Looking at 2024H2, risk aversion and credit risk hedge against gold prices, and substantial catalysts for interest rate cuts still exist. On the demand side, the rise in copper prices in this round originated overseas. The traditional model for tracking domestic demand may face challenges. The weakening domestic demand is more reflected in the widening price spread at home and abroad.
The Zhitong Finance App learned that Open Source Securities released a research report saying that looking at 2024H2, risk aversion and credit risk hedging undermined the price of gold, and there is still a substantial catalyst for interest rate cuts. The beginning of a downward cycle in the US dollar index and real interest rates will strongly stimulate the rise in gold prices. According to quantitative model estimates, gold may hit 3,000 US dollars/ounce by the end of 2024. In terms of industrial metals, according to Open Source Securities estimates, copper prices need to be above 13,000 US dollars to stimulate capital expenditure. On the demand side, the rise in copper prices in this round originated overseas. The traditional model for tracking domestic demand may face challenges. The weakening domestic demand is more reflected in the widening price spread at home and abroad.
The main views of Open Source Securities are as follows:
Precious metals: Interest rate cuts will be substantially catalyzed, and the short-term sloping upward rise of gold is not over
This round of gold rise began in October 2022. The “N” trend in the interest rate cut cycle is quite obvious. Open Source Securities believes that it is currently in the third segment of the N-shaped trend. There is an asymmetrical deviation between real interest rates and gold. The main reason is that the inversion of long-term and short-term interest rates has caused “smart money” to distrust the US dollar and US debt. In the context of de-dollarization, the continuous increase in gold purchases by China's central bank has also helped the price of gold rise. Looking at 2024H2, risk aversion and credit risk hedge against gold prices, and substantial catalysts for interest rate cuts still exist. The beginning of a downward cycle in the US dollar index and real interest rates will strongly stimulate the rise in gold prices. According to the quantitative model of Open Source Securities, gold may hit 3,000 US dollars/ounce by the end of 2024.
From a long-term perspective, similar to the 1970 gold bull market, Open Source Securities believes that gold is currently in the Mania phase. The public is gradually becoming aware of the importance of allocating gold. Gold is a credit endorsement for banknotes. As the US currency overruns, gold will once again face a revaluation, and the short-term upward slope of gold is not over.
Recommended targets: Shandong Gold (600547.SH), CICC Gold (600489.SH), Yintai Gold (000975.SZ), Zhuye Group (600691.SZ).
Industrial metals: supply constraints drive the rise in copper prices, and demand for “aluminum instead of copper” strengthens the synergy of rising aluminum prices
Copper: On the supply side, the shortage of copper concentrate is compounded by low inventories. The supply of copper concentrate ushered in the “Pilbara” phase of lithium ore in 2021. According to Open Source Securities estimates, copper prices need to rise above 13,000 US dollars to stimulate capital expenditure. On the demand side, the current round of copper price increases originated overseas. The traditional model for tracking domestic demand may face challenges. The weakening domestic demand is more reflected in the widening price spread at home and abroad. At the same time, in the past, tracking methods were limited to tracking copper manufacturing demand. Considering terminal demand after trade, the proportion of actual overseas demand may be higher than the estimated value of the previous demand model.
Beneficiaries: Zijin Mining (601899.SH), Luoyang Molybdenum (603993.SH), Jin Chengxin (603979.SH), etc.
Aluminum: On the supply side, the domestic supply “ceiling” of 45 million tons is approaching, and overseas electrolytic aluminum production is slowly starting, and the rigid supply situation is gradually becoming prominent; on the demand side, the real estate side is expected to be dragged down to some extent in 2024, but with the rise in copper prices, the “aluminum instead of copper” market space may exceed expectations. On the cost side, the cost of pre-baked anodes and electricity continues to decline, and the profitability of electrolytic aluminum has been restored, but the shutdown of production at the Jinyu mine combined with frequent disturbances in the supply of bauxite in Guinea. The value of resources at the mine side is prominent, and alumina prices continue to rise, or encroach on some of the profits of the electrolytic aluminum chain.
After re-examining the profit structure of the industry chain, the recommended targets: Yunlu (000807.SZ), benefiting targets: Tianshan Aluminum (002532.SZ), Nanshan Aluminum (600219.SH), China Hongqiao (01378), China Aluminum (601600.SH), and Shenhuo (000933.SZ).
Tin: There are frequent disturbances on the supply side. Indonesia's export volume has yet to fully return to normal levels. The mining side of Myanmar's Wa State is still in a state of shutdown. The demand side is catalyzed by the recovery of new energy fields such as photovoltaics and new energy vehicles and the semiconductor industry. Blue ocean markets such as 5G, AI, and industrial connectivity have opened up for a long time, and the supply and demand pattern is relatively good; on the cost side, the tin price center is expected to gradually rise as resources are exhausted.
Recommended targets: Tin Industry Co., Ltd. (000960.SZ); Beneficial targets: Huaxi Non-ferrous (600301.SH), Societe Generale Silver Tin (000426.SZ).
Energy Metals: Relative oversupply has not been reversed. Focus on companies with a second growth curve
Lithium: On the supply side, Open Source Securities lowered global lithium salt supply production to 1,311,000 tons of LCE in 2024, up 36% year on year, down about 110,000 tons of LCE from the previous forecast; on the demand side, following an improvement in downstream production schedule data in March 2024, downstream inventory demand led a slight rebound in prices, but the fundamentals of supply and demand are still excessive. The sector suggests placing mining companies with significant cost advantages or a second growth curve at low prices.
Recommended targets: China Mining Resources (002738.SZ); Beneficial targets: Zangge Mining (000408.SZ), Yongxing Materials (002756.SZ).
Steel: Under the manufacturing industry's active inventory replenishment cycle, the steel industry is about to reach an inflection point
On the supply side, energy consumption targets+active production cuts, crude steel supply may decline marginally compared to 2023. On the demand side, in the context of real estate policies that absorb stocks and optimize growth, demand in the construction industry is expected to bottom out; new productivity, equipment updates, and consumer goods may drive up demand in the manufacturing industry. The devaluation of the RMB and the cost advantage of Mongolian coal will maintain the boom in steel exports. Currently, inventory pressure on the five major materials is fair. Open Source Securities judges that the steel industry is at an inflection point. This round of steel market may be mainly driven by the manufacturing industry's active inventory replenishment.
Beneficiaries: Valin Steel (000932.SZ), Nangang Steel (600282.SH), Baosteel (600019.SH), Jiuli Special Materials (002318.SZ), Wujin Stainless (603878.SH), and Changbao (002478.SZ).
Risk warning:
Gold: The Federal Reserve continues to raise interest rates, a geopolitical risk.
Copper: The pace of production capacity release fell short of expectations, the pace of ore and copper concentrate sales fell short of expectations, ore grade exceeded expectations, ore recovery rate increased beyond expectations, etc.
Aluminum: Domestic demand is unanticipated; the release of overseas electrolytic aluminum production capacity exceeds expectations.
Energy metals: Demand for new energy vehicles falls short of expectations, demand for energy storage falls short of expectations, overseas lithium projects fall short of expectations, and excessive inflow of resources from unofficial projects.
Steel: Real estate has not stabilized, and the implementation of policies and measures fell short of expectations.