First, [macro] high inflation in the United States is not a short-term phenomenon.

Let's take a look at the current historical position of inflation in the United States. According to CPI, the January CPI data of the United States, which was released last week, recorded 7.5%, the highest level in the past 40 years. The last time the US CPI reached such a high position, it was back in 1982. From the perspective of core CPI, the core CPI of the United States in January was 6% year-on-year, also the highest in nearly 40 years. Even if you look at the Fed's inflation-focused PCE and core PCE data, the conclusion is similar. January's PCE and core PCE data have not yet been released, and from December last year, they both hit a 40-year high. What happened 40 years ago, we all know that Federal Reserve Chairman Volcker chose to govern with an iron fist in the face of the high inflation in the US economy after the oil crisis.

Next, we want to explore the causes of the high inflation in the United States this time. To sum up, we think it is related to high demand, shortage of supply chain and shortage of labor force.

First of all, the high demand caused by the monetary and fiscal stimulus in the United States after the epidemic. Friedman said that all inflation is a monetary phenomenon. After the outbreak, the Fed launched an epic flood, and the size of the Fed's balance sheet soared from 4.1 trillion to 8.8 trillion, more than doubling in two years. This will of course bring inflationary pressure. The problem is not only that, the United States has also introduced large-scale financial subsidies, directly increasing the consumer demand of Americans. In 2021, per capita consumer spending in the United States grew by 11.7%, of which commodity consumption grew by 17.3%, far exceeding the 3% growth rate before the epidemic. The economic environment, especially the supply chain, can not match the consumer demand to such a large extent.

The second is the supply chain shortage that has not been solved in the United States under the epidemic, which is highlighted by the transportation block. Objectively speaking, capacity utilization in the United States has undergone an obvious repair process in the post-epidemic era, returning to and exceeding the epidemic level at the beginning of 2021. But the problem is that while demand is at an all-time high, capacity utilisation is not back to its previous high, which is still one percentage point short of the previous high of 77.2%. In fact, academia has long discovered this problem. Since the 1960s, capacity utilisation in the United States has shown a clear long-term downward trend, and the highs after each economic recovery have been lower than those of the previous round. More serious than capacity repair is the problem of transport congestion. We see that the inventory-to-sales ratio of US retailers is currently only 1.1, the lowest since the data began in 1992, and more than 20% lower than the 1.4 before the epidemic, while the inventory-to-sales ratio of manufacturers is higher than that before the epidemic, reflecting the hindrance in the transportation of finished goods from manufacturers to retailers.

Finally, there is the problem of labor shortage after the epidemic and the resulting wage-inflation spiral. Due to concerns about the spread of the epidemic and epidemic relief and other reasons, a large number of Americans withdrew from the labor market after the epidemic, and the labor force participation rate was much lower than the pre-epidemic level. As of January 2022, the US labor force participation rate was 62.2 per cent, still 1.2 percentage points lower than before the epidemic, and employment was still about 1.7 million fewer than before the epidemic. According to the Duke University CFO survey, 74 per cent of CFO respondents said they had difficulties in filling job vacancies, and 82 per cent of them raised their starting salaries by an average of 9.8 per cent in response. As of January 2022, the average hourly wage of private non-farm employees in the United States increased by 5.7% compared with the same period last year, with an increase of more than 4% for seven consecutive months. It can be said that the wage-inflation spiral in the United States has initially taken shape.

Continue to analyze the persistence of these factors, it is not difficult to see that high inflation in the United States is not a short-term phenomenon. With regard to the start of the Fed's tightening cycle, there are already full expectations in the market that the Fed will begin to raise interest rates in March and shrink the table in April. Fed tightening will help curb the rising momentum of inflation, but the real role of monetary policy is lagging behind, generally lagging behind by half a year or so. With regard to the problem of transport congestion, according to a survey conducted by Duke University in the United States, the vast majority of CFO companies do not expect the problem to improve until the second half of 2022 or later. With regard to labour shortages and wage increases, historical experience shows that the repair of the labour force participation rate is a long-term problem, and the labor force participation rate in the United States has not returned to pre-crisis levels for four and a half years after the 2008 financial crisis. The wage-inflation spiral is self-fulfilling and takes a lot of effort to reverse.

Finally, given that high inflation in the United States is difficult to solve in the short term, and the unemployment rate has reached the Fed's target, subsequent inflation control will become the Fed's top priority, and aggressive interest rate hikes by the Fed are entirely predictable. However, even if the Fed raises interest rates, it will be more effective in managing inflation on the demand side and much less effective on the supply side. The problem this time is precisely inflation driven by both the demand side and the supply side, and it will take longer to manage successfully.

II. [strategy] Stock selection strategy under the cycle of energy inflation

First of all, let me tell you what we think of the current cycle of energy inflation from a strategic perspective. We think the most long-term dimension of commodity pricing is currency. Because the speed of money issuance far exceeds the rate of economic growth, and also far exceeds the growth rate of commodity supply and demand, the price ratio of commodities and currencies will continue to rise. Each sharp rise in parity does not only reflect the gap between supply and demand in that year, but also an one-time valuation of the cumulative impact of currency overissuance over the past decade or so. The collapse of the Bretton Woods system in the 1970s and the rapid increase in the degree of industrialization in China at the beginning of the 20th century were the triggers of the "super cycle" rather than the essential causes. It is completely different in terms of supply and demand, but similar in terms of money.

For most of the past decade, the PB of cyclical stocks has been low, and in many cases, even if they have made money, they will not build capacity because equity and debt financing are unreasonably priced and regulated by policy. The low PB of cyclical stocks is mainly due to the slow growth of demand in these industries, which is reasonable to some extent. However, due to the inertia of the capital market, the pricing will be too low, which will lead to an excessive decline in the financing speed of these industries and the willingness to build capacity.

If this energy cycle is longer than the previous cycles of the past decade, the impact on the stock market pricing system will be huge. In terms of stock selection strategy, we need to pay attention to the following three major adjustments:

(1) listed companies with heavy assets will become better than listed companies with light assets. The intrinsic value of listed companies depends on discounted cash flow. In the long run, stock prices fluctuate around value. We recently made statistics on the relationship between the cumulative ROE trend and the stock price trend of various industries since 2000. We can see that from 2000 to 2010, the cycle and financial stock prices deviated more from the ROE trend, and occasionally fell to a position closer to the ROE trend is a good buying point. After 2010, consumption and growth deviated more from the ROE trend. Now consumption and growth deviate from the ROE trend similar to the bull market in 2015, while cycle, finance and stability are still under the ROE trend. Most of the period from 2000 to 2010 was accompanied by an energy inflation cycle.

