China Galaxy Securities: The strategic value of scarce metals is enhanced, and the mid-term report of the A-share non-ferrous metal industry establishes a positive trend for the industry

According to the Zhitong Finance APP, China Galaxy Securities released a research report stating that the market's expectations for the Federal Reserve to cut interest rates in September will drive global gold ETFs, which historically use the Federal Reserve's policy interest rates as a guide for increasing or decreasing gold holdings, to accelerate their purchases of gold. Additionally, U.S. President Trump’s intervention in the independence of the Federal Reserve may harm the credibility of the U.S. dollar and U.S. Treasury bonds, potentially triggering more safe-haven funds to allocate to gold, pushing up gold prices. In the context of escalating U.S.-China tariff trade disputes and geopolitical conflicts, the strategic value of scarce metals is increasing. China is tightening control over rare earths and strengthening export controls, enhancing the country's ability to control the supply and prices of rare earths, leading to a clearer global monopoly pattern in China's rare earth industry. The demand for rare earth magnetic materials is expected to increase in Q3 2025 due to overseas inventory replenishment, stimulating upstream rare earth prices to maintain a strong upward trend, with both volume and price of magnetic materials likely to rise.

The main viewpoints of China Galaxy Securities are as follows:

In the first half of 2025, the performance of the A-share non-ferrous metal industry will maintain high growth, further establishing a positive trend for the industry.

In Q2 2025, the overall performance growth rate of the non-ferrous metal industry has slightly declined due to a high base effect. After the domestic development focus shifted to stabilizing growth at the end of last year, a series of incremental economic policies have been introduced and implemented, gradually showing effectiveness in the first half of this year, accelerating the momentum of China's economic recovery. The GDP growth rate in the first half of 2025 reached 5.3%, exceeding market expectations. Coupled with the liquidity released after the Federal Reserve entered a rate-cutting cycle, this has effectively alleviated the adverse effects of demand and economic expectation fluctuations caused by the U.S. tariff trade war, supporting the prices of non-ferrous metal commodities to rise compared to the same period last year, consolidating the prosperity of the non-ferrous metal industry and the recovery of non-ferrous metal companies' performance after hitting a bottom, entering a new upward cycle. Specifically, the A-share non-ferrous metal industry saw a year-on-year revenue growth of 6.70% in the first half of 2025, with a year-on-year performance growth of 43.88%; in Q2 2025, the A-share non-ferrous metal industry achieved a single-quarter revenue growth of 6.03% year-on-year, with a performance growth of 23.80%.

In Q2 2025, the overall ROE level of the A-share non-ferrous metal industry continued to rise, mainly due to the improvement in the overall asset turnover rate of the industry.

According to the results of the DuPont analysis, the overall ROE of the A-share non-ferrous metal industry rose from 2.69% in Q1 2025 to 3.09% in Q2 2025, an increase of 0.40 percentage points. Among them, the overall asset turnover rate of the A-share non-ferrous metal industry increased from 0.25 to 0.28, contributing 0.33 percentage points to the ROE increase, which is the core factor for the overall ROE level rise in the non-ferrous metal industry in Q2 2025. Additionally, the overall sales profit margin of the A-share non-ferrous metal industry increased from 5.26% in Q1 2025 to 5.29% in Q2 2025, contributing 0.02 percentage points to the ROE level. Furthermore, the overall equity multiplier of the A-share non-ferrous metal industry rose from 2.01 in Q1 2025 to 2.05 in Q2 2025, contributing 0.06 percentage points to the ROE level.

The cash flow situation of the industry continues to improve.

The overall operating net cash flow of the A-share non-ferrous metal industry grew by 22% year-on-year and 211% quarter-on-quarter in Q2 2025. Due to the collection cycle and seasonal factors in the non-ferrous metal industry, cash flow for non-ferrous metal companies in the second quarter is often better than in the first quarter. However, the operating cash flow of the industry in Q2 2025 increased year-on-year compared to Q2 2024 Moreover, the overall operating net cash flow of the A-share non-ferrous metal industry has achieved year-on-year growth for the fourth consecutive quarter, indicating a continued improvement in the cash position of non-ferrous metal enterprises.

Risk Warning

1. Risk of domestic economic recovery being lower than expected; 2) Risk of the Federal Reserve's interest rate cuts being lower than expected; 3) Risk of the China-U.S. trade war exceeding expectations; 4) Risk of downstream demand for non-ferrous metals being lower than expected; 5) Risk of a significant decline in non-ferrous metal prices