The prices of commodities such as industrial metals have risen sharply since November. some market views believe that tight supply and the expectation of a recovery in China's economy are the main reasons for this round of rise, while we believe that there is no significant supply shortage of major industrial metals at present. the demand side remains the core factor that will dominate the pricing of major commodities in the future. The recent periodic rebound in industrial metal prices is more due to financial attributes, and downward pressure on overseas demand will continue to increase next year or will continue to dampen commodity performance. It is suggested that the priority of allocation is as follows: precious metals > energy > industrial metals > agricultural products.

Supply and inventory side: at present, there is no significant supply problem of industrial metals such as copper, but supply-side shocks will become a key factor affecting energy price changes in the future.

Recently, industrial metal prices have risen sharply, with some market views that tight supply in the short term may lead to a faster decline in supply than on the demand side, while falling inventories will exacerbate supply tensions. We believe that there is indeed a marginal decline in the supply side at the current stage, but it has not yet reached the level of tight supply. As far as inventory is concerned, the industrial metal inner disk inventory is still in the normal range, and there is no strong correlation between the low inventory inside and outside and the price rise. As far as energy prices are concerned, the conflict between Russia and Ukraine has obviously changed the dominant logic of global natural gas pricing, and the future international natural gas pricing should focus on observing the changes on the supply side. The incident of "OPEC production increase News Oolong" on the 21st reflects the high sensitivity of the market to supply-side disturbances and oil political games. The follow-up recommendations focus on the latest situation of the OPEC meeting on December 4th.

Demand side: the demand side is still the core factor that dominates the major bulk prices in the medium to long term.

The rebound in commodity prices in November partly reflects a recovery in domestic demand while a downward cycle in overseas demand is out of place. Ferrous metals, led by Chinese demand, rebounded in the context of domestic epidemic prevention and control and marginal adjustment of real estate policy, affected by the market's expected improvement in the recovery of real estate, industrial production and downstream consumption. However, in the medium term, the outbreak of commodity demand stimulated by the epidemic relief in Europe and the United States has slowed significantly, and the global commodity market is still under pressure due to the downward impact of overall demand. In the future, the fundamentals of supply and demand of industrial metals such as copper may significantly reflect the characteristics that the decline in demand side is greater than that in supply side, so the current trend of industrial metal prices is still mainly a phased rebound.

Financial attribute: the decline of the dollar index is the direct cause of the recent periodic market.

With the trend of US inflation peaking and falling more certain, the Federal Reserve has issued a signal of a slowdown in interest rates, and interest rates on the US dollar and US debt have fallen significantly since November, and industrial commodities represented by copper and aluminum have made periodic profits. we believe that the financial attributes of industrial metals are the main reason for the sharp rise in prices in November, and the subsequent market will still return to the commodity attribute pricing logic dominated by supply and demand.

Follow-up outlook: the proposed allocation of commodities from the end of the year to next year is precious metals > energy > industrial products > agricultural products.

In terms of precious metals, gold has ushered in the allocation window in the near future, superimposed with the steady recovery trend of A shares, and gold stocks are expected to outperform the market; in terms of energy, the high prices of crude oil and natural gas may appear in the first quarter of 2023. We should continue to pay attention to the disturbance of energy supply in the medium and long term. In terms of industrial metals, it is expected that in the short term, it will still be dominated by periodic fluctuations, paying attention to the possible driving effect of the downward trend of the US dollar and the resumption of real estate construction in China on some metals; in terms of agricultural products, due to the gradual end of extreme weather, the weakening of geo-conflict shocks, falling oil prices and other factors, the overall downward pressure of grain shocks will increase next year, and it is recommended to pay attention to the trend of corn prices.

Risk factors:

The Fed's path of raising interest rates exceeded expectations, local epidemics repeatedly exceeded expectations, domestic policies and economic recovery were less than expected, and geopolitical tensions such as the conflict between Russia and Ukraine led to increased supply disturbances.