(2) the interest rate environment fluctuates sharply, and the current profit is more important than the long-term profit. Once the inflation hub goes up, interest rates will enter the medium-and long-term upward channel. Although there is much less pressure on China, it cannot be ruled out that it will have an impact on pricing. From 2000 to 2010, China was in an energy inflation cycle because of its rapid industrialization. At that time, the U. S. stocks, we saw a situation is partial cycle, real estate, financial plate is stronger. Although the inflationary pressure in the United States at that time was not very great. The current situation is the opposite. Inflation in the United States is very high and domestic inflation can be controlled, but the performance of the capital markets will be similar. Due to changes in inflation and interest rates, the capital market will increase the pricing of current profits and reduce the pricing of future profits, because interest rate fluctuations will increase.

(3) time choice, cyclical stocks are lagging indicators after 2011, but then cyclical stocks may become leading indicators. Historically, cyclical stocks are often the leading signal of the economic cycle, but since 2013, we can see that the leadership of cyclical stocks is relatively weak, and the rise of cyclical stocks from 2016 to 2017 is basically synchronized with the rise of the stock market. In the economic recovery cycle from 2020 to 2021, cyclical stocks began to outperform the index only from 2020. If we look at the economic recovery cycles of 2005-2007 and 2009-2010, cyclical stocks tend to bottom out and strengthen ahead of time.

III. [energy] the underlying logic of the energy cycle

The underlying logic of the energy cycle: the so-called big cycle, first, it will last for a long time, at the level of several years, and second, the level of energy prices will continue to exceed expectations and hit record highs. As energy resources are in the upstream, they are widely transmitted through downstream electricity, gasoline and diesel, chemical industry, raw materials and so on, so in history, large inflation is often caused by the energy crisis, of course, the causes of the energy crisis can be different. I think this round of inflation in energy resources is not like 2016-2018 or 2009-2011, but similar to 2002-2007, which is now equivalent to around 2004, and is a real production cycle. In essence, energy looks at demand in the short term, supply in the medium term, and money in the long term. This round of energy inflation is actually based on the supply capacity cycle, superimposed by long-term monetary overissuance as a boost. Next, I would like to focus on three points:

First of all, the root cause of the big cycle is that the energy industry has been in the doldrums for a decade, capacity has been cleared, capacity investment has declined over the past five to ten years, and capital expenditure has been seriously inadequate. In terms of coal overseas, since 2008, China has been declining for a long time since 2012, and domestic and foreign production capacity has been gradually cleared. U.S. coal production in 2008 was about 1.2 billion tons, and now it has dropped sharply to about 500 million tons in 2021. Domestic coal prices have been greatly reduced in the late period of the 12th five-year Plan, and the production capacity has been reduced by more than 1 billion tons after the supply-side structural reform superimposed by the 13th five-year Plan. But what is more crucial is that with energy deflation, especially since the shale oil and gas revolution in the United States hit oil prices, global capital has rapidly and significantly withdrawn from fossil energy, and the capital expenditure on coal and oil and gas has fallen sharply and is obviously inadequate. as a result, the new production capacity is very limited, regardless of coal or oil and gas, resources continue to be weak, and even zero supply growth, negative growth, this is the root cause of the current cycle of energy inflation. We should also note that coal and oil resources is a typical depletion trend, in the past decade of high-intensity exploitation, especially in overseas and domestic central and eastern regions of many mining areas have been in the trend of declining production capacity.

Second, this round of energy inflation is significantly different from the previous crude oil-led rise in that gas and electricity come first, followed by coal, and crude oil will only be late and will not be absent. I mentioned this situation in an exclusive interview with the Securities Times last year. One reason is that there are two ways of global energy transformation: one is to use as much secondary energy as possible and then replace it with new energy, and the other is to use more relatively low-carbon natural gas when we have to use primary energy. We see this logic in electricity substitution and natural gas substitution. Therefore, the shortage of natural gas and electricity represented by Europe is the result of this background, and another thing that can be used for power generation is coal, and the shortage of natural gas has to further increase coal consumption. this is the reason for the substantial increase in coal imports in major European countries last year, while oil is mainly in traffic downstream, which is affected by both the travel restrictions of the epidemic and the development of electric vehicles. Demand is clearly not as strong as natural gas and coal. The second reason is that the last cycle of coal reached its peak earlier than oil and gas, and the production capacity was cleared earlier and more thoroughly. Oil and gas due to the US shale oil and gas revolution made the United States the largest oil and gas producer in the world, resulting in the formation of OPEC+ and surplus production capacity, but these are only late factors, and oil will not be absent, which we repeatedly stressed last year.

Third, in terms of the duration of this round of energy inflation, unless there is an economic crisis and a precipice decline at home and abroad, there is a high probability of at least three to five years, depending on the capacity construction cycle and investment willingness and capacity. The demand for energy and coal is elastic, but the supply is inelastic or extremely low, and the economy is better, almost energy, electricity and coal consumption is growing, but the supply is due to a serious shortage of capital expenditure and capacity construction activities in the past three or five years. Do not grow or grow very low with future economic growth, this rhythmic mismatch is the source of continuity, as for stagflation or inflation depends on whether the economy is good or bad. In terms of production cycle, the production capacity construction cycle of conventional oil and gas fields is about two to three years, and coal mines are generally more than three to five years, so even if we step up investment from now on, it is difficult to put production capacity in the short and medium term, resulting in a dimension of three to five years, but we should pay more attention to investment willingness and capacity, especially in terms of willingness, as global ESG investment has prevailed in the past few years, superimposed global carbon neutralization. The willingness to invest in fossil energy is still very low, and it may even be a prolonged downturn, which may further lengthen the capacity cycle.

Based on the above points, we continue to take a comprehensive look at the historic opportunity of a large cycle of coal, oil, gas and energy. The issue of oil will be talked about by Chief Shuxian in a moment, and Chen Xin, a researcher in our team, will also talk about it. Finally, I will talk about coal alone.

