Tianfeng Securities: There is an expectation of price increases for building materials and resources. Focus on the market trends of industrial metals and building materials resources business

According to the Zhitong Finance APP, Tianfeng Securities released a research report stating that the US dollar may weaken due to "strong expectations and weak realities." The decline in domestic PPI is gradually narrowing, M2 growth is increasing, and both China and the US PMI are on an upward trend. The macro conditions for the current rise in resource prices are basically in place. The midstream building materials sector also has a price increase logic, with the best cement market structure. Upstream industrial metals may lead the way, and companies in aluminum and refractory materials should be monitored. The resource business layout of construction companies also has upward elasticity.

The main points of Tianfeng Securities are as follows:

The macro conditions for rising resource prices are basically in place

The Federal Reserve's interest rate cuts are expected to release liquidity, supporting commodity prices

Since 1954, the Federal Reserve has experienced 13 complete interest rate hike cycles, each of which has had a profound impact on the US output level, inflation, financial markets, and exchange rates, and has also had a strong spillover effect on the foreign exchange markets, financial markets, and output levels of emerging market countries. On March 17, 2022, the Federal Reserve raised interest rates by 25 basis points, starting a new round of interest rate hikes. The latest round of interest rate hikes has led to a return of funds from emerging markets to mature markets, while also raising the overall interest rate level worldwide. As of July 27, 2023, the target federal funds rate in the US reached 5.5%. Subsequently, the US unemployment rate and core CPI year-on-year changes gradually fell, and by December 2023, the year-on-year increase in the US core CPI had dropped to 3.9%, with an unemployment rate of 3.7%. In September 2024, the Federal Reserve began to cut interest rates by 50 basis points, followed by two more adjustments, bringing the rate to 4.5% by the end of 2024. The bank predicts that the trend of interest rate cuts may continue into 2025.

The essence of the resource bull market is the resonance of monetary easing, rising demand, and constrained supply

From a top-down perspective, resource bull markets are usually accompanied by monetary easing (declining US Treasury yields, increasing M2 growth) and a weakening trend of the US dollar, with rising inflation expectations boosting the macro bullish logic. At the same time, from the perspective of macro fundamental indicators, PPI and PMI are usually in an upward channel, and inventory is showing a downward trend. By the end of 2024, the one-year US Treasury yield had fallen to 4.2%, and the USD/CNY central parity was 7.2. China's CPI/PPI/M2 year-on-year changes were +0.1%/-2.3%/+7.3%, and China's/US PMI were 50.1/49.3, respectively. Currently, the US dollar may weaken due to "strong expectations and weak realities," the decline in domestic PPI is gradually narrowing, M2 growth is increasing, and both China and the US PMI are on an upward trend. The macro conditions for the current rise in resource prices are basically in place.

The midstream building materials sector also has a price increase logic, with the best cement market structure

1) Cement: Peak shifting increases in Q1 2025, clinker inventory is at a near five-year low

In the building materials sector, cement demand is expected to stabilize relatively at the bottom. Although the cement operating rate was low at 8.6% in the week before the Spring Festival, it was up 7.6 percentage points year-on-year; on the supply side, there is a narrowing trend. Some provinces and cities have announced peak shifting shutdown plans, with many areas increasing the number of peak shifting days in Q1 2025 compared to Q1 2024, and the current capacity control policy is still expected to be strengthened. If fiscal policies are further strengthened after the holiday, there may be upward space for infrastructure construction demand. In Q1, demand in East and South China may recover first, and the cement supply-demand structure is expected to improve further From the perspective of inventory, the cement inventory capacity at the beginning of 2025 is at a medium-low level compared to the past five years, and the clinker inventory capacity has dropped to the lowest level in nearly five years. In the last week before this year's Spring Festival, the cement/clinker inventory capacity ratios were 56.3%/44.4%, down by -8.9/-30.4 percentage points year-on-year compared to the week before last year's Spring Festival, and the low inventory provides strong support for price increases.

2) Glass Fiber: Structural high demand, prices expected to rise

The downstream demand for glass fiber has a strong correlation with the macro economy, with a projected GDP growth of +5% in 2024. Currently, provincial-level local two sessions have been held one after another, with the vast majority of provinces setting their GDP targets for 2025 at no less than 5%. The demand side is expected to stabilize and rise from a relatively low bottom, with high demand expected to be maintained in the wind power and thermoplastic yarn sectors.

