The domestic economy continues to repair and the global energy shortage continues to ferment. In December, China's PMI was 50.3%, confirming the upward trend for two months in a row, and the effect of monetary easing was evident. The production side recovers after the repression is lifted, while consumer confidence rises rapidly, and the decline in property and car sales will continue to narrow. Although there is a local epidemic impact, but the policy force is moderately ahead of expectations, the market's more positive expectations for fiscal and monetary policy have strengthened, pushing the 10-year treasury bond yield below 2.8%, the lowest since June 2020. Overseas, the employment data in the United States is better than expected, and the impact of the new variant of the novel coronavirus epidemic has weakened. However, the energy problem continues to spread globally. After a sharp rise in electricity prices due to natural gas supply shortages in Europe, Indonesia banned coal exports in January 2022 due to domestic coal production problems and low coal stocks in power plants; as the largest source of China's coal imports in 2021, Indonesia's export ban may seriously disrupt domestic coal supply and metal pricing.
The supply side support is strong, the profit space of aluminum continues to expand, and the copper market runs smoothly. SHFE aluminum prices rose 1.7 per cent to 20380 yuan per tonne. According to wind data, the national inventory of aluminum ingots continued to decline, and the inventory of electrolytic aluminum society fell 7.7% to 768000 tons. The European energy crisis continues to ferment superimposed inventories continue to operate at low levels and maintain destocking, and aluminum prices continue the upward trend. The European energy crisis continues to ferment. According to Bloomberg, electricity prices in European countries such as Germany, France and Spain rose by nearly 200% in 2021. A sharp rise in production costs led to a sharp reduction in profit margins. Alcoa and Hydro respectively announced that their European electrolytic aluminum production capacity was reduced (Alcoa reduced production by about 228000 tons per year, Hydro reduced production by about 90, 000 tons per year). The power consumption situation of large industries in Europe may be more severe in 2022, and the production reduction caused by rising costs is expected to continue to strengthen. The current domestic aluminum ingot inventory is still low and maintained, superimposed around the carbon emission reduction policy has not been relaxed, the supply side still forms a strong support to aluminum prices. On the cost side, alumina prices were relatively stable last week, the cost of self-provided electricity in the industry decreased slightly, and industry profits expanded to 2649 yuan / ton with the upward price of aluminum and the decline in cost end. Focus on the previous losses and profits ushered in the reversal of electrolytic aluminum enterprises. SHFE copper rose 0.85 per cent to 70380 yuan per ton last week, and the copper market was running smoothly at the end of the year, with falling stock on the exchange supporting the strong performance of copper prices. TC/RC at China's main copper smelters was set at 70 US dollars per ton and 70 cents per pound in the first quarter of 2022, up 32 per cent from a year earlier and flat on a month-on-month basis, indicating a significant improvement in copper supply. However, domestic demand has weakened when it is more than 70000 yuan / ton, and the operating rate of the smelter has fallen sharply due to the sharp drop in sulfuric acid prices. We believe that the copper market will continue to operate smoothly in the off-season, with copper prices fluctuating in a narrow range of 70000 yuan / ton.