The difference in coal expectations should be the biggest. Since last year, the small tender lotus has just revealed its tightly wrapped leaf tip, and it should be said that the opportunity has only just begun. The current valuation of the sector is far from reflecting the degree of fundamental prosperity, let alone the persistence of tighter coal supply and demand and rising prices. Undervaluation, high performance certainty and considerable dividend income make the coal sector "offensive and defensive". Under the strong fundamentals, coal prices are easy to rise and difficult to fall, and the hub is gradually rising, the coal sector will enjoy the dividend of time for a long time, the systematic revaluation market has just begun, and the sector is an overall opportunity to maintain the industry's "bullish" rating. Focus on the recommendation of power coal leader Yanzhou Mining Energy, Shaanxi Coal Industry, China Shenhua Energy and so on, coking coal is optimistic about Pingping Coal shares, Panjiang shares, Shanxi Coking Coal and so on. The main risk of the energy inflation cycle is the collapse of the economy. For specific data, laws, trends and policies of coal production capacity, please refer to the in-depth study we released last year or make further exchanges. There is also a relevant in-depth report on energy, coal and electricity demand, which you are welcome to refer to.

IV. [petrochemical] oil and gas upstream plate ushered in historical opportunity

1. Demand side:Global crude oil demand slowly recovers

In 2022, global demand for crude oil is expected to return to pre-epidemic levels. In 2020, due to the outbreak of the COVID-19 epidemic, the global economy was seriously affected. Global crude oil demand dropped sharply by about 9 million b / d compared with 2019, and crude oil demand quickly recovered by about 5.5 million b / d in 2021. According to IEA, it will continue to recover about 3.3 million b / d in 2022, of which aviation kerosene will accelerate the recovery of about 1 million b / d after the opening of international flights. On the whole, the recovery rate will slow down to the end of 2022. Global demand for crude oil will return to pre-epidemic levels.

In terms of products, IEA expects that transportation oils such as gasoline, diesel, aviation kerosene and fuel oil will be greatly affected by the epidemic, falling by about 2 million barrels per day in 2022 compared with 2019, accounting for 67% of global crude oil demand from 69% in 2019, while demand for chemical raw materials such as LPG, ethane and naphtha will continue to increase by about 2 million b / d in 2022 compared with 2019, accounting for 33% of global crude oil demand from 31% in 2019.

From a regional point of view, IEA expects the Asia-Pacific region and the former Soviet Union to lead the economic recovery, increasing by 2 million b / d in 2022 compared with 2019 and accounting for 42 per cent of global crude oil demand from 40 per cent in 2019, while regions such as the Americas, Europe, the Middle East and Africa recover slowly, falling by about 2 million b / d in 2022 compared with 2019 and accounting for 58 per cent of global crude oil demand from 60 per cent in 2019.

We define the global crude oil demand growth rate / global GDP growth rate as "global crude oil demand / GDP elasticity coefficient". The elasticity coefficient ranges from 2000 to 2019, with a 20-year average of 0.52. due to the excessive impact of the epidemic on the transportation sector in 2020, the elasticity coefficient is as high as 2.38. with the continuous repair of oil in transportation and chemical industries in 2021, the elasticity coefficient decreased to 0.96. According to IMF's forecast of global GDP growth in 2022 and EIA's forecast of global crude oil demand growth in 2022, we estimate that the coefficient of elasticity will continue to decrease to 0.73 in 2022.

In the medium to long term, the increase in global demand for crude oil is about 1.5 million barrels per day. Considering that the global crude oil demand will basically return to the pre-epidemic level after 2022 and the proportion of oil in the global energy consumption structure will gradually decline, we expect that the coefficient of elasticity of crude oil demand / GDP will gradually fall back to 0.4-0.5 in 2023-2026, which is lower than the central level in 2000-2019. According to IMF's forecast of global GDP in 2023-2026, we expect the growth rate of global crude oil demand to slow to 1.35% Liv 1.7%. Corresponding to the annual increase in crude oil demand is about 1.5 million barrels per day.

With a new outbreak of the epidemic, there are still downside risks in oil prices. After entering 2021, the epidemic remains the primary factor affecting global crude oil demand. As of January 2022, the world has experienced three major rebound of the epidemic: in the first round, from April to May in 2021, Europe and India successively encountered a counterattack of the epidemic, the superimposed AstraZeneca PLC vaccination was suspended by many European countries, and the scope of infection of the variant virus expanded. The number of new confirmed cases of COVID-19 pneumonia in the world surged to more than 850000 per day. In the second round, during the period from July to August in 2021, the Delta strain further spread, causing severe epidemic situations in Europe and the United States. The new confirmed cases of COVID-19 pneumonia Day around the world once again reached a peak, reaching more than 700000 cases per day. The COVID-19 epidemic repeatedly increased the uncertainty of crude oil market demand, and oil prices fluctuated negatively many times. In the third round, since December 2021, the spread of Omicron strain has accelerated. Represented by Europe and the United States, the number of new confirmed cases around the world has rebounded sharply to more than 2 million cases per day. Although the global vaccination process is accelerating, there is still uncertainty about the progress of global economic recovery disturbed by the epidemic, which also leads to downside risks in oil prices.

3. Supply side:The recovery of crude oil supply in the United States is slow, and the elasticity of increasing production is decreasing.

Crude oil supply in the United States has recovered slowly. Before the 2020 epidemic, U.S. crude oil production had reached 13 million barrels per day, surpassing Saudi Arabia and Russia as the largest crude oil producer. However, after the COVID-19 epidemic, the price of crude oil fell below its cash cost again, causing severe damage to US crude oil producers. Between 2020 and 2021ji, the recovery of crude oil production in the United States was slow. During this period, the international oil price has recovered from 20-30 US dollars per barrel to 70-80 US dollars per barrel, while the recovery level of drilling rigs is limited. As of November 2021, the number of active drilling rigs in the United States was less than half of that in 2018. At present, the United States produces about 11.4 million barrels per day of crude oil, and the total output of shale oil is about 8.3 million barrels per day, accounting for about 73 per cent of the total crude oil production in the United States.

Since the oil price rebounded in the second half of 2020, US oil and gas companies do not have sufficient funds to support new well drilling. Us shale oil companies give priority to high production per unit area, and increase the completion operation of inventory wells (DUC, Drilled but Uncompleted). The highest completion rate is more than 200%, and the number of inventory wells has dropped sharply, but it only enables the new shale oil production to hedge the decline of other old wells and maintain a steady increase in shale oil production.

