ZHONGTAI SECURITIES: US economy continues to cool down, driving force in the non-ferrous metal sector further boosted

According to the Wise Finance APP, Zhongtai Securities released a research report stating that the overall decline in US economic data and the increasing expectation of interest rate cuts support the rise in precious metal prices. In the medium to long term, the real yield of US long-term government bonds is at a historical high of around 2%. With low economic risks in the US under high interest rates and a reshaping global credit landscape, precious metal prices are expected to rise to new heights. The off-season effect continues this week, with weak new orders for bulk metals downstream and some repeated destocking in social inventories. However, in the long-term tight balance situation, the recovery of financial attributes will drive the overall sector prices up. In the medium term, the global manufacturing recovery cycle is expected to continue, and under supply constraints, basic metals will usher in a new cycle of prosperity. A positive outlook is held for the investment performance of bulk sectors in 2024.

Investment Recommendation: Continuation of the trend, maintain a "hold" rating for the industry

1. Precious Metals: This week, the overall decline in US economic data and the rekindling of interest rate cut expectations support the rise in precious metal prices. In the medium to long term, the real yield of US long-term government bonds is at a historical high of around 2%. With low economic risks in the US under high interest rates and a reshaping global credit landscape, precious metal prices are expected to rise to new heights.

2. Bulk Metals: The off-season effect continues this week, with downstream new orders still weak and some repeated destocking in social inventories. However, in the long-term tight balance situation, the recovery of financial attributes will drive the overall sector prices up. In the medium term, the global manufacturing recovery cycle is expected to continue, and under supply constraints, basic metals will usher in a new cycle of prosperity, especially copper and aluminum. Zhongtai Securities is optimistic about the investment performance of bulk sectors in 2024.

Market Review: Overall rise in bulk prices: 1) During the week, LME copper, aluminum, lead, zinc, tin, and nickel had weekly price changes of 4.0%, 0.9%, 0.9%, 2.0%, 3.4%, 0.8% respectively, while SHFE copper, aluminum, lead, zinc, tin, and nickel had price changes of 2.6%, -0.1%, 1.1%, 0.0%, 0.4%, 1.9% respectively; 2) COMEX gold closed at $2397.70 per ounce, up 2.48% from the previous week, while SHFE gold closed at 559.66 yuan per gram, up 1.48% from the previous week; 3) The non-ferrous industry index outperformed the market this week, with the Shenzhen non-ferrous metals index closing at 4,410.68 points, up 2.61% from the previous week, outperforming the Shanghai Composite Index by 3.20 percentage points. The price changes of precious metals, industrial metals, minor metals, energy metals, and new metal materials were 7.86%, 3.36%, 1.02%, -0.63%, -2.69% respectively.

Macro "Three Factors" Summary: Global recovery trend remains, US interest rate cut expectations rise. Specifically:

1. Domestic recovery momentum still needs further improvement: This week, the official manufacturing PMI for June was 49.5 (previous value 49.5, expected 49.55), and the non-manufacturing PMI was 50.5 (previous value 51.1); the unofficial PMI for June was 51.8 (previous value 51.7)

2. US economic data cools down overall: US June ISM Manufacturing PMI 48.5 (previous value 48.7), Non-Manufacturing PMI 48.8 (previous value 53.8); May durable goods new orders month-on-month 0.07% (previous value 0.23%, expected 0.30%); June unemployment rate 4.1% (previous value 4.0%); June non-farm payroll employment increased by 206,000 (previous value 218,000).

3. Eurozone June Manufacturing PMI falls: Eurozone June Manufacturing PMI is 45.8 (previous value 47.3, expected 45.6), Services PMI is 52.8 (previous value 53.2, expected 52.6); May Eurozone seasonally adjusted unemployment rate is 6.4% (previous value 6.4%), May EU seasonally adjusted unemployment rate is 6.0% (previous value 6.0%); May Eurozone PPI year-on-year is -4.2% (previous value -5.7%), month-on-month is -0.2% (previous value -1.0%, expected -0.1%).

4. Global manufacturing in June is above the boom-bust line: Global Manufacturing PMI in June is 50.9, down 0.1 from the previous month, above the boom-bust line.

Precious Metals: US economic data cools down, gold price rises

During the week, the yield on the 10-year US Treasury bond was 2.00%, down 0.08 percentage points from the previous period. The residual calculated by the yield model is $1578.7 per ounce, up $36.3 per ounce from the previous period; US June Manufacturing and Non-Manufacturing PMI declined slightly, poor data strengthened market bets on interest rate cuts this year, leading to a slight increase in precious metal prices. Currently, the yield on the 10-year US Treasury bond is around 2%, at a historically high level. With the low risk of the US economy exceeding expectations under high interest rates, and in the context of globalization, the continued weakening of the US dollar credit will also support gold prices to new highs.

Bulk Metals: Basic metal prices rise driven by financial attributes

During the week, the domestic off-season effect continued, downstream new orders remained weak, social inventory turnover fluctuated, but the tight balance combined with the drive of financial attributes led to a rise in basic metal prices.

