Short-term disturbance does not change cycle law resource value revaluation will continue [institutional review]

The short-term disturbance does not change the periodic law, and the revaluation of resource value will continue. In February, the growth rate of social finance and credit was lower than expected, further strengthening the expectation of stable growth policy. The economy is underpinned by policy, and similarly, metal prices are supported by low inventories. The current conflict between Russia and Ukraine has led to instability in the international situation, repeated superimposed epidemics, suppression of metal supply and demand at the same time, and the current situation of low inventory is difficult to improve in the short term. And the current complex global situation may affect the progress and intensity of capital expenditure on metal resources, and also support the metal price center to maintain a high level for a long time. Short-term extreme disturbance factors occur frequently, and metal prices fluctuate sharply, but they will not reverse the law of cyclical operation. We believe that the general trend of high metal prices will not change, and the revaluation (valuation repair) of metal resources enterprises will continue. At the same time, the demand for hedging and hedging of precious metal assets continued to rise.

The upward trend of aluminum prices is still supported, while short-term copper prices are still supported by high inflation. This week, SHFE aluminum prices fell 6.9% to 21950 yuan / ton, and the industry's average gross margin fell to 4842 yuan / ton due to fluctuations in midweek aluminum prices. According to wind data, aluminum ingot accumulation of 21000 to 1.109 million tons, the pace of accumulation continues to slow down. At present, the conflict between Russia and Ukraine is still the main factor affecting aluminum prices. Affected by the shock of the commodity market in the middle of the week, superimposed domestic electrolytic aluminum production capacity in the early stage to resume production and speed up, the downstream part of the start-up was suppressed by aluminum prices, the growth rate slowed down, and the lack of confidence in more investment led to the downward shock of Shanghai aluminum. Considering the continuation of the current tension between Russia and Ukraine, it is expected that overseas electrolytic aluminum will continue to be affected by the European energy crisis, while overseas alumina is expected to be tight due to the conflict between Russia and Ukraine. At present, there is still a large price gap between domestic electrolytic aluminum and alumina and overseas goods, and there is a trend of further expansion. The current Shanghai-to-London ratio is 6.25, which is the lowest since 2018. The price gap between domestic and foreign alumina has widened to 200 yuan / ton, the highest point since 2019. It is expected that with the further expansion of commodity price differences at home and abroad, the import window will continue to close, while the further expansion of the gap between overseas supply and demand will stimulate the export of domestic electrolytic aluminum and raw materials, and the upward trend of commodity prices is still supported. It is suggested that attention should be paid to the electrolytic aluminum enterprises with the integration of the industrial chain. SHFE copper prices fell 0.7 per cent to 72370 yuan per ton, LME+SHFE inventory of 4857 to 208600 tons, copper prices this week mainly affected by the conflict between Russia and Ukraine and macro aspects, the continuation of the conflict between China, Russia and Ukraine led to crude oil prices rose and copper prices rose, followed by the Federal Reserve interest rate hikes and commodity market shocks, prices fell. Short-term copper prices are expected to remain supported by high inflation, but fundamentals may be shaken by supply-side release and demand-side moderation.

