China Galaxy Securities: Prices of non-ferrous metals back on upward trend, industry performance accelerating growth further.

China Galaxy Securities released a research report stating that the continuous strong rise in metal prices has accelerated the performance growth of A-share non-ferrous metal industry in the fourth quarter of 2025 and the first quarter of 2026, and the overall valuation of the industry remains at historically low levels. Although the conflict in the Middle East has caused non-ferrous metal prices to fall from their highs, starting in mid-April, as the market gradually digests the geopolitical events in the Middle East, negotiations for a US-Iran ceasefire progress, economic and liquidity expectations converge, market risk preference continues to recover, which is expected to support non-ferrous metal prices to return to an upward trend, and the industry's performance has upside potential. Key points of China Galaxy Securities are as follows: Industry prosperity is on the rise, with the net profit attributable to shareholders of A-share non-ferrous metal industry accelerating in 2025 and the first quarter of 2026 In 2025, despite the disruptions caused by the US tariff hikes, China's countercyclical adjustment policies have intensified to promote economic recovery in conjunction with the continuous interest rate cuts by the Federal Reserve. In addition, the geopolitical tensions and disruptions in the supply side have kept non-ferrous metal commodity prices on an upward trend throughout the year, significantly boosting the profitability of non-ferrous metal companies, leading to an accelerating growth trend in the overall performance of the A-share non-ferrous metal industry. The overall performance of A-share non-ferrous metal industry in 2025 increased by 62.77% year-on-year; with a 109.70% year-on-year increase in the fourth quarter of 2025. Optimistic sentiment towards macro expectations and liquidity in the first quarter of 2026, along with intensified competition for key strategic metals and supply chain restructuring by major countries, have driven the prices of non-ferrous metal commodities and the A-share non-ferrous metal sector to continue rising. Despite the high-level jitters and fluctuations in non-ferrous metal prices following the escalation of the Middle East conflict in March, the accumulated price central tendency increase in non-ferrous metal prices prior still further accelerates the overall performance of the A-share non-ferrous metal industry in the first quarter of 2026 compared to the same period last year. The listed companies in the A-share non-ferrous metal industry saw a year-on-year increase of 37.98% in operating income and a 110.64% increase in performance in the first quarter of 2026. Improvement in profitability, with the overall ROE level of the A-share non-ferrous metal industry in the first quarter of 2026 significantly increasing compared to recent years due to the improvement in the industry's overall sales profit margin The overall ROE of the A-share non-ferrous metal industry increased from 3.47% in the fourth quarter of 2025 to 4.76% in the first quarter of 2026, a month-on-month increase of 1.29 percentage points. The overall sales profit margin of the A-share non-ferrous metal industry increased from 5.42% to 8.04%, affecting the 1.55 percentage point increase in ROE, which is the core factor in the overall increase in the ROE level of the non-ferrous metal industry in the first quarter of 2026. In addition, the overall equity multiplier of the A-share non-ferrous metal industry increased from 2.02 in the fourth quarter of 2025 to 2.03 in the first quarter of 2026, resulting in a 0.02 percentage point increase in the ROE level. However, the overall asset turnover rate of the A-share non-ferrous metal industry decreased from 0.32 in the fourth quarter of 2025 to 0.29 in the first quarter of 2026, reducing the ROE level by 0.28 percentage points. The gross profit margin for the A-share non-ferrous metal industry in the first quarter of 2026 was 16.76%, a month-over-month increase of 0.10 percentage points compared to the fourth quarter of 2025. The increase in the industry's gross profit margin was mainly due to the month-on-month increase in the average price of non-ferrous metals in the first quarter of 2026. Investment recommendation From the perspective of expected performance growth in various sub-industries in the second quarter of 2026, it is recommended to focus on leading companies in the copper mining sector, such as Zijin Mining Group, CMOC Group Limited, Zangge Mining, and MMG, which benefit from the expected economic recovery and the continued increase in global AI infrastructure capital expenditure driving demand. The aluminum industry stocks, including Yunnan Aluminium, Tianshan Aluminum Group, Henan Shenhuo Coal & Power, and Henan Zhongfu Industrial, are expected to rise due to the substantial contraction in the supply side caused by geopolitical tensions in the Middle East, and the widening imbalance between global aluminum supply and demand. The lithium mining sector stocks, such as Tianqi Lithium Corporation, Ganfeng Lithium Group, Dazhong Mining, Chengxin Lithium Group, Sinomine Resource Group, and YOUNGY Co., Ltd., are expected to benefit from the continued strong demand for energy storage due to the accelerating global energy structure transformation, as well as the disruption in the supply side amplifying the upward elasticity of lithium prices. Risk warning: 1) risks of domestic economic recovery falling below expectations; 2) risks of Federal Reserve interest rate cuts falling below expectations; 3) risks of Middle East conflicts exceeding expectations; 4) risks of downstream demand for non-ferrous metals not meeting expectations; 5) risks of a significant decline in non-ferrous metal prices.