Xiangcai Securities released a research report expressing a bullish outlook on copper and aluminum prices among the four key tracked metals of copper, aluminum, platinum, and palladium. It holds a cautiously optimistic view on platinum prices and a neutral-to-bearish stance on palladium prices. Regarding investment targets, within the copper sector, the report recommends focusing on upstream leading companies that possess copper mines and are engaged in continuous acquisitions. Even against a backdrop of rising stock prices, the firm believes the pricing cycle for copper metal is not yet over. For the aluminum sector, attention should be paid to the primary aluminum segment. In the platinum sector, the focus is on leading domestic platinum recycling companies. The firm maintains an "Overweight" rating on the nonferrous metals industry.
Copper prices continued their upward trend this month but were accompanied by periodic spot discounts. This phenomenon, occurring amidst rapid copper price increases, is more likely a short-term adjustment, similar to the mid-2024 situation. It is premature to judge that copper prices have peaked. On the supply side, growth persists but the cumulative growth rate has declined sequentially. On the demand side, demand for white goods continues to decline due to the phase-out of national subsidies, but demand for copper from air conditioners and refrigerators remains generally stable. Key temporary contradictions center on tariff concerns, major power competition, and data center capital expenditures. The white goods industry is more a price-taker than a price-setter for copper, thus having a limited impact on prices. Inventory-wise, "copper hoarding" behavior in North America has intensified, global copper inventories remain tight, and fundamental supply-demand imbalances persist, indicating an overall tight supply-demand situation. Therefore, the bullish outlook on copper prices is maintained.
Aluminum prices also continued their upward trend this month, accompanied by periodic discounts. The price spread between primary aluminum and alumina has continued to widen, and the divergence in their trends has not yet reversed. On the supply side, amid supply-demand pressures in the alumina market, the sector overall, excluding specialty/chemical alumina manufacturing, will continue to face pressure. Primary aluminum, constrained by domestic production capacity caps and slower-than-expected overseas project commissioning, maintains a tight supply-demand balance, supporting strong price performance. Demand continues to grow overall, but the growth rate has slowed sequentially. The automotive sector shows stable growth, while growth rates for new energy vehicles and photovoltaic installations have moderated at the margin. Aluminum alloy demand maintains relatively high growth. Emerging demands from sectors like new energy and AI computing provide long-term support. Overall inventory levels remain low, underpinning aluminum prices. Consequently, aluminum prices are expected to remain high in 2026, maintaining the bullish view on primary aluminum prices and high corporate profitability. The outlook for alumina prices is bearish, with the sector overall under pressure except for a few niche segments.
Platinum prices rose rapidly in December, with futures briefly exceeding 700 yuan/gram and maintaining a premium over spot prices. On the demand side, steady growth in the global automotive market, particularly strong performance in diesel and hybrid vehicles, forms the core demand base for platinum. High year-on-year import volumes for most months of the year confirm robust demand. However, growth in new energy vehicles and photovoltaic installations has moderated marginally, and the platinum-palladium price spread turning negative has suppressed substitution demand ("platinum for palladium"), leading to a sequential slowdown in demand growth. Supply is highly concentrated in South Africa, with limited potential for incremental growth, resulting in a tight balance characterized by strong demand and weak supply. The launch of new futures contracts on the Guangzhou Futures Exchange has spurred short-term speculation. Combined with current high price levels, a cautiously optimistic view is held on platinum prices. The supply-demand tight balance is expected to improve marginally in 2026, supporting high price levels. For investment, focus is recommended on companies involved in platinum recycling, with particular attention to any firms pursuing overseas acquisitions of platinum mines.
Palladium prices also rose rapidly in December, with Guangzhou Futures Exchange futures prices approaching 600 yuan/gram and maintaining a premium over spot, leading to high price volatility risks due to active short-term trading. Demand is weak, primarily impacted by the decline of the gasoline vehicle market. Palladium's demand structure is concentrated in automotive catalysts, lacking diverse growth drivers, making its demand fundamentals appear weaker compared to platinum. Inventory-wise, NYMEX palladium inventories have surged significantly since mid-2025, further reflecting an easing supply-demand balance. Although the supply side shares similarities with platinum, considering overall supply-demand dynamics, inventory levels, and demand structure, a neutral-to-bearish view is held on palladium prices, especially given their current high levels.
This month's key developments for listed companies related to the tracked metals involve global mergers and acquisitions by mining giants. The current period is within the depression phase of the fifth Kondratiev wave, a transitional stage where the previous IT红利 has peaked and new technologies are still nascent. Certain commodity assets may benefit during this phase: The leading nation faces recessionary pressures, with high sovereign debt, persistent trade deficits, and severe industrial hollowing out continuously weakening confidence in the US dollar. There is a global need for new universal assets beyond the US dollar and Treasuries as anchors. Consequently, gold, as a universal equivalent, is the first to attract attention and valuation reassessment. As gold prices rise, commodities with tight supply-demand balances not yet priced into this logic will be revalued, with copper being a typical example. Other nonferrous metals fitting this logic beyond gold and copper may also face valuation increases. Simultaneously, potential Fed rate cuts and capital outflows from the US could intensify this commodity revaluation. The US has long maintained a trade account deficit coupled with a capital account surplus. In recent years, high US Treasury yields have attracted significant capital. Using China as an example, its trade surplus over the past three years was approximately $2 trillion, yet foreign exchange reserves showed no significant increase, suggesting substantial surplus funds flowed to the US for fixed income. If the Fed cuts rates, nearly $2 trillion from China's surplus alone could potentially flow out, possibly leading to further valuation increases for globally priced commodities like gold and copper.
In the monthly performance review, the nonferrous metals sector gained 13.68% this month and 65.05% over the past six months, significantly outperforming the CSI 300 Index. Among Shenwan industries, it ranked 2nd in both periods. Among sub-sectors, copper, other minor metals, and aluminum led the gains. At the individual stock level, China Uranium led gains for both the month and the past six months, while the top decliners differed. As of December 31, the sector's price-to-earnings ratio stood at 26.88x, ranking 12th among Shenwan industries. Valuation dispersion is notable among tertiary sub-sectors, with magnetic materials and other new metal materials having higher P/E ratios, while the copper sector's P/E of 22.8x is relatively low.
Key risks include unexpected US tariff or Federal Reserve policies, weaker-than-expected demand from key downstream industries, international situation and geopolitical risks, and unexpected supply increases.
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