120717 Base Metals Sector Report EN
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Base Metals Sector Phillip Securities (HK) Ltd Seeking appropriate chance to Phillip Securities Research Ltd invest in 17 July 2012 Base Metals Sector Report type: Update Company Rating Price TP Upside M.Cap. (HK$) (HK$) (%) (HK$'bn) Jiangxi Copper Buy 17.12 20.78 21.4% 81 China Zhongw ang Accumulate 2.89 3.39 17.3% 16 China Hongqiao Buy 3.46 4.17 20.5% 20 A. Base metals prices kept fluctuating in 1H12 In 1H12, base metals prices kept fluctuating domestically and abroad, declining after early rise. With global easing liquidity in the first quarter, some metals like copper, nickel and tin had gone upwards nearly 10%. At the same time, aluminum, zinc and lead prices had seen a little change. Entering into April, the European debt crisis began worsening again, economic situation for Europe, the U.S. and emerging economies became weaker, then metals prices declined, but with a limited extent. Overall speaking, most metals only lost about 3% in 1H12, Source: Bloomberg, Phillip Securities among which tin price declined 7.5%, but copper price decreased less than 1%. Fig 1.Base metals prices trend in 1H12 Analyst Fan Guohe 120.0 [email protected] +8621 5169 9400 112.5 105.0 97.5 Copper Aluminum Lead Nickel Tin Zinc HSI Index 90.0 1-Jun-12 9-Mar-12 6-Apr-12 4-May-12 13-Jan-12 27-Jan-12 15-Jun-12 29-Jun-12 10-Feb-12 24-Feb-12 23-Mar-12 20-Apr-12 30-Dec-11 18-May-12 Sources ：Bloomberg, Phillip Securities Meanwhile, influenced by the production limit in the 12th 5-yr plan for non-ferrous metals sector and sluggish downstream demand, the output growth of most metals had slowed down in the early five months. According to the State Statistics Bureau, copper production increased 8.36% y/y to 2,380.2 thousand tons, 5.84pcts less than 14.2% growth in 2011. Aluminum production increased 10.59% y/y to 7,820.4 thousand tons, 0.61pcts less than 2011. Lead production decreased 5.13% y/y to 1,609.4 thousand tons, 17.63pcts less than 2011. Zinc production decreased 6.93% y/y to 1,934.6 thousand tons, 10.73pcts less than 2011. Tin production decreased 7.23% y/y, 12.13pcts less than 2011. Nickel production increased 4.1% y/y to 105.9 thousand tons, 30.3pcts less than 2011. Research analyst Fan Guohe [email protected] (8621) 51699400-110 MICA (P) 004/01/2011 Ref. No.: SG2011_0293 1 of 1 Minor Metals Sector Shanghai Equities Research 17 July 2012 Compared to the small 5.5% rise of HSI index, most of base To get out of the crisis, the US only adheres to printing money. metals manufacturers also experienced less than 10% change, Obviously, it is covering up the conflict with more money without in accordance to our previous expectation. Specially speaking, the care over the possibility that flooded liquidity will overflow the companies with scale or resource advantages performed into other economies and cause the inflation expectation and better, Jiangxi Copper (0358.HK) and Hunan Nonferrous Metals social turmoil, which presents its irresponsible attitude. (2626.HK) both realized some rise. However, the outstanding performer in 2011, China Metal Recycling (0773.HK) lost nearly In contrast, the Europe also prints some money, but it has begun 30% because of the weak iron& steel sector. In addition, Daye attaching importance to structural economic problems. In past Nonferrous （0661.HK ）also plummeted 24%. two rounds of European Union Summit, the austerity budget Fig 2. Base metals stocks prices trend in 1H12 agreement and the unified banking regulation have been accomplished. Concretely speaking, recently Spain, Italy and 140 France have put forward a series of deficit cut plans. Therefore, 130 the measures by the Europe are controlled and to cultivate a 120 strong sense of discipline, which will resolve the structural 110 imbalance problem and the flooded liquidity by leverage. 100 However, the deficit cut plan hasn’t been agreed in the U.S.. Moreover, the savings ratio had temporarily risen up, but then 90 358 HK 661 HK 505 HK 2600 HK 2626 HK drop down to below 4% again, presenting the U.S. is still to cope 80 3833 HK 1021 HK 2889 HK 1208 HK 1378 HK 773 HK 976 HK 2133 HK with the crisis with the leverage and financial tools, which are in 70 fact the cause for 2008 financial crisis. Fig 3.Low savings rate in the U.S.