We believe that the slow recovery of shale oil production from 2020 to 2021 is related to the financial pressure and financing difficulties of shale oil companies. According to the oil price data cited by 15 banks when lending to oil companies, especially shale oil companies, cited by Haynes Boone, a US law firm, it can be found that different bank loans refer to oil prices in a wide range and fluctuate widely. From the average point of view, in 2021 Q3, Bank of America Corporation only assessed the oil price according to the oil price standard of 60 US dollars per barrel in 2021, while the oil price was basically around 75 US dollars per barrel during 2021 Q3. The reference oil price for bank loans is much lower than the actual oil price in the third quarter, which shows that banks are more cautious in loan evaluation, and the loan environment of American shale oil companies is more stringent.

According to the bankruptcy number and debt situation of US shale oil companies counted by Haynes Boone, during the Q2-Q3 period in 2020, the number of bankruptcy of US oil and gas companies again reached the highest level in recent years, which was the same as that of single-quarter bankruptcy in 2015-2016. At the same time, the debt level of US oil and gas companies also reached a high level during this period. In the 2020 epidemic environment, regardless of bankruptcy or not, the debt pressure of American shale oil companies is very high, the capital flow situation is deteriorating, and the financing cost is high.

According to the forecast of EIA, US crude oil production will gradually recover in 2022, with an increase of 770000 barrels per day compared with 2021, but the elasticity of increasing production will decrease. The main reasons: (1) economy: on the one hand, the oil price has reached more than $70, and the cost of crude oil production in the United States is $55. From the perspective of cash flow, it is economic for American shale oil companies to carry out crude oil production activities, but the funds for shale oil companies' production activities are limited. (2) Policy: Biden intends to develop clean energy, and its support for shale oil is limited.

To sum up, we believe that there will be a sharp upward inflection point in oil prices in 2022. Combined with the forecasts of the three major institutions IEA, OPEC and EIA, in 2022, affected by some unrest in the Middle East in the first quarter, the supply of OPEC crude oil is expected to fluctuate greatly. from the demand side, the current global economic recovery is relatively slow, but the European natural gas crisis and the cold winter have increased the demand for oil as a natural gas substitute, and the oil price is expected to rise to a certain extent. After entering the second quarter, Russia, Saudi Arabia, the United Arab Emirates, Iraq, and Kuwait raised the production reduction benchmark by 1.63 million barrels per day, the increase in OPEC+ production expanded, the pressure on the market accumulation increased, the superimposed global economic stimulus policies withdrew one after another, and oil prices may decline. By the second half of 2022, the global economy will recover further, but due to capacity constraints, it is difficult for some OPEC countries to achieve the expected production targets, and oil prices are expected to return to the upward channel.

The medium-and long-term oil price center is expected to rise. In the medium to long term, considering the lack of long-term capital expenditure on global crude oil, the surplus capacity of OPEC+ countries is on the verge of exhaustion, the development and production cycle of traditional oil and gas assets is long, and the support of the Biden government for shale oil in the United States is limited, we believe that the elasticity of global crude oil supply will decline after 2023, while the annual increase in global crude oil demand from 2023 to 2026 will be about 1.5 million barrels per day. After 2023, the world is expected to be in a tight balance or even a partial period of substantial destocking, and the oil price hub is expected to return to more than 75 US dollars per barrel after 2023.

Fifth, [non-ferrous] profits continue to improve, the industry is expected to usher in the overall valuation repair

Core point of view: under the background of the inflation cycle, the overall price of non-ferrous metals will remain high in 2022, corporate profits are expected to continue to rise, plate valuations will return to low levels, and investment clues in the non-ferrous industry in 2022 will shift from the price rebound in 2020-2021 to thickened profits. under the background of sustained easing of domestic monetary policy, the non-ferrous sector may start an overall valuation repair market. Sectors with good or higher-than-expected profits will usher in more definite investment opportunities.

China added 6.17 trillion yuan in social finance in January, an increase of 984.2 billion yuan over the same period last year, and the figures significantly exceeded expectations, reflecting the initial success of the policy of stabilizing growth and the beginning of infrastructure investment. In the United States, the CPI rose 7.5% in January from a year earlier, compared with the previous value of 7%. The market expects 7.2% to rise 0.6% month-on-month, and the market expects 0.4%. Us CPI exceeded expectations on a month-on-month basis, hitting a new high in the past 40 years, reflecting rising inflationary pressures. Both non-farmers and CPI exceeded expectations, and the Fed expected more interest rate hikes in March, gradually weakening the restraint on non-ferrous metals, while the asset hedging (inflation hedge) properties of industrial and precious metals will be revealed in the context of high inflation. In addition, several rounds of Fed interest rate hikes in history have been accompanied by a high boom in industrial production, and there is a strong support for commodity demand. We believe that in this interest rate hike cycle, non-ferrous metals will still have a strong fundamental support, on the demand side, on the one hand, supported by China's stable growth policy, on the other hand, the global development of new energy continues to boost the increase in marginal demand for new energy metals. On the supply side, global metal mining activity has been in a deep adjustment since 2012. Global investment in mining exploration and mining has remained low in the past eight years and is expected to improve from 2021. It takes a long time for metal mines to be discovered and put into production. In the foreseeable next few years, metal minerals will be subject to the decline of output growth caused by long-term low input in the front end of development, and the elasticity of supply will gradually weaken. In addition, the relations between Russia and Ukraine and the prevalence of resourcism in Indonesia and other resource countries have caused uncertainty to the supply of resources. At present, inventories of all kinds of non-ferrous metals are generally back to historic lows, and we expect the phenomenon of low inventories to continue in the next few years, and metal prices as a whole will remain high, providing strong support for sector performance release and valuation repair.

