydroxide project in phase I of kemerton is expected to be completed by the end of November 2022. On the whole, the increase of lithium resource supply will be released in the second half of 2022. The overall sales data of demand side new energy vehicles in January has not been released, but from the sales data of China’s major new energy vehicle enterprises, the market shows the characteristics of not light off-season. According to the statistics of Gaogong lithium battery, around the Spring Festival in 2022, there are 9 projects involving power and energy storage batteries, with a total investment of more than 79.8 billion yuan and a capacity planning of more than 176gwh; Six power battery projects were signed and invested, with a total investment of more than 108 billion yuan and a planned production capacity of more than 215gwh. Behind the expansion of power battery production, on the one hand, it comes from strong market demand. On the other hand, market orders provide a deterministic space for the release of new capacity. In conclusion, the supply of lithium resources is not expected to improve significantly in the short term. Under the environment of not light demand in the off-season, the price of lithium may continue to remain high. Under the current lithium price level, the PE valuation of some lithium salt enterprises has been close to 10 times. We expect that the performance of lithium sector companies will continue to exceed expectations in 2022, and the sector is expected to usher in the valuation repair market.
Rare earth fundamentals are still supported. This week, praseodymium oxide and praseodymium neodymium oxide increased by 30000 yuan / ton and 25000 yuan / ton to 952500 yuan / ton respectively, and neodymium oxide increased by 10000 yuan / ton to 1075000 yuan / ton. Although the first batch of mining indicators of rare earth mines have been issued, the mining of medium and heavy rare earth mines in the south is difficult due to the influence of the rainy season. It is expected that the supply of medium and heavy rare earth oxides in China will not increase in the first quarter. On the demand side, there is strong demand in terminal fields such as wind turbines and new energy vehicles after the Spring Festival, and large magnetic material enterprises are full of orders. On the premise that the downstream procurement is just needed and the upstream supply is difficult to increase, the supply and demand gap in the rare earth market expanded in the first quarter, and the prices of mainstream varieties such as praseodymium, neodymium, dysprosium, terbium and gadolinium rose after the festival. We believe that the contradiction in the rare earth market will change from the low acceptance of prices in the downstream to the contradiction between supply and demand of rare earth in short supply.
High inflation expectations support precious metal prices. SHFE gold rose 2.4% to 378.8 yuan / g, SHFE silver rose 2.7% to 4829 yuan / kg, and the real yield of us 10-year Treasury bonds fell 3PCT to – 0.51%; SPDR’s gold position increased by 7.8 tons to 1019 tons, and SLV’s silver position was 16900 tons, basically the same as last week. The US CPI rose 7.5% year-on-year in January, exceeding expectations. The market’s expectation of raising interest rates is expected to rise again. However, since the market has fully digested the Fed’s interest rate increase during the year, the unexpected economic data has increased the market’s concern about high inflation, superimposed with the more than expected hawkish signal released by the European Central Bank, the weakening of the dollar, the uncertainty brought by the European energy crisis and epidemic situation is still continuing, and the precious metal price is still supported in the short term.
Investment suggestions: in the context of the “double carbon” goal, pay attention to the historic investment opportunities of new energy and new materials, and focus on new energy metals with strong demand and weak supply pattern (lithium cobalt nickel rare earth) and new metal materials benefiting from industrial upgrading and domestic substitution. Lithium suggests paying attention to Tianqi Lithium Corporation(002466) , Ganfeng Lithium Co.Ltd(002460) , Yongxing Special Materials Technology Co.Ltd(002756) , Chengxin Lithium Group Co.Ltd(002240) , etc; It is suggested to pay attention to Guangdong Haomei New Materials Co.Ltd(002988) , Henan Liliang Diamond Co.Ltd(301071) , Guangdong Hoshion Aluminium Co.Ltd(002824) , Jiangsu Pacific Quartz Co.Ltd(603688) , Ningbo Boway Alloy Material Co.Ltd(601137) etc. for new materials; Titanium suggests paying attention to Baoji Titanium Industry Co.Ltd(600456) , Sichuan Anning Iron And Titanium Co.Ltd(002978) ; It is suggested to pay attention to Chifeng Jilong Gold Mining Co.Ltd(600988) , Yintai Gold Co.Ltd(000975) etc. for precious metals; It is suggested to pay attention to Yunnan Aluminium Co.Ltd(000807) , Henan Shenhuo Coal&Power Co.Ltd(000933) , Western Mining Co.Ltd(601168) , Zijin Mining Group Company Limited(601899) , Lizhong Sitong Light Alloys Group Co.Ltd(300428) , Sunstone Development Co.Ltd(603612) etc. for industrial metals.
Risk factors: the downstream demand has fallen more than expected, the supply side constraint policy has shifted, and China’s liquidity easing is less than expected; The US tightened liquidity more than expected; Metal prices fell sharply.
