Ping an Securities-- dynamic tracking report of non-ferrous Industry: price rise affects differentiation, and Mineral and Electrolytic Aluminum benefit obviously

Commodity prices have risen, benefiting the non-ferrous industry as a whole: the prices of major non-ferrous products have risen significantly since 2021, with copper and aluminium leading the way. Non-ferrous materials are the basic raw materials, and they are in the upper reaches of the national economy. The price increases benefit a lot, and the industry is in the business cycle. According to the data of the National Bureau of Statistics, the profit growth rate of China's non-ferrous industry exceeded 50% in the first quarter of 2021. Even excluding the base effect, the profit of China's non-ferrous industry in the first quarter of 2021 is still at a better level in history.

Upstream minerals have the most price elasticity and benefit from a high degree of price increase: upstream minerals have the most resource attributes, long development cycle, large amount of investment, high barriers, and the production cost is relatively fixed after production, which is the most elastic link of non-ferrous metals. So far, the prices of representative metal ore copper concentrate, zinc concentrate and tin concentrate have risen by about 63%, 51% and 46% respectively compared with the same period last year, and the price increase is higher than that of the corresponding metals. We believe that in this round of commodity price rise, the upstream metal mine price transmission is smooth, and the benefit of the price rise is high.

Smelting impact differentiation: in this rise in commodity prices, copper and zinc unit smelting processing fees have not increased with the rise in large goods, but have been reduced. We judge that most of the profits of non-ferrous metals smelting do not benefit, but suffer certain erosion, but the profit loss of the main smelting products is compensated by the sales of by-products. Electrolytic aluminum benefits from carbon neutralization, industry profits tilt towards electrolytic smelting, electrolytic aluminum profits increase with the rise of aluminum prices, and commodity prices have a positive impact.

Commodity rise: little impact on non-ferrous Calendering profits: there is widespread overcapacity in the non-ferrous Calendering industry, low market concentration, and its profit is determined by processing fees. On behalf of aluminum bar product unit processing gross margin has declined since the second quarter of 2020, which is very different from the performance of aluminum prices. We believe that non-ferrous calender profits do not have much to do with rising commodity prices, but are closely related to the supply and demand pattern of the same industry itself. On the other hand, although Calendering enterprises partially enjoy the benefits of inventory appreciation, the rise in raw materials increases the demand for working capital and puts forward higher requirements for risk management of raw material price fluctuations.

Investment advice: we believe that rising commodity prices are generally good for the non-ferrous industry, but the industrial chain is divided. The upstream non-ferrous metal resources have outstanding attributes and the most price flexibility, and the rise in commodity prices promotes the performance most obviously. it is suggested to pay attention to the leading copper mining companies, Zijin Mining and Western Mining; in the smelting process, electrolytic aluminum benefits from carbon neutralization, industry profits tilt to the electrolysis link, and commodity prices also benefit from rising commodity prices. It is recommended to pay attention to Yunnan Aluminum Co., Ltd., a leading electrolytic aluminum company, and Aluminum Corporation of China.

Risk Tips:

(1) the risk of recurrent epidemic situation and lower non-ferrous demand than expected. If the future vaccination is lower than expected or novel coronavirus mutates, which makes the vaccine ineffective, it will affect the recovery of demand and suppress the price of non-ferrous products.

(2) the risk of weakening liquidity support. If the Fed starts to tighten monetary policy, it will weaken liquidity support for non-ferrous product prices and cause price prices to fall.

(3) the risk of supply and inventory growth exceeding expectations.