CITIC Construction Investment: Repeated changes in the switching state of the Strait of Hormuz are more sensitive to general aviation pricing
The Zhitong Finance App learned that CITIC Construction Investment released a research report saying that on April 17, Iranian Foreign Minister Araqchi announced that commercial vessels had resumed navigation in the Strait of Hormuz. Although the outline of the US-Iran agreement is still undecided, market risk appetite has increased markedly. Crude oil has suffered a severe drop, the US dollar weakened, the stock market rose, metals such as gold and copper rebounded, while electrolytic aluminum fell. However, less than 24 hours later, Iran's Revolutionary Guard Corps released news that it would once again shut down the Strait of Hormuz, thus repeatedly increasing market fluctuations. Given that the probability that the US-Iran conflict will ease is greater than that of an escalation in the war, major asset classes will be more sensitive to the pricing of general aviation, especially dollar-denominated metals that benefit from falling oil prices reviving expectations of the Federal Reserve's interest rate cuts.
CITIC Construction Investment's main views are as follows:
Industrial metals: Prices of copper, aluminum, lead, zinc, and tin in LME this week changed to 3.8%, 1.0%, 1.7%, 2.8%, and 4.0%; industrial metal prices are determined by “financial attributes” and “commodity attributes”. Judging from financial attributes, the Federal Reserve has begun a cycle of interest rate cuts; judging from commodity attributes, global copper and aluminum inventories are relatively low, and China's economic recovery can be expected. Driven by the new energy industry, copper and aluminum demand growth will improve somewhat.
The Strait of Hormuz switch state is repeated, and colored is more sensitive to navigation pricing
(1) Gold: Oil prices have fallen sharply, and expectations of interest rate cuts are heating up the price of gold. COMEX gold continued to rise and reached its highest point in a month on Friday, mainly supported by Iran's foreign minister's remarks about the opening of the Strait of Hormuz during the cease-fire period. The remarks led to a sharp drop in crude oil, which gave way to the possibility that the Federal Reserve would cut interest rates during the year. According to the Federal Reserve's observation tool, traders expect a 50% chance of cutting interest rates before the end of the year, a sharp reversal from the previous 20%. The dollar weakened, and gold rebounded steadily. Looking at the medium to long term, against the backdrop of the Fed's interest rate cut cycle and America's hegemonism being questioned, and the central bank continues to buy gold, gold is still a high-quality asset backed by sovereign credit, which lays the foundation for the rise in the gold trend.
(2) Copper: Copper prices recovered all of their declines since the war. The US-Iran conflict triggered expectations of a recession. At the same time, global copper stocks accumulated to a high level of 1.45 million tons, and copper prices fell below the 10w mark. However, the price of copper is around 95,000 tons, which continues to inspire enthusiasm for downstream restocking. The latest domestic stock inventory is 280,000 tons, which is rare compared to 240,000 tons that went to storage a month ago, highlighting the drying up of downstream stocks and a high willingness to receive goods. Low copper prices spurred downstream recovery to make up for consumer resilience. Combined with a recovery in wind, copper prices were able to recover all the decline since the war and once again reached the 10w mark. As a resource product, the logic of limited supply has not changed. The oil crisis hits again, and new energy sources are expected to accelerate the replacement of fossil energy, generating more demand than expected. The price of copper has recovered all of the decline since the war, yet the equity target has not been filled and is worth allocating.
(3) Aluminum: Even if the strait is navigable, it is difficult to change the fact that supply is lacking. Iran announced the opening of merchant shipping in the Strait of Hormuz, and LME Aluminum heard about it, but further concerns about resuming production should not be prorated. Since March, production capacity has been shut down, including 265,000 tons due to a shortage of electricity in Qatar, 300,000 tons of aluminum reduction due to insufficient alumina, 1.6 million tons of Al Taweelah (Al Taweelah) owned by the United Arab Emirates Global Aluminum (EGA) due to “uncontrolled shutdown” of equipment, and 520,000 tons of electricity contracts due to the expiration of Mozambique's electricity contract. General aviation can bring materials to aluminum factories in Bahrain and Qatar. Production capacity of 600,000 tons or return after 3 months, but it will take no less than 12 months to resume production when EGA equipment was shut down. The volume damage caused by the war is real and should be measured by price. There is no need to worry too much about the depth of the price correction, especially when hedging by a recovery in sentiment.
Risk Alerts
1. The global economy has declined sharply, and consumption has shrunk in a cliff-style manner. In its newly released “Global Economic Outlook”, the World Bank lowered the 2025 global economic growth forecast from 2.7% in January this year to 2.3%, and the growth rate of nearly 70% of the economies was lowered. The World Bank said that global economic growth is slowing due to trade barriers and an uncertain global policy environment. Compared to what appeared to be a “soft landing” six months ago, the global economy is now once again in turmoil. If course is not quickly corrected, the standard of living could be seriously harmed. Global economic data is already showing a downward trend. If it falls into a deep recession, the impact on non-ferrous metal consumption will be huge.
2. US inflation got out of control, the Fed's monetary tightening exceeded expectations, and a strong dollar suppressed the price of equity assets. The US is unable to effectively control inflation and continues to raise interest rates. The Federal Reserve has raised interest rates drastically continuously, but services, especially rents and wages, seem to be sticking to the decline in inflation. If the Federal Reserve maintains a high level of interest rate hikes, it will be bad for non-ferrous metals denominated in US dollars.
3. Consumption growth in the domestic new energy sector fell short of expectations, and consumption in the real estate sector continued to be sluggish. Although policies on the real estate sales side have been liberalized to varying degrees, residents' willingness to buy is insufficient, and real estate companies' debt risk resolution is not progressing smoothly. If sales continue to not improve, the final end of the real estate will face the risk of stalling in the later stages, which will be detrimental to domestic consumption of some non-ferrous metals.