After China announced a series of unexpected stimulus measures at the end of September, Jefferies Financial released a research report stating that this round of quantitative easing is sustainable and will help boost demand. In this context, Jefferies Financial significantly increased the target prices of companies such as Chinahongqiao (01378), CR Bldg Mat Tec (01313), CNBM (03323), Aluminum Corporation of China (02600, 601600.SH), and Conch Cement (00914, 600585.SH).

Jefferies Financial pointed out that before the peak season, most of the inventory of csi commodity equity index had been well destocked. It is expected that demand will improve in the fourth quarter, as the base of last year's fourth quarter for csi commodity equity index such as cement was low. In the fourth quarter market of csi commodity equity index, Jefferies Financial is most bullish on cement: "Because we see more convincing evidence that supply constraints will lead to more sustainable price increases."

Jefferies Financial pointed out that the 180-degree turnaround in policy stance added a positive catalyst to the fourth quarter. Different from the past, the strength of monetary, fiscal, and real estate policies this time indicates a major shift; the policies point out a positive direction, and it is expected that follow-up measures will be introduced in the coming months. If the weakness in the real estate market is successfully controlled, i.e., the sale of residential properties/land no longer further declines, and even rebounds, this will limit any downward pressure on basic commodities demand. In addition, from September to the fourth quarter, it is the peak season for most bulk commodities, and the positive sentiment has increased the potential upside.

Under the economic stimulus plan, Jefferies Financial is bullish on all bulk commodities in the fourth quarter: specifically, they are most bullish on cement (cement > aluminum > copper > steel > coal). Jefferies Financial stated that the biggest shift in prices was seen after new supply discipline led by the government and manufacturers. In late September, producers in the eastern part of China raised clinker prices by 100 yuan/ton. Nationally, clinker prices rose by 28 yuan/ton on a month-on-month basis and 27 yuan/ton year-on-year; cement prices rose by 4 yuan/ton on a month-on-month basis or 22 yuan/ton year-on-year; prices in the eastern region of China usually lead other regions in the country, so more price increases are expected in the fourth quarter. By the end of September, output increased by a slight 4% month-on-month to 52% (down 9% year-on-year); inventory remained essentially flat at around 65%, down 10% year-on-year.

In the non-ferrous metals sector, Jefferies Financial continues to be bullish on aluminum and copper, as the demand for these two metals is supported by economic stimulus and limited supply. The continuous destocking of social inventories in September (a month-on-month decrease of 0.16 million tons or 17% for aluminum, and a month-on-month decrease of 1.25 million tons or 45% for copper) indicates a rebound in demand in the peak season, with typically stronger apparent consumption levels in the fourth quarter, especially for aluminum.

Since September, especially later this month, steel inventory has decreased significantly, and prices have shown a good recovery, partly offsetting the weakness in August, in addition to seasonal factors. The main futures contract prices for rebar rose by 176 yuan/ton, an increase of 5.27%, and HRC prices rose by 202 yuan/ton, an increase of 6.26%. Jefferies Financial believes that the stimulus plan will benefit the steel and cement industries equally, but while waiting for new guidance on capacity swapping/supply control, the supply response is mainly market-driven.

Furthermore, thermal coal closed at 867 yuan/ton in September (up 28 yuan/ton month-on-month), and prices are expected to be supported during the winter peak season. However, due to ample inventory (up 6.5% month-on-month / up 8.9% year-on-year at northern ports) and sufficient imports (up 12% year-on-year in August), this change may be more moderate.