As aluminum prices rise and costs fall, the profitability of the electrolytic aluminum industry becomes wider. Aluminum price hub 18500 in 2021, the current price is close to 23000, SHFE aluminum price rose 2.2% to 22890 yuan / ton, the average gross margin of the industry rose. According to wind data, the accumulation of aluminum ingots is 211000 to 916000 tons, and the reduction of overseas electrolytic aluminum production capacity has led to the closure of the domestic import window of aluminum ingots, and the pace of accumulation is expected to be slow in the off-season. In the short term of supply, in China, the progress of resuming production capacity such as reduction capacity such as double control of energy consumption is slow, and the production capacity of electrolytic aluminum in Guangxi is about 500000 tons / year. Considering that the production capacity of alumina and electrolytic aluminum in Guangxi accounts for a relatively large proportion in China (2.635 million tons / year, 6.2%). Alumina 12.45 million tons / year, accounting for 13.9%), electrolytic aluminum supply is tight, superimposed alumina prices or affected by the epidemic in Guangxi will jointly support the upward trend of aluminum prices. On the demand side, downstream aluminum processing enterprises return to work and production after the festival, and the demand of aluminum plate, strip and foil enterprises is strong, and there is still support to go to the warehouse. Considering that the European energy crisis is difficult to solve in the short term, the demand for aluminum for new energy downstream strongly superimposes the disturbance of the epidemic in Guangxi, and the aluminum price center is expected to continue to rise.

High inflation expectations support precious metals prices. SHFE gold rose 2.4 per cent to 378.8 yuan / g, SHFE silver rose 2.7 per cent to 4829 yuan / kg, the real yield on US 10-year Treasuries fell to-0.51 per cent 3pct to-0.51 per cent SPDR gold positions rose 7.8t to 1019 tons, while SLV silver held 16900 tons, basically the same as last week. In the United States, CPI rose 7.5% in January from a year earlier, exceeding expectations. Market interest rate hikes are expected to rise again, but as the market has fully digested the Fed rate hikes during the year, higher-than-expected economic data have instead increased market concerns about high inflation, superimposed by the ECB's higher-than-expected signals of hawkish dollar weakness, continued uncertainty caused by the energy crisis and epidemic in Europe, and support for precious metal prices in the short term.

Lithium prices continue to maintain an upward trend, and the time for plate configuration has come. This week, the price of lithium carbonate in Wuxi plate rose 6.4% to 432500 yuan / ton, Baichuan industrial carbon and electric carbon prices rose 5.6%, 3.9% to 37.55 yuan and 395400 yuan / ton, lithium hydroxide rose 4.9% to 321900 yuan / ton, and spodumene price rose 0.7% to 2710 US dollars / ton. the growth rate of lithium prices continued unabated after the Spring Festival. On the supply side, the operating rate and output of lithium carbonate increased by 13% to 42% and 3808 tons respectively, and inventory increased by 0.18% to 4939 tons. Lithium hydroxide is 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 from the previous month, and the inventory decreased by 0.89% to 780 tons. It is expected that the total output of lithium hydroxide will continue to be affected by major factory overhauls in February. MRL released the FY2022 report that it is expected that the technical transformation of the MT Marion mine will increase the production capacity by 20% to 30% in the future. at the same time, the first phase of the Wodgi na mine is expected to start in April 2022, and the 25000 ton / year lithium hydroxide project of Kemerton is expected to be completed by the end of November 2022. Overall, the increase in lithium supply will be released in the second half of 2022. The overall sales data of new energy vehicles on the demand side in January are not available, but from the sales data of major domestic new energy vehicle companies, the market is not weak in the off-season. According to the statistics of Gao Gong Lithium, around the Spring Festival in 2022, nine projects involving power and energy storage batteries were started, with a total investment of more than 79.8 billion yuan and capacity planning exceeding 176GWH; six power battery projects with a total investment of more than 108 billion yuan and capacity planning exceeding 215GWh were signed. On the one hand, the expansion of power battery production comes from the strong market demand, on the other hand, market orders provide certainty space for the release of new production capacity. To sum up, the supply of lithium resources is not expected to improve significantly in the short term, and lithium prices may remain high under the environment where the demand is not weak in the off-season. According to our lithium supply and demand estimates, it is estimated that the lithium resource supply will increase by about 177000 tons in 2022. If we assume that the global production growth rate of new energy vehicles is 50%, the supply and demand will maintain a tight balance throughout the year, and the lithium price center is expected to maintain high operation in 2022.

For the fundamentals of the lithium industry and related companies, the market expectations are more consistent, and the current differences mainly lie in whether the valuation of lithium resources companies has the same valuation system as other strong cycle commodities. We do not deny that lithium also has strong periodic properties, which is theoretically consistent with other commodity valuation systems, but we believe that lithium should have a valuation center that is different from other commodities. The historical valuation centers of gold, rare earth, copper and aluminum, which are also metals, are very different, which is obviously closely related to the growth, scarcity and strategic position of the metal itself. Lithium, as the core material of lithium electricity, will maintain a rapid growth trend in the next 10 years driven by new energy vehicles and energy storage and other applications. In addition, from a static point of view, the supply of lithium resources will continue to be scarce in the next 3-4 years, and the strategic position of lithium resources will continue to improve from various dimensions such as enterprise production protection, industrial supply protection, national resource security and so on. At the current lithium price level, the PE valuation of some lithium companies has been close to 10 times, we expect the performance of lithium plate companies to continue to maintain rapid growth in 2022, the plate is expected to usher in the valuation repair market.

Investment advice:Lithium suggests to pay attention to Tianqi Lithium Industry $Tianqi Lithium Industry (002466.SZ) $$Tianqi Lithium Industry (temporary Code) (810325.HK) $, Ganfeng Lithium $Ganfeng Lithium (002460.SZ) $Ganfeng Lithium (01772.HK) $, Yongxing Materials, Shengxin Lithium Energy, China Mining Resources, etc.; New Materials suggest to pay attention to Homei New Materials, Hesheng shares, Quartz shares, Bowei Alloy, etc. Titanium suggests to pay attention to Baoti shares, Anning shares, Western Materials, etc. Precious metals suggest to pay attention to precious research platinum industry, Chifeng gold, Yintai gold, etc.; industrial metals suggest to pay attention to Yunnan aluminum shares, Shenhuo shares, Western Mining, Zijin Mining Group, Lizhong Group, Suotong development and so on.