On the supply side, there are still expectations of shocks to current glass fiber production capacity. From the inventory perspective, as of the end of December 2024, the glass fiber industry inventory was 778,500 tons, down by 64,000 tons year-on-year and 29,000 tons month-on-month, with low inventory levels also laying the foundation for price increases. At the end of November, leading company China Jushi took the lead in raising prices for wind power yarn and thermoplastic yarn, with wind power yarn products increasing by 15-20% and thermoplastic short-cut products increasing by 10-15%.

3) Consumer Building Materials: Raw material prices fluctuate, waterproof materials and water-reducing agent prices driven by costs

In terms of consumer building materials, in addition to the impact of industry supply and demand patterns, raw material cost prices will also affect the prices of various building material categories. Tracking the price trends of various raw materials before and after the Spring Festival over the past three years, it is found that this year's raw material prices have varied year-on-year.

Among them, the cost of waterproof materials, specifically asphalt prices, and the cost of water-reducing agents, specifically industrial naphthalene prices, have shown an upward trend, which may provide some momentum for price increases in waterproof materials and water-reducing agents after the holiday. Additionally, the demand for coatings supported by existing housing may still have upward price potential in the medium to long term.

4) Glass: Prices and inventory at low levels, potential for price increases after the holiday

Currently, the prices and inventory of float glass and photovoltaic glass are at historically low levels, and the price recovery after the holiday still needs to pay attention to demand conditions. Looking ahead, the float glass manufacturers have insufficient motivation to adjust prices before the holiday, but there may be potential for price increases after the holiday.

Upstream industrial metals may lead the way, focus on aluminum and refractory material companies

1) On one hand, building material companies engaged in the processing and sales of upstream resource products (mainly aluminum products) are expected to benefit, including Haomei New Materials (002988.SZ), Zhite New Materials (300986.SZ), Lidao New Materials (603937.SH), Conch New Materials (000619.SZ), and Longquan Co., Ltd. (002671.SZ), among which Haomei New Materials/Zhite New Materials/Lidao New Materials have over 80% of their revenue from aluminum-related businesses, with gross profit accounting for over 70%.

1. On the other hand, if steel prices rise, the overall profitability of the industry will improve. Steel companies will have more motivation to expand production scale or improve production efficiency, which will directly increase the demand for refractory materials, while their sensitivity to refractory material costs may decrease, allowing them to accept higher refractory material prices. The bank has identified refractory material companies including Donghe New Materials (839792.BJ), BJLE (002392.SZ), Ruitai Technology (002066.SZ), PRCO (002225.SZ), and Luyang Energy-Saving (002088.SZ), among which several companies have resource mining businesses, such as Donghe New Materials' magnesite business, which accounted for 5% of revenue and 18% of gross profit in the first half of 2024 Expected to further benefit from the rising prices of resource products.

The resource business layout of construction companies also has upward elasticity

The business of construction companies around resource-based products can be roughly divided into three types. Against the backdrop of rising commodity prices, performance elasticity and stock price catalysts are also worth looking forward to:

1) Resource development and trade: This refers to various mineral resource development and operation projects obtained through equity acquisitions, self-funded investments, and infrastructure exchanges for projects. It relies on the sales revenue generated from the sale of copper concentrates and other bulk commodities. The scale of revenue and profit mainly fluctuates with the price changes of mineral products, such as various domestic and overseas mines held by China Railway (00390, 601390.SH), Sichuan Road and Bridge (600039.SH), and Shanghai Construction (600170.SH).

2) Resource service operation and maintenance: This does not directly engage in the aforementioned resource development business but focuses on resource trade, mine construction, equipment supply, and other service operation and maintenance work around resource projects. Examples include China National Materials (600970.SH), which focuses on cement production line construction and mine operation and maintenance, Huadian Heavy Industries (601226.SH), which provides mining material transportation equipment, and China Railway Construction (601186.SH), which undertakes mining construction projects.

3) Resource processing: This mainly focuses on resource processing business, generally using a cost-plus model to earn processing fees. The rise in resource prices is beneficial for further highlighting the procurement cost advantages of leading enterprises, such as Honglu Steel Structure (002541.SZ), which specializes in steel structure manufacturing and processing.

Risk warning: Resource price increases may fall short of expectations, downstream infrastructure and real estate demand may not meet expectations, raw material and coal price increases may exceed expectations, and capacity releases may exceed expectations