Guojin Securities: Optimistic about the direction of the non-ferrous metals segment and give the resource products sector a “buy” rating
The Zhitong Finance App learned that Guojin Securities released a research report stating that the demand for resource products is a flow issue and a material flow network that continues to operate and is constantly adjusted. Economic development and functional demands cause demand to flow; industrial chain transmission and material substitution cause demand to converge; inventory circulation, structural adaptation, and technological progress continuously divert demand. The bank is optimistic about the direction of non-ferrous metals segments that have the ability to import demand from multiple sources, can switch adaptively, or benefit from the energy transition and technological revolution, and gives the sector a “buy” investment rating. Focus on copper with multiple terminals and strong adaptability, energy metals that continue to inject vitality from energy transition+technology iterations, and tin and tantalum, which are structurally highly elastic to AI computing power.
Guojin Securities's main views are as follows:
Demand begins with economic development leading to the expansion of functions and material services
The essence of economic development is a continuous increase in the means of production, means of living, and useful functions that people can obtain at a lower cost. The bank can examine how many functions the whole society can obtain from a macro perspective, that is, population size and per capita economic activity determine the total amount of substances used by society; it can also examine how each function falls into specific materials at a lower cost from a microscopic perspective, that is, the physico-chemical properties of materials determine entry qualifications in specific fields, while weight, volume, price, processing difficulty, and safety further determine whether they are selected. Fundamentally speaking, the demand for resources is a reflection of people's process of seeking more and better functions in the material world.
Demand convergence: vertical transmission and horizontal substitution are woven together into a web
Vertical, real estate, infrastructure, equipment investment, durable consumption, energy transformation, and scientific and technological revolution first act on products, then gradually penetrate into metal demand through processing forms; products are the medium for demand transmission, and matter is the end point of ultimate convergence. Horizontally, users continue to compare how much functionality they get at the cost of weight, volume, and currency, and demand shifts between materials. Copper and aluminum substitution shows that materials with better performance can get a premium, but the premium has boundaries; when the relative price exceeds the terminal's willingness to pay for volume, reliability, or ease of processing, demand flows to alternative materials. Biofuels further show that technology and systems can develop new functions for existing materials and establish new alternative relationships for previously relatively independent commodities. As a result, the demand side forms a network that compares, feeds back, and reconnects.
Primary resource requirements depend on whether the flow of new materials can outperform the return of stocks
Primary resource requirements can be roughly understood as additional non-recoverable losses in the usage+replacement process, rather than the total terminal demand itself. Demand grows faster, existing stocks become smaller, recycling systems are less mature, and the increase in one-time resource acquisition increases. As a result, lead, large metals, and energy metals have formed a different state: lead is doubly squeezed by stagnant demand and mature recycling; copper, aluminum, and steel can still gain incremental gains from urbanization and terminal structure changes in emerging economies; lithium, nickel, etc. are still small due to rapid new demand, and have higher one-time demand elasticity.
Demand reflow
Rebalancing mature demand systems and reshaping technology. Taking steel as an example, the adaptability of the mature demand system is reflected in the fact that when demand for local production falls, steel can flow more to infrastructure, manufacturing, and exports; direct exports and implicit exports of steel-containing manufactured products share the domestic surplus. Technological progress is the most transformational force. When material costs account for relatively low total terminal value, and performance can significantly improve battery life, safety, energy efficiency, space utilization, or user experience, the premium that terminals are willing to pay for performance may be much higher than the cost increase of the material itself. The battery cathode route and vehicle weight reduction both indicate that technological competition will change the material strength of a unit product and shift demand from one resource to another.
An important analysis of this article
Prices are only an indicator of cyclical fluctuations and cannot evaluate long-term economic development. In the transmission of commodity inflation, the demand path is often more important than the cost path. Even without exposure to emerging fields, the demand structure of traditional industries is not static.
Risk Alerts
Demand for the global economy and major terminals fell short of expectations. Material substitution and technology routes are changing faster than expected. Improved demand did not necessarily translate into commodity prices and corporate profits.