The operating rate of lithium carbonate has dropped sharply. Last week, the price of lithium carbonate without tin plate rose 24.16% to 367500 yuan / ton, Baichuan industrial carbon and electric carbon prices rose 7.1%, 9.7% to 25.75 yuan / ton, 282400 yuan / ton, lithium hydroxide rose 8.5% to 229900 yuan / ton, spodumene price rose 5.5% to 2505 US dollars / ton, lithium price maintained an accelerated upward trend. Towards the end of the year, some manufacturers have entered the stage of shutdown and maintenance, and production continues to shrink. Last week, the operating rates of lithium carbonate and lithium hydroxide decreased by 15.75%, 6.53% to 41.90% and 57.69%, respectively, and production decreased by 11.23% and 1.06% to 3796 and 4008 tons, respectively. The spot in circulation in the market is limited, the inventory is constantly being eliminated, and the inventory of lithium carbonate has dropped by 5.63% to 5533 tons from the previous month. According to the newly released policy on new energy vehicles, the framework and threshold requirements of the current technical index system for purchase subsidies will remain unchanged in 2022, while the scale of subsidies will be liberalized from the original upper limit of 2 million units, realizing subsidies throughout 2022. Although the domestic market has entered a stage of natural growth, the subsidy can alleviate the cost pressure caused by rising lithium prices to a certain extent. Domestic sales of new energy vehicles are expected to exceed 6 million in 2022. The high prosperity of the industry has accelerated the expansion of mid-stream links such as lithium salt plants, cathode material factories and battery factories. The construction cycle of lithium salt plants and cathode material plants is about 1-2 years, while the expansion cycle of lithium resources often takes 3-5 years, while green space projects take more than 5 years. Different construction cycles make it difficult to effectively alleviate the mismatch between supply and demand of lithium resources in the next few years, and lithium resources enterprises will face a revaluation. It is suggested to focus on undervalued enterprises or enterprises with marginal growth of lithium resources that are rich in lithium reserves and benefit from rising lithium prices.
Rare earths and magnetic materials picked up the upward trend again. Last week, neodymium oxide rose 15000 / ton to a new high of 930000 / ton, and NdFeB blank rose 5000 / ton. Trading in the market as a whole was light at the end of the year, but a new round of rally was brewing. There are few signs of improvement at the upstream mine end, and the inventory of rare earth oxides in the whole industry chain is low; the reserve demand in the lower reaches of New Year's Day is strong, and we expect rare earth prices to continue to rise and the ability to transmit costs downstream. In addition, China Science and Technology third Ring Road announced its annual performance forecast for 2021, with a substantial increase in performance, in addition to the improvement of management level and operational efficiency, but also benefited from the excellent order quality and cost transmission capacity of leading manufacturers.
Due to the influence of multiple factors, precious metals still need to wait and see. The price of SHFE gold rose 0.3% to 374.7 yuan / SLV silver rose 0.3% to 4880 yuan / the real yield on kg, 10-year Treasury bonds fell by 0.09% to-1.06%, up nearly 2 tons from the beginning of the week, while SPDR silver positions fell by 16500 tons from the beginning of the week. The number of initial claims for unemployment benefits in the United States fell to 198000 less than expected, and the price of precious metals rose instead of falling, indicating that the market has gradually shifted from trading employment to trading inflation. Considering the accelerated landing of Taper, the pace of Fed interest rate increases may be accelerated but the space is limited, and the short-term suppression of precious metals is weak. At the same time, considering the impact of O'Micron, uncertainty still supports precious metal prices, but the grasp of precious metal prices still needs to continue to pay attention to the monetary policy of various countries and the pace of Fed interest rate increases.
Investment suggestion: in the context of the "double carbon" goal, pay attention to the historic investment opportunities of new energy and new materials, focus on new energy metals (lithium, cobalt, nickel, rare earth) with strong demand and weak supply pattern, and new metal materials that benefit from industrial upgrading and domestic substitution. Lithium suggests paying attention to Tianqi Lithium Industry, Ganfeng Lithium Industry, Yongxing material, Shengxin Lithium Energy, etc.; New Materials suggest paying attention to Homei New Materials, Power Diamond, Hesheng shares, Quartz shares, Bowei Alloy, Chujiang New Materials, etc. Titanium suggests paying attention to Bao Ti shares, Anning shares, etc.; Precious Metals suggest paying attention to Chifeng Gold, Yintai Gold, Precious Research Platinum Industry, etc. Industrial metals suggest to pay attention to cloud aluminum shares, Shenhuo shares, Western Mining, Zijin Mining, Lizhong Group, Suotong development and so on.
Risk factors: lower-than-expected decline in downstream demand, a shift in supply-side constraint policies, less-than-expected domestic liquidity easing, higher-than-expected liquidity tightening in the United States, a sharp fall in metal prices, and so on.
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