VI. What are the opportunities for the real estate industry after the deregulation of pre-sale funds?

On February 10, the national measures for the supervision of funds for the pre-sale of commercial housing were promulgated, which clearly defined the supervision quota of pre-sale funds as "key quota supervision", which was approved by the urban and rural construction departments at the city and county level according to the project cost contract. There are two main differences between this supervision method and the previous "urban commercial housing pre-sale management measures". One is that the management is more clear. The basic standards such as the supervision quota of regulatory funds, the scope of payment and the conditions of access are clearly defined. Clear management standards are conducive to changing the problems in some places, such as unclear supervision policies on pre-sale funds, excessive base and proportion of withdrawal, unreasonable extraction rhythm, and so on. The second is to improve the flexibility of the use of funds, the method mentions that funds within the regulatory quota must be dedicated, when the funds in the account reach the regulatory quota, the funds exceeding the quota can be extracted and used freely by the housing enterprises. the specific allocation nodes are determined by the urban and rural construction departments at the city and county level, and the improvement of the flexibility in the use of funds can alleviate the financial pressure of housing enterprises to a certain extent.

The impact on real estate enterprises lies in two aspects. One is what we have always stressed in the previous roadshow. In order to realize the return of cash flow from the project level to the parent company level, real estate enterprises need a very high market removal rate. The main reason is the supervision of the credit department and the supervision of pre-sale funds, and the adjustment of the proportion of supervision (some cities focus on the supervision of funds. This part of the general regulation of funds is expected to be relaxed, which is equivalent to indirectly reducing the proportion of capital regulation, so that real estate companies can have more cash flow back to the parent company). Similarly, it will be more difficult to remove cash flow by boosting sales. For example, it is much more difficult to increase the removal rate from 50% to 70% than to reduce the proportion of regulatory funds by 10%. Another point is that the flexibility in the use of funds is improved. Previously, the proportion of the highest key regulatory funds that can be withdrawn before the capping of the main structure of some cities is less than 50%. Now the proportion of funds that can be withdrawn from the pre-project nodes (such as 1Unix 3 or 1max 2 or the capping of the main body) will be increased, which can also accelerate the cash flow of real estate enterprises and improve the capital structure of real estate enterprises. According to our estimates, from September to December last year, the size of the national pre-sale fund regulation is about 2 trillion yuan, and the loosening of this area can directly improve the capital chain pressure of housing companies than sales.

Therefore, we have always stressed that the downward trend in this cycle is due to excessive tightening of credit policy, debt default events have intensified capital supervision, resulting in damage to the liquidity of the real estate market, tight capital chain, the core does not lie in the shortage of developers' funds, but in the developers' capital loop can not be opened, the loosening of the capital side is an urgent problem to be solved. The premise of resolving the industry risk must be to open up the access of the capital side of the enterprise, and focus on solving the problem of the capital chain of the enterprise from the supply side. After alleviating the capital-side access, we think that there are two parts that need to be focused on in the follow-up. One is the credit side, especially for the credit side of real estate enterprises. At present, this part has not been significantly improved, private enterprises are still difficult to obtain loans, and the follow-up capacity of real estate enterprises to take land and push goods needs further relaxation of the credit side. The second is the demand side, the relaxation of the capital side can only alleviate the short-term pressure faced by the current housing enterprises, let the housing enterprises live longer, and there is still a certain time lag from the implementation to the effect of the policy, and some housing enterprises facing danger are still difficult to be rescued, so the subsequent need to see demand-side relaxation and cooperation in order to achieve the stabilization and recovery of the industry, from the existing data. In January 30, the sales area of commercial housing in large and medium-sized cities fell by 30.2% from the same period last year, down 23.7% from the previous month. Excluding the effects of the epidemic and the Spring Festival, it fell by 5% compared with the same period in 2019. Various localities have issued stimulus policies on the demand side, such as indemnificatory apartment, provident fund, deed tax, and so on, which do not involve the core of purchase and loan restrictions. We expect that the policy on the demand side will be further increased, including the improved demand for second homes. Even the breakthroughs made by non-core cities in terms of purchase restrictions, loan restrictions, and sales restrictions are expected to be seen this year.

According to the GDP target growth rate of 30 provinces that have issued government work reports in January and the data of previous years, it is expected that the national GDP target growth rate of 5% in 2022 is still the current market consensus target. At present, the contribution of real estate development investment to economic growth is still relatively large. In the past five years, the average proportion of real estate development investment in fixed assets investment is 22.9%, which constitutes an important contribution to the growth of fixed assets investment. At the same time, the characteristics of long chain and many related industries make real estate also make an important contribution to the growth of other industries. It is impossible to switch this economic model quickly in the short term, so to achieve 5% GDP growth, real estate still needs to make efforts on the investment side. At present, China's real estate market urbanization, improvement and demolition and other housing demand is still supported, around the capital and demand-side policies continue to rectify, the real estate industry investment and sales are expected to exceed expectations.

Policy relaxation is good for real estate and property sector: economic downward pressure, liquidity release, real estate policy relaxation is expected to increase is officially the node of real estate enterprises' expected dynamic profitability repair. The current relaxation of the capital side is better for private enterprises under pressure before, such as Metro Holdings, Jinke shares, etc., while the subsequent relaxation of demand-side policies will further consolidate sound operation and excellent management capabilities, and already have enterprises with the nature of a moat of operation. these include large state-owned enterprises that can continue to gather enough for nationalization expansion, such as Poly Real Estate, Jindi Group, China Merchants Shekou, China Real Estate, China Resources Land and so on. There are also obvious regional advantages, regional leaders that can achieve differential competition, such as Binjiang Group, Xuhui Holdings and so on. In terms of the property sector, under the continuous background of the adjustment of real estate policy and the repair of the real estate sector in 2022, as the financial pressure of the real estate enterprises has been alleviated and the risk of thunder explosion of the parent company has been lifted, the property sector will also usher in an obvious repair. Individual property companies with strong independence will be familiar with their growth, and we are relatively optimistic about this type: Country Garden Services Holdings, China Resources Mixc Lifestyle Services, Xuhui Yongsheng service and Jinke service.

Investment opportunities under the recovery of [Building Materials] Infrastructure Industry chain

First of all, at the macro level, China's infrastructure development is in line with the general direction of "steady growth". Under the influence of uncertain factors in the global economic environment, infrastructure construction has become an important starting point for China to stabilize its economy. Since the Central Economic work Conference set the development line of "steady growth"

All provinces and departments have laid out relevant work one after another, and 31 provincial government work reports have been published. although most provinces have lowered their growth targets, with the exception of Beijing and Tianjin, the economic growth targets of other provinces have been set at more than 5.5%. It fully reflects China's development strategy of "striving for progress in stability", and the importance of infrastructure recovery is very prominent.