(%) Jan-12 Jan-12 Apr-12 Apr-12 Jun-12 Jun-12 Jun-12 Mar-12 Mar-12 Dec-11 Feb-12 Feb-12 May-12 May-12 9 Sources ：Bloomberg, Phillip Securities 7 B. US dollar index won’t keep on strong move Since 2Q12, the U.S. has released stronger economic statics 5 data, and the European debt crisis spread to some core countries like Spain and Italy, which then triggered the worry 3 over systematic risk. Therefore, the USD index has rebounded from 78 to 83.5 around, and the USD/EUR has again depreciated to the low level about 1.2 in 2008 financial crisis and 1 2010 European debt crisis. Currently, the worry on the debt Jul-11 Jul-10 Jul-09 Jul-08 Jul-07 Jul-06 Jan-12 Apr-12 Jan-11 Apr-11 Jan-10 Apr-10 Jan-09 Apr-09 Jan-08 Apr-08 Jan-07 Apr-07 Oct-11 Oct-10 Oct-09 Oct-08 Oct-07 crisis has gotten more serious, the USD index shows strong Oct-06 technically, so many investors think the USD index has ended ten years depreciation trend since 2002, and will reverse from Sources ：Bloomberg, Phillip Securities now on. As the second largest economy and the largest developing However, we don’t think so. With the upsurge of emerging economy, China also has adjusted its developing module to economies, global diversification trend is strengthening. structural reform and economic growth mode change, but not Especially since global financial crisis in 2008, the trend simply depending on stimulus plans. In this regard, we think the becomes more obvious and is represented by the decline of the depreciation trend of the US dollar won’t change in medium to US. In our view, the absolute hegemony of the US over the long term if it continues the irresponsible behavior, which has world has ended, which will be followed by the relative been proved by less purchase for the US’s public debt by foreign hegemony of the US. holders. Fig 4. Declined proportion of the purchase for the The change in reality has been embodied in economic, political US’s public debt by foreign holders and military aspects of major countries. Furthermore, the Change of public debt change of comprehensive strength is spreading into the financial Change of public debt bought by foreign holders field. With the end of absolute hegemony of the US, global Change of public debt bought by FED financial system with the US dollar standard system at the core and the US’s controlling IMF, Word Bank and rating 150% organizations should also experience the reform, and the US dollar will be inevitably impinged. Therefore, we can see its 100% temporary rebound, but the long-term reversion is of little possibility. 50% 0% Regarding present strong move of the dollar, we think it is 1996-2000 2001-2007 2008 2009 2010 2011 a passive advance for the European debt crisis. -50% Meanwhile, it seems not to be persistent, because the Europe has taken more reasonable measures to answer Sources ：Bloomberg, Phillip Securities for the crisis. In reality, current global crisis is triggered by structural conflict and economic imbalance, and the capital is Looking forwards to 2H12, we believe the USD adequate. The market can’t temporarily guide money to suitable sectors or economies because of the shortage of effective tools. depreciation may keep on with a new round of quantitative 2 of 2 Minor Metals Sector Shanghai Equities Research 17 July 2012 easing policy. By now, Brazil, India and China have cut down the benchmark rates one by one, Europe and the Lastly, the time to bring out the QE3 or similar policies for the US South Korea have also taken same measures recently, becomes mature. In June, the Fed’s operation twist will come the UK has increased 50 billion pounds for its QE policy scale. due. Meanwhile, the plunge of crude oil price help the CPI of the In sum, global monetary system is moving on further easing US drop 0.3% MoM in May, realizing the first monthly drop in policies. Regarding the US, we think it is of high possibility that past two years, and the extent is even the biggest since it will carry forward a new round of QE policy in 2H12. December 2008, showing that the inflation pressure is small in the US. Moreover, the US dollar index has returned to the high 83 around, so it has gotten the space for future depreciation by First, the US’s economy is showing weak sign again. From the more easing policies. What’s more, recently many major most important employment data, the total nonfarm payrolls rose economies have loosened monetary policies, which can relieve merely by 80,000 jobs In June. Meanwhile, the unemployment the US’s political pressure. rate has kept at a high 8.2 percent. Overall speaking, the employment situation in 2Q12 was worse than 1Q12. The Fig 6.