The shortage of resources continues to suppress the operating rate of lithium salt plants. This week, the price of lithium carbonate in Wuxi plate fell 1.99% to 492500 yuan / ton, Baichuan industrial carbon and electric carbon prices rose 1.5%, 2.0% to 49.75 yuan / ton, 517500 yuan / ton, lithium hydroxide rose 6.6% to 481900 yuan / ton, spodumene price rose 0.7% to 2735 US dollars / ton. The price difference between lithium hydroxide and lithium carbonate is gradually narrowing. The supply of lithium salt has decreased slightly this week, mainly due to the limited supply of spodumene raw materials in Australia. The operating rate and production of lithium carbonate decreased by 0.27% to 44.99% and 4076 tons, while the operating rate and production of lithium hydroxide decreased by 1.3% to 47.04% and 3465 tons, respectively, and their inventories decreased by 1.2% and 1.75% to 4840 and 728 tons, respectively. On the demand side, according to the China Automobile Association, in February 2022, China's production and sales of new energy vehicles were 36.8 and 334000 respectively, an increase of 198% and 205% respectively over the same period last year, and a decrease of 19% and 23% respectively from the previous month, continuing to maintain a trend of rapid growth. According to the Battery Industry Innovation Alliance, China's power battery production and installed capacity reached 31.77Gwh and 13.67GWH respectively in February, up 236.2% and 145.1% respectively from a year earlier, while production increased by 7.1% month-on-month, while installed capacity fell 15.5% month-on-month. The situation of production rise, loading and falling occurs, first, because February is generally limited by the number of days of production and marketing and the impact of the Spring Festival holiday, there is usually a double decline in production and installation compared with the previous month, so a sharp decline in installed capacity this month is a normal phenomenon. Second, the annual battery installed capacity and the production and sales of new energy vehicles in 2021 repeatedly hit record highs, raising the terminal market demand expectations for the whole year to a certain extent, and the increase in output does not rule out the possibility of terminal part of the enterprise reserve inventory. From the perspective of production subdivision, the output of ternary battery and lithium iron phosphate battery was 11.64Gwh and 20.05GWH respectively, an increase of 8% and 7% respectively over the previous month. Lithium iron phosphate suppressed the ternary battery with 63% of the proportion, which was good for the demand for lithium carbonate. Under the combined action of strong supply constraints and high demand growth, the operating trend of high lithium price is difficult to change, the performance of lithium resources enterprises will grow faster than expected, and the enterprise value will face re-evaluation.

The price of rare earths has fallen slightly this week. Praseodymium neodymium oxide fell 3.62% to 1.065 million yuan / ton, and metal praseodymium neodymium oxide dropped 3.62% to 1.33 million yuan / ton. Affected by the mood of buying up and not buying down, the heat of market transactions has obviously cooled down. However, at present, the upstream and downstream are still operating normally, and the supply is severely affected by the epidemic situation at home and abroad, and the clearance time of Myanmar ports has been delayed; the rainy season in the south is approaching, the mineral industry in Jiangxi has not yet fully started, and the oxide supply gap still exists. Recently, China's General Administration of Customs released import and export figures for the period from January to February 2022, of which rare earth exports were 7835 tons, an increase of 10.8 percent over the same period last year, and the average export price increased by 46.8 percent. In February, the procurement and inventory of magnetic materials enterprises have not been completely consumed, and the wait-and-see mood of the market is expected to continue.

Precious metals prices still have support. SHFE gold rose 2.65% to 405.1 yuan / g, and SHFE silver rose 1.82% to 5154 yuan / kg. The real yield on the US 10-year Treasury note fell 1pct to-0.94%. The position in gold rose 10 tons to 1064 tons, while the position in SLV silver was 16900 tons, basically the same as last week. The current geopolitical conflicts and high inflation expectations remain the main drivers of precious metal prices. The continuation of the conflict between Russia and Ukraine still supports precious metal prices, but the rising energy prices caused by the ongoing conflict between the two sides and the consequent inflationary pressures may be the main drivers of current precious metal prices. CPI in the United States rose 7.9% in February from a year earlier, a 40-year high. The Fed's decision to raise interest rates 25bp once again broke the expectation that the rise in crude oil prices would lead to an increase in interest rates. Short-term inflationary pressure is expected to be difficult to ease, and precious metals prices still have support.

Investment suggestion: in the context of the "double carbon" goal, attach importance to the historic investment opportunities of new energy and new materials, focusing on new energy metals with strong demand and weak supply pattern and new metal materials benefiting from industrial upgrading and domestic substitution. The strong supply constraints of metal resources caused by long-term low capital expenditure will support the high price of non-ferrous metals in the next few years, while inflation expectations will be superimposed by domestic monetary policy to remain loose. Non-ferrous metal resources enterprises will usher in investment opportunities for revaluation. Lithium suggests paying attention to Tianqi Lithium Industry, Ganfeng Lithium Industry, Shengxin Lithium Energy, China Mineral Resources, Yongxing Materials, etc., and new materials suggest paying attention to Platinum New Materials, Lizhong Group, Homei New Materials, Hesheng shares, Quartz shares, Bowei Alloy, etc. Titanium suggests paying attention to Precious Titanium shares, Anning shares, Western Materials, etc.; Precious Metals suggest paying attention to Precious Research Platinum Industry, Chifeng Gold, Yintai Gold, etc. Industrial metals suggest to pay attention to cloud aluminum shares, Shenhuo shares, Western Mining, Zijin Mining, 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.