For the enterprises in the infrastructure industry chain, the improvement of fundamentals requires sufficient demand, loose capital and the formation of a real project schedule.

First, the capital side. Social finance exceeded expectations and the volume of special loans actually ensured a good start to the first quarter. In January, the biggest increase in social finance is in real economic loans, especially long-term corporate loans. The operation of the entire industrial chain of our construction industry has a great demand for funds. The issuance of special bonds has exceeded 500 billion this year, a significant increase compared with the same period last year.

Second, the demand side. There are plenty of orders in the industry, and the operation of enterprises is expected to be significantly improved under the policy support environment. The overall order guarantee coefficient of the industry has always been more than 2 times, the order guarantee coefficient of the head enterprise is more abundant, the order guarantee coefficient is higher, and the average annual compound growth rate during the epidemic is more than 10%. The list of major projects in various provinces and the 14th five-year Plan of various ministries and commissions have also been issued one after another, and in the first half of the five-year Plan, all localities will give priority to ensuring major projects.

Third, the progress of the project. According to the business model of the construction industry, the formation of project progress is the prerequisite for the improvement of fundamentals, the upstream raw materials are sold based on the project schedule, and the downstream construction units collect money from the owner based on the project progress. Last year, the industry as a whole slowed down, and the cement production rate was relatively weak in terms of shipment rate. At present this year, the trend of resumption rate is relatively good, the cement start-up rate is significantly higher than that before the festival, and the number of hours of excavation is higher than that of the Spring Festival last year. From the point of view of the site resumption rate, except for the slow resumption of work in Northeast, North and East China due to climate and the Winter Olympic Games, the resumption rate in South China, Central China, Northwest and Southwest has increased significantly compared with last year. As of February 10, according to the country's 12000 projects, the national return rate was about 27.3%, an increase of nearly 10% compared with the week after last year's festival, and the rate is expected to more than double next week.

Therefore, the recovery trend of infrastructure construction in 2022 is determined. In the medium to long term, the layout of China's infrastructure construction focuses on making up for deficiencies, rail transit, and high-quality development. Under the premise that the intention of financial support is clear and the development of infrastructure projects is moderately ahead of schedule, the first half of the year is more definite.

In the plate selection, we consider two factors, the first is the good demand in the field of subdivision, and the second is the strong ability to resist risks.

The downstream plate suggests to pay attention to the head construction enterprises, and the upstream plate suggests to pay attention to the head building materials enterprises (the pattern or concentration to the head under the background of high energy consumption), as well as the intercity plate with large demand space under the development of traffic powers. the construction anti-seismic plate that the construction industry focuses on conquering during the 14th five-year Plan.

1. Pay attention to the head construction and building materials enterprises, the head construction enterprises have abundant orders, high guarantee coefficient, can better obtain orders for major projects, local priority protection for major projects in our country, and greater financial support, so the demand is better. in the case of large fluctuations in raw materials, it can also stabilize profit margins and maintain a good profit level. The same is true for building materials enterprises, which are more risk-resistant when dealing with rising prices of raw materials. at the same time, in the context of carbon neutralization, the building materials industry is of high energy consumption, facing energy-saving transformation, and the leader concentration is more significant.

2. Pay attention to the intercity plate. During the 14th five-year Plan period, only the Yangtze River Delta, Beijing-Tianjin-Hebei and Dawan area have identified 10,000 kilometers of new construction mileage, in addition, there are intercity and urban construction brought about by the planning of urban agglomeration such as Chengdu-Chongqing area and Shandong Peninsula. The growth rate of China's high-speed rail and subway may slow down in the future, but the intercity area is growing rapidly.

3. Pay attention to the building damping and isolation industry. In the 14th five-year Plan of the construction industry, emphasis is placed on the high-quality development of the construction industry, in which the new anti-seismic plate is planned, and the relevant plate is the building damping and isolation. Moreover, the downstream construction types of the mandatory application of new technologies are mainly public buildings of people's livelihood. During the 14th five-year Plan period, China put forward higher requirements for the construction planning of urban and rural community service system, and put forward "seven have two guarantees". There are education for the young, education for the young, medical care for the sick, security for the elderly, support for the weak, services for cultural and sports activities, and the continuous expansion of the demand for buildings for people's livelihood.

VIII. [electricity] Power supply and demand situation and Investment opportunities

The problem of multi-round and large-scale power shortage occurred in China in 2021, including short-term factors, such as insufficient water (the utilization hours of hydropower decreased by 203 hours in 2021 compared with the same period last year), local switching and power restriction in order to accomplish the task of double control of energy consumption, etc.; there are also medium-and long-term factors, such as insufficient coal production capacity, insufficient controllable power installation (thermal power, hydropower, nuclear power) and so on. How will this problem be interpreted in the future? Today we analyze this and look for investment opportunities.

1. How will the supply and demand of electricity be interpreted?

Behind the study of power supply and demand, the essence is to answer the question of how to build a new power system, that is, how to speed up the green transformation under the premise of safe and stable power supply.

A simple but not completely correct understanding: vigorously develop new energy, use new energy generation to compress thermal power generation, and achieve carbon reduction.

However, new energy generation can only solve the electricity problem, but not the power problem. That is, on an annual scale, new energy can provide a certain amount of electricity generation, but focusing on some periods, when electricity demand is high, new energy is often in short supply. Such as the "extremely hot and windless" in the day, the northeast wind power was low for several days in September last year, and Europe experienced a light wind season last year.

In the long run, "safety" needs to ensure a sufficient number of controllable installation, and "green" needs to ensure a sufficient amount of new energy installation.

2. The supply and demand situation of electric power during the 14th five-year Plan.

From the point of view of the electricity balance, the electricity supply is still tight in 2022-2023. Taking the extreme assumption, electricity consumption has increased by 5% or 4% in the past two years, and hydropower utilization hours have returned to the multi-year average of 3800 hours. if new energy is installed every year, there will still be about 4350 hours of thermal power utilization hours, which is 100 hours lower than that of 4448 hours in 2021, but still 100 hours higher than in 2020.

