Tianfeng Securities released a research report stating that from the perspective of PPI and industry capacity utilization rates, the non-ferrous metals industry shows an obvious trend of peaking and declining. Among these, the copper smelting industry faces significant losses and urgently needs "anti-involution" measures to be implemented. The key to "anti-involution" in the copper smelting industry lies in "capacity optimization." It is expected that through "anti-involution," the matching between mining and smelting capacity will improve, creating expectations for the copper smelting industry to turn losses into profits, with companies having smelting cost advantages showing stronger profitability.
Tianfeng Securities' main viewpoints are as follows:
Economic growth slowing, "anti-involution" winds rising. On July 30, 2024, the Political Bureau meeting proposed "strengthening industry self-discipline and preventing 'involution-style' vicious competition," marking the first time "anti-involution" entered the central-level vision. Observing the background of the "anti-involution" proposal and comparing it with supply-side reforms, both point to a macroeconomic environment of "slowing economic growth" - GDP growth rate decelerating with PPI year-over-year remaining in negative territory for extended periods. The slight difference is that downstream demand-side industries currently face greater challenges.
Copper smelting industry shows significant losses, "anti-involution" winds may eventually sweep through. Focusing on the meso-level dimension, the previous round of supply-side reforms centered around steel and other industries, while "anti-involution" initially targeted photovoltaic and new energy vehicle industries, which are characterized by "low utilization rates and low profits." From PPI and industry capacity utilization perspectives, although the non-ferrous metals industry faces less pressure compared to automotive and other sectors, the trend of peaking and declining is evident, still warranting concern. Among these, the copper smelting industry faces significant losses and urgently needs "anti-involution" implementation.
Analyzing the causes of copper smelting "involution," there are objective factors on the raw material side. First, China's raw material conditions are weak, with reserve-to-production ratios imbalanced and relatively high costs. Second, global copper mine growth has been under pressure in recent years, with low capital expenditure and multiple geopolitical risks leading to high global disruption rates. The bigger problem lies in the smelting industry, where China's smelting capacity continues to expand, increasingly highlighting the mismatch between mining and smelting.
The key to "anti-involution" in the copper smelting industry lies in "capacity optimization." First, eliminating outdated capacity. Second, improving cost efficiency of existing capacity, including adopting advanced smelting technologies and pursuing intelligent and green directions. Finally, for new expansion capacity, building high-level smelting plants is needed, encouraging supporting copper mine capacity or effectively utilizing recycled resources.
Copper industry profits are expected to return to positive territory long-term, with optimized capacity layout. Referencing the supply-side reform report card, it is expected that through "anti-involution," the matching between mining and smelting capacity will improve, creating expectations for the copper smelting industry to turn losses into profits, with companies having smelting cost advantages showing stronger profitability. Additionally, as state-owned enterprise reform deepening and enhancement actions are implemented thoroughly, the optimization of state-owned economic layout and structural adjustments continue to advance, and the allocation and operational efficiency of state-owned capital in the copper smelting industry are expected to further improve.
It is recommended to focus on companies with smelting cost advantages and mining-smelting integrated enterprises. Target stocks include: ZIJIN MINING (601899.SH, 02899), Western Mining (601168.SH), Jiangxi Copper (600362.SH), CHINFMINING (01258), Yunnan Copper (000878.SZ), Northern Copper (000737.SZ), etc.
Risk warnings: Sample selection risk, subjective judgment risk, downstream demand falling short of expectations risk, geopolitical and policy risks, company operations falling short of expectations risk.