China Securities Co., Ltd.: US-Iran talks may present a turning point, metal sector launches counterattack.

China Securities Co.,Ltd. release a research report stating that the violent rebound in the metal equity market last week was mainly due to the new details of the draft memorandum of understanding between the US and Iran being announced. At the same time, the US May CPI meeting expectations greatly alleviated concerns in the market about the Federal Reserve raising interest rates, leading to a significant increase in market investment preferences. The company reiterated that the strong metal prices indicate excellent fundamentals, and the current biggest uncertainty comes from the direction of liquidity. Until the issue between the US and Iran is resolved, there may be fluctuations in the metal equity market. However, the extremely low PE of metals has already priced in concerns about interest rate hikes, making the odds of going long very good. The news of navigation through the Strait of Hormuz is most favorable for the industrial metal rebound. In addition, if trading chips are redistributed, excellent fundamental metals will remain a priority option for funds. China Securities Co.,Ltd.'s main points are as follows: Industrial Metals: This week, the price changes of LME copper, aluminum, lead, zinc, and tin were 1.5%, -1.7%, -1.8%, 1.2%, and 1.5%, respectively. Industrial metal prices are jointly determined by their "financial attributes" and "commodity attributes." From the financial perspective, the Federal Reserve has already begun an interest rate-cutting cycle. From the commodity perspective, global copper and aluminum inventories are relatively low, the prospect of China's economic recovery is promising, and the demand for copper and aluminum may see an improvement due to the pull from the new energy industry. US-Iran negotiations may present a turning point, leading to a rebound in the metal sector (1) Copper: Concerns about Fed rate hikes have eased, and stock rebound momentum is strong. Recently, the COMEX-LME price difference has remained at $300/ton, while LME warehouse copper cancellation warrants have increased, and COMEX copper inventories have risen. These signs indicate that some funds are betting on the 15% tariff imposed on copper entering the US starting from January 1, 2027, following the 232 investigation by the US Department of Commerce on June 30. The global visible exchange stockpile of copper is 1.25 million tons, with COMEX alone accounting for 650,000 tons and non-US regional stocks around 600,000 tons. Once the copper tariff is confirmed on June 30, the price increase driven by shipments will lead to a repeat of the rally in March and December 2025. Even without structural rallies driven by shipments, copper itself has the driving force for price increases. Firstly, by the end of the first quarter, there has been a significant undersupply of global copper mine increments, mainly manifested in delays of projects at KK, Grasberg, and Mirador mines in Chile, resulting in the original annual increase in copper mine outputs of 450,000 tons only being realized to approximately 100,000 tons. With consumption meeting expectations, the global refined copper balance this year is expected to turn to a deficit of 100,000 tons. Secondly, if the Strait of Hormuz is navigable, the suppressed financial attributes will be released, driving copper prices higher. If navigation remains blocked, there is a risk of disruption to wet-copper production (which could lead to a second oil price surge), with commodity attributes opposing financial attributes, still able to maintain above 100,000 tons. However, currently, copper PEs as a resource have been generally suppressed to 10 times or less, making them a valuable investment option. Signs pointing to navigation through the strait are favorable for a substantial rebound in equities. (2) Aluminum: De-stocking pace significantly accelerates, with prices holding at the 24000 level. The latest domestic electrolytic aluminum inventory this week is 1.312 million tons, a decrease of 63,000 tons from last week, and aluminum rods are also part of the de-stocking process, as the market is fulfilling the logic of compensating for overseas shortages through aluminum exports. Data shows that in May, 632,000 tons of unrolled aluminum and aluminum products were exported, reaching an 18-month high. Coupled with marginal improvements in domestic consumption, strong de-stocking domestically is expected to be sustained. Currently, the Middle East has already shut down production capacity, including Qatar at 265,000 tons, Bahrain at 1 million tons, and the UAE at 1.6 million tons; in addition, Mozambique's power contract expiration has led to a shutdown of 575,000 tons, totaling 3.44 million tons, accounting for 4.58% of global operating capacity, equivalent to a monthly overseas reduction in aluminum supply of 280,000 tons. LME inventories have been driven below 350,000 tons, the overseas market is already in a tight state, and Japan has signed new quarterly premiums reaching $480/ton. The incremental push from the 1.2 million ton global production capacity gap is gaining momentum. Risk Warning: 1. A significant global economic recession leading to a sharp decline in consumption. The World Bank's latest "Global Economic Outlook" has raised the global economic growth forecast for 2026 from 2.3% to 2.6%, but economic growth has shown a slowing trend in recent years. If the global economy falls into a deep recession, it will have a significant impact on the consumption of non-ferrous metals. 2. Uncontrollable inflation in the US, exceeding expectations of monetary tightening by the Federal Reserve, with a strong US dollar suppressing equity asset prices. The US cannot effectively control inflation and continues to raise interest rates. The Fed has already made significant consecutive rate hikes, but services, especially rents and wages, have shown sticky constraints to the decline in inflation. If the Fed maintains a high-intensity rate hike, it will be unfavorable for non-ferrous metals priced in US dollars. 3. The consumption growth rate of the domestic new energy sector is lower than expected, and the consumption of the real estate sector remains depressed. Although policies on the sales side of the real estate market have been loosened to varying degrees, the lack of willingness among residents to purchase and the unresolved debt risks of real estate companies are obstacles. If sales continue lack improvement, the later completion end of the real estate sector may face the risk of slowdown, being unfavorable for the consumption of some non-ferrous metals in China.