From the point of view of power balance, the lack of controllable power installation leads to the lack of peak capacity of generator sets, and the orderly power consumption during the peak period of winter and summer shows an expanding trend. Is the current installation redundant? Take the most difficult winter power consumption peak as an example: the maximum load in China in 2021 is 1.192 billion kilowatts, considering 13% rotating reserve, the power-on should reach more than 1.35 billion kilowatts at this time. In 2021, thermal power will be installed of 1.3 billion kilowatts, hydropower of 390 million kilowatts, nuclear power of 50 million kilowatts, wind power of 330 million kilowatts and solar power of 310 million kilowatts. The winter peak is mostly in the evening, when the output of solar power is 0, nuclear power is calculated as 50 million kilowatts, hydropower is calculated as 130 million kilowatts (1 kilowatt), at least 10% of thermal power units are overhauled, and the remaining 1.08 billion kilowatts, a total of 1.26 billion kilowatts, that is, the output of wind power should reach 90 million kilowatts, and the output should reach more than 30% of the total installed capacity. Is there enough controllable installation in the future? From 2022 to 2025, assuming an average annual growth rate of 6%, the average annual maximum load will increase by 78 million kilowatts; thermal power will increase by an average of 42 million kilowatts per year (coal power about 30 million kilowatts, gas power about 10 million kilowatts, and biomass power about 2 million kilowatts). Hydropower is estimated to be 8 million kilowatts (6.4 million kilowatts for medium and large hydropower) and nuclear power is about 3 million kilowatts, totaling 53 million kilowatts. The difference between supply and demand is 25 million kilowatts. Assuming that wind power adds 50GW every year, its peak output should reach 50%, which is difficult to achieve.

3. Investment opportunities

To sum up, increasing new installations and raising electricity prices is a long-term trend. Investment should grasp two points:

(1) conventional power manufacturers: Dongfang Electric (01072.HK) $, Harbin Electric (01133.HK) $(pumped + nuclear power + thermal power).

(2) Power generation operators: nuclear power (a new round of construction is expected to restart), thermal power transformation of new energy operators (thermal power to provide electricity, new energy to provide electricity).

IX. [chemical] opportunities for coal chemical industry under high oil prices

Since 2021, the international oil price has continued to break through from the level of 50 US dollars per barrel, and by the beginning of 2022, the international oil price has exceeded the level of 90 US dollars per barrel. Our petrochemical team has made a very in-depth study on the rise of international oil prices, and from a trend point of view, under the impact of OPEC production below expectations and shale oil development investment affected by policy and financing, we will continue to face a relatively high oil price environment in 2022.

So for the chemical industry, what benefits from high oil prices? We believe that the significant benefit is the coal chemical industry. From the macro level, because of the characteristics of "poor oil, less gas and rich coal" in the distribution of resources in China, crude oil is highly dependent on imports, so in the environment of high oil prices, no matter from the perspective of economic type, or from the perspective of energy and material supply guarantee, coal chemical industry has become an important guarantee. This is also the reason why the raw material coal of coal chemical industry is not included in the coal consumption index under the background of double-carbon policy of carbon emission reduction and carbon neutralization.

From an economic point of view, there is a competition and substitution relationship between coal chemical industry and petrochemical industry in many products. At present, several main products of coal chemical industry in China are coal-to-methanol, coal-to-olefin, coal-to-ethylene glycol and coal-to-urea / synthetic ammonia, in which olefins and ethylene glycol are all divided into two categories: oil-to-olefins and coal-to-olefins. In China, the proportion of coal-to-olefins is still relatively low, and the proportion of oil-to-olefins is more than 60%, which determines the price of olefins, which is largely determined by oil-to-olefins. According to our statistics, from 2015 to now, the correlation coefficient between crude oil price and ethylene price is 0.61, and that with propylene price is 0.95.

According to Zhuochuang statistics, China's ethylene production capacity is 30.03 million tons, in ethylene production, oil-to-ethylene (steam cracking, catalytic cracking) accounted for 76%, coal-to-ethylene (CTO,MTO) accounted for 24%; China's propylene production capacity is 40.37 million tons, in propylene production, oil-to-olefin accounted for 61%, propane cracking to propylene (PDH) accounted for 14%, coal-to-propylene (CTO/CTP,MTO/MTP) accounted for 25%.

From the cost structure, on the whole, because the CTO/CTP technology route involves coal-to-methanol plant, the unit investment is high, so in the production cost of the CTO/CTP route, the fixed cost accounts for 60%, while the raw material cost only accounts for about 25%. In oil-to-olefins, gas-to-olefins and methanol-to-olefins, the cost of raw materials accounts for more than 70%.

The difference between the cost structure and the product price model determines that the cost of coal-to-olefin route and oil-to-olefin route varies greatly under different oil price environment, so there is the so-called break-even point oil price of coal chemical industry. On the whole, in the case of high oil prices, the cost advantage of coal-to-olefin route is more significant. In the case of low oil prices, the profitability of coal-to-olefin routes is affected.

According to the material balance relationship, we calculate CTO processing fee 3400 yuan / ton, CTP processing fee 3050 yuan / ton and oil-to-olefin 800 yuan / ton. we find that CTO and CTP routes are more profitable than oil-to-olefins when the oil price is higher than $60 / barrel. Between $40 and $60 a barrel, the two are equally profitable. When the oil price falls below $40 / barrel, the profitability of oil-to-olefins is significantly better than that of coal-to-olefins.

At present, the oil price is 50% higher than the oil price of 60 US dollars per barrel, so the advantage of coal-to-olefin is further highlighted.

However, we need to emphasize that all the calculations here are based on purchased coal. Although the oil price is not directly related to the coal price, there is a substitution effect between coal and crude oil, so there is a certain correlation between the crude oil price and the coal price. However, as the domestic coal price as a whole is mainly the long-term Association price, and has been restricted by import quotas since 2017, the relationship between domestic coal price and international oil price is weaker than that of international coal price. Since 2013, the correlation coefficient between domestic thermal coal futures prices and international oil prices is 0.49.

In the case of rising coal prices, the cost of coal chemical industry will rise accordingly. Therefore, for coal chemical enterprises, there is a difference between purchasing coal for coal chemical production and self-owned coal for coal chemical production, it is obvious that the cost of own coal is relatively fixed, then in the case of rising oil prices, will benefit more from the rise in product prices.

Therefore, in this context, we suggest that we should pay attention to Baofeng Energy, Guanghui Energy and other enterprises that produce their own coal and produce products that are highly related to oil.