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Source: Soochow Securities

Since March, commodity prices have risen, and shipping prices have also risen rapidly in recent days, from precious metals, non-ferrous metals and oil to chemicals, to grain, pork and other agricultural products. Corresponding to the equity market, the increase of the relevant sectors is also relatively high. What are the reasons for the rise in commodity prices and what is the sustainability? This paper attempts to discuss it.

What are the reasons for the rise in commodity prices this time?

First, under the low inventory level, supply constraints bring price elasticity.

In the supply-side direction, in the context of carbon neutralization, the upstream industry has gradually reduced capital expenditure in recent years, restricting the current production capacity. After several years of destocking of resource goods, some commodity inventories are already at historic lows. In the direction of demand side, the recovery of global manufacturing industry, the growth of power investment in China and the trade-in of consumer goods are important supports for the price of non-ferrous goods: the global manufacturing PMI rose sharply in March compared with February, returning to the expansion range and ending.MadamedestinyfreeslotIt has contracted for 17 consecutive months, and at the same time, China and the United States have opened resonance replenishment, corresponding to China's strong exports. China's infrastructure investment in electricity and water increased by 29% in March.Madamedestinyfreeslot.1%, which fell slightly in April but still maintained a high growth rate of more than 25%. The high increase in power investment has driven the demand for copper cable and copper wire. Supply constraints while the demand for some commodities is expected to recover, the gap between supply and demand brings higher elasticity to prices.

Second, the damage to the credit of the dollar leads to the revaluation of dollar-denominated goods.

Under the traditional analysis framework, the real interest rate of gold is negatively correlated with the dollar, and the real interest rate determines the strength of the dollar, so it is generally believed that gold is negatively correlated with the dollar. The recent simultaneous rise in the US dollar and gold has undoubtedly subverted the perception under the traditional framework, and a reasonable explanation is that the credit of the US dollar has been damaged: after the outbreak of the conflict between Russia and Ukraine, the sanctions imposed by the United States to freeze Russian dollar assets have shaken the credit of the US dollar. de-globalization has also become a catalyst for the collapse of dollar hegemony, and US fiscal monetization continues to weaken the long-term credit of the dollar. After the epidemic, the United States increased the scale of bond issuance and fiscal spending to stimulate the economy, making demand resilient in a high interest rate environment and driving the dollar index stronger. The consequence is that America's debt burden continues to rise, and interest rates remain high for a long time, increasing interest payments. Under the high fiscal deficit ratio of the United States, the central banks of various countries have increased the allocation of gold to de-dollarization, of which China's central bank has increased its gold holdings for 18 consecutive months. Dollar credit is damaged, and the reduction in intrinsic value will cause dollar-denominated goods to be revalued.

In the medium to long term, the trend of interest rate cuts in US dollars is still deterministic. The expected weakening of the dollar index combined with a decline in the intrinsic value of the dollar accelerated the de-dollarization of commodities.

Commodity prices are the anchor of the pricing of resource stocks, and resource stocks strengthen with the help of high dividend attributes.

The rise in commodity prices strongly catalyzes the performance of the relevant equity sectors, and the contribution of the high dividend attribute also plays an important role. The short market of 10-year and 30-year government bonds this year reflects the current dilemma of asset shortage, while the high dividend sector has become a scarce asset. The banking sector, which has also led gains without commodity attributes since March, has benefited from high dividends.

The contribution of the high dividend attribute is reflected in:

On the one hand, as the economy is facing structural transformation and the lack of economic assets, the monopoly factors of production of dividend stocks have become a moat to resist the downward pressure of the economy.

On the other hand, in the interest rate downward stage, the performance-to-price ratio of dividend shares is highlighted. We have mentioned in the report "on dividend and growth" that the intensity of dividend style is strongly related to the rolling change of 10-year treasury bonds. Dividend stocks trade the slope of the fluctuation of periodic 10-year treasury bonds and the future expectation of this slope, that is, the second derivative of the maturity yield of ten-year bonds, while the acceleration of the decline in ten-year treasury bond yields some time ago provides a sufficient premium for dividend assets. At present, China is at a critical time for the relaxation of real estate policy, and the balance sheets of the residential sector are damaged, and we need to rely on the government to leverage to promote economic recovery. under such a paradigm, interest rates are easy to fall and difficult to rise, so dividend style will dominate. Resource stocks have room to trade.

How will the commodity market be interpreted in the future?

The logic of supply is more to drive the strong price of the past period of time, and demand is the key to the next round of market. The pick-up in global demand in the first quarter has been reflected in this round of price increases, with a new round of market waiting for the expected improvement after the resumption of the global credit cycle. But the tight monetary policy of the Federal Reserve in the second quarter will bring the global manufacturing economy back to the margin, and the global manufacturing PMI has also fallen back to the contraction range in April. At present, China is at a critical time for the relaxation of the real estate chain, and the improvement of the real estate industry is the key to the recovery of demand in our country. Therefore, the continuous improvement in demand has to wait for new signals, and the performance of goods may be divided.

Looking to the future, the rising prices of non-ferrous commodities wait for more clues of demand, such as the sustainable boom in the global manufacturing industry, the policy of replacing old for new ones to promote the consumption of household appliances and new energy vehicles, the development of emerging technologies has a real demand-driven effect on energy, metals and other resources, and the improvement of real estate in China. If the demand expectation is difficult to improve continuously, the non-ferrous metals represented by copper may face a certain risk of pullback.

With the clearing of the domestic real estate industry, the price of black goods is expected to rise, and the price difference between black and colored goods will gradually converge.

The grand narrative of dollar credit losses is difficult to falsify in the short term. In an election year, the US government has the motivation to maintain fiscal expenditure to ensure economic stability, while the high debt of the United States will prompt countries to increase their holdings of gold. In the long run, gold is in a rising trend. The short-and medium-term valuation of geopolitical and political risks also provides a margin of safety for gold prices.

The volatility of crude oil is mainly affected by the supply side. Geographical conflicts and political election events may have an impact on oil prices, and oil prices are expected to remain volatile.

For resource stocks, the market will revise the performance expectations of individual stocks based on the fluctuation of commodity prices, but with the blessing of high dividend attribute, resource stocks have the advantage of both offensive and defensive.

Risk hints: domestic economic recovery is not as fast as expected; overseas inflation and crude oil disturbances are falling at a slower pace than expected; geopolitical risks.