1. For electrolytic aluminum, the resumption of production is nearing completion, and the off-season effect continues

On the supply side, Yunnan Province continues to release production capacity from resumption, and the resumption is nearing completion. It is expected that all the production capacity waiting for resumption in Yunnan will be fully released next week. As of now, the operating capacity of the electrolytic aluminum industry this week is 43.376 million tons, an increase of 40,000 tons from last week. In terms of demand, the aluminum profile industry is in a strong off-season atmosphere, with most companies experiencing a decline in operating rates and a lack of new orders. In terms of inventory, due to adjustments in the aluminum-to-water ratio and an increase in ingot production, the inventory shows a state of accumulating ingots and depleting aluminum bars. Domestic aluminum ingot inventory is 877,000 tons, an increase of 20,000 tons from the previous period, domestic aluminum bar inventory is 276,900 tons, a decrease of 26,100 tons from the previous period, and domestic aluminum ingot + aluminum bar inventory is 1.1539 million tons, a decrease of 6,100 tons from the previous period. In terms of costs, domestic electrolytic aluminum costs have slightly decreased this week, mainly due to a general price reduction of 100 yuan/ton for pre-baked anodes in July. Currently, the 90th percentile cost of electrolytic aluminum is 18,360 yuan/ton, down 75 yuan/ton from the previous period

1. The price of alumina is 3904 yuan/ton, unchanged from last week. The cost of alumina is 3050 yuan/ton, up 0.78% compared to the previous period. The gross profit per ton is 854 yuan, down 2.68% compared to the previous period.

2. Regarding prebaked anodes, the average price during the week is 4470 yuan/ton, down 2.19% compared to the previous period. Taking into account the impact of 1 month of raw material inventory, the average cost during the week is 4655 yuan/ton, with an average gross profit per ton of -185 yuan, up 17.39% compared to the previous period. Without considering raw material inventory, the average cost of prebaked anodes during the week is 4489 yuan/ton, down 0.73% compared to the previous period, with an average gross profit per ton of -19 yuan.

3. For electrolytic aluminum enterprises with 100% self-owned thermal power generation capacity except in Xinjiang, the instant cost is 17486 yuan/ton, down 0.66% compared to the previous period. The spot price of aluminum in the Yangtze River region is 20240 yuan/ton, up 0.35% compared to the previous period. The profit per ton of aluminum is 1828 yuan, up 7.13% compared to the previous period.

In summary, the domestic electrolytic aluminum operating capacity is slowly increasing, with some capacity in Yunnan, Sichuan, and Guizhou still waiting to resume production. However, downstream aluminum processing and terminal demand are entering the off-season, with no significant increase expected in the short term. The aluminum market lacks driving factors in terms of fundamentals, but the overall expectation of interest rate cuts is heating up, driving a slight rebound in aluminum prices.

1. For electrolytic copper, the supply and demand are both weak, with financial attributes supporting prices.

On the supply side, on June 28th, the SMM imported copper concentrate index (weekly) was 1.13 USD/ton, an increase of 1.41 USD/ton from the previous period of -0.28 USD/ton. The pricing coefficient for 20% grade domestic ore is 91%-93%. In terms of demand, there is currently no significant recovery in terminal demand, and downstream industries are still adopting a wait-and-see attitude. Although copper prices surged back to 80,000 yuan/ton at the end of the week, the downstream market was not significantly affected, maintaining the current pace of deliveries. As of July 5th, domestic social inventories were 506,900 tons, up 12,600 tons compared to the previous period. As for overseas inventories (futures), as of July 5th, the LME+COMEX copper inventory was 186,300 tons, an increase of 6,700 tons compared to the previous period.

In summary, this week, overseas sentiment improved, with inflation indicators favored by the Federal Reserve meeting expectations, boosting market sentiment. Expectations of interest rate cuts have strengthened, the US dollar has fallen from its high, and expectations of interest rate cuts have boosted copper prices. Against the backdrop of a reshaping long-term supply and demand pattern and the restarting of the global inventory cycle, the sector will remain strong.

1. For zinc, supply contraction, demand recovery, and the shift in focus of the domestic and international markets are pushing prices higher.

During the week, the cooling of US economic data and expectations of favorable policies domestically have led to a shift in focus towards higher zinc prices in the domestic and international markets. On the supply side, Baichuan statistics show that the weekly production of domestic zinc ingots is 103,200 tons, down 4.35% compared to the previous period. In terms of demand, the shipment volume of galvanized orders has rebounded slightly, coupled with the weakening impact of the southern rainy season, overall operating rates have increased slightly, but overall consumption remains weak during the off-season. As for inventories, zinc ingot inventories in seven regions total 198,300 tons, an increase of 3,700 tons compared to the previous week 4. For the steel sector, the policy expectation game and off-season demand may lead to a decline followed by a rise in the domestic steel market.

Recently, there has been increased volatility in the black futures market, with the market sentiment shifting between long and short positions, leading to a wait-and-see attitude. As iron production has decreased and raw material cost support has weakened, the overall contradiction in the fundamentals is still evident. However, while there has been an accumulation in total steel inventory, the contradiction in the overall steel fundamentals is accumulating but not yet prominent. The biggest obstacle to steel price increases remains downstream demand. As of July 2nd, the on-site fund arrival rate was 61.08%, a decrease of 1.52 percentage points from the previous week. In addition, the overall bond issuance scale decreased in the first week of July, with poor performance in the funding market. Furthermore, the domestic off-season effect is evident, with reduced construction on-site due to hot and rainy weather, leading to weak downstream demand. However, with a major domestic conference approaching, market expectations still have some room for long positions in the downside, but actual market transactions are unlikely to see sustained improvement. In conclusion, it is expected that steel prices may experience initial suppression followed by a rebound, then undergo volatile adjustments in the short term.

Risk Warning: Risks include macroeconomic fluctuations, policy changes, deviations from expected assumptions in calculations, metal price volatility risks, risks from unexpected industrial policies, risks from lower-than-expected downstream consumption, and risks of outdated or untimely information in the public data used in research reports, among others