The nonferrous metals sector experienced significant volatility at the beginning of 2026. Precious metals, after reaching historic highs, encountered a sharp correction, with gold retreating more than 10% from its peak and silver experiencing an even larger pullback. Industrial metals like copper and aluminum also saw increased price swings, yet their price centers quickly demonstrated resilience following the downturn. The A-share nonferrous metals sector mirrored these fluctuations, presenting a valuable window to distinguish long-term trends from short-term noise and make strategic allocations.
The importance of the nonferrous metals sector now extends far beyond its own domain, becoming deeply intertwined with new economic drivers like new energy, high-end manufacturing, and AI. The development of AI computing centers, new energy vehicles, and humanoid robots all rely heavily on materials such as copper, lithium, cobalt, and rare earths. Amid global power competition, strategic metals have become crucial chips in geopolitical rivalry, continuously enhancing their allocation value.
The core driver of this major shakeout is a shift in the macroeconomic narrative. The nomination of a hawkish candidate for Federal Reserve Chair triggered short-term adjustments in liquidity expectations, although markets are still pricing in two rate cuts within the year. Concurrently, factors like profit-taking and exchanges dynamically raising margins to mitigate risk collectively triggered a technical correction amid high volatility. During this period of intensified market swings, regulatory cooling measures aim to curb speculation, not alter the sector's underlying trend.
The bull market logic for precious metals is undergoing a stress test, not facing a trend reversal. The three long-term drivers behind the previous rally remain intact. First is the persistence of central bank gold purchases as strategic asset allocation. Second is rising safe-haven demand due to an elevated geopolitical risk environment. Third is the long-term erosion of confidence in the U.S. dollar stemming from American debt expansion and a potential rate-cutting cycle. While the new Fed Chair nomination caused short-term volatility by influencing market expectations, its ability to truly reverse these macro trends remains to be seen. The current correction essentially releases overheated short-term sentiment and leverage risks, building momentum for the next rally based on long-term fundamentals. In an era of high uncertainty, gold's strategic value as the ultimate credit hedge has been repriced—a shift in perception that is difficult to reverse.
The authenticity of the industrial metals rally hinges fundamentally on supply-demand dynamics. Unlike the financial narrative for precious metals, industrial metals like copper and aluminum are at the start of a cycle built on solid fundamentals. On the supply side, long-term underinvestment in capital expenditure has led to pronounced resource constraints. Declining ore grades at major global copper mines, slow commissioning of new projects, and copper treatment charges falling to historic lows indicate extreme tightness at the mine level. Domestically, primary aluminum production capacity faces a hard cap. Meanwhile, increasingly tight strategic controls over critical mineral resources worldwide are further reducing supply elasticity.
On the demand side, the industrial revolution driven by green energy and AI is reshaping demand structures. Copper, not just a traditional economic barometer, is a cornerstone of the electrification era, with new energy vehicles, photovoltaic and wind power, AI data centers, and supporting grid construction providing new growth momentum. Aluminum, leveraging its lightweight advantages, is seeing robust demand growth in areas like new energy vehicle bodies and photovoltaic frames. Tin, as a core material for semiconductor solder, is deeply tied to the global expansion of chip capacity and the recovery of consumer electronics.
Strong fundamentals are aligning favorably with valuations, providing a solid foundation for the rally. Nonferrous sector leaders generally forecast earnings growth for 2025, and the tight supply-demand balance expected in 2026, coupled with stable or rising prices, suggests continued profitability release and promising earnings elasticity. The sector's current valuation sits at the 19th percentile compared to the past decade, showing no significant bubble and leaving room for further valuation repair and upside potential.
In the context of the nonferrous metals shakeout, the "crisis" lies in short-term volatility and the trap of chasing highs, while the "opportunity" is the long-term rally driven by supply-demand resonance. Faced with divergence and volatility, the key to investment is distinguishing short-term noise from long-term logic—avoiding blind trend-following and panic selling. Instead, focus on core commodities and maintain reasonable position sizing based on the frameworks of credit hedging, scarcity revaluation, and the ongoing industrial revolution.
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