Resource stocks review - June 2nd

The imported ore market showed a significant increase in running. Today's market performed strongly, with overall increased activity from traders, more positive quotes, stronger willingness to sell, and a recovery in speculative demand.

Overall, it is expected that iron ore prices in June will show a trend of rising first and then falling.

The support for iron ore prices in the previous period was that the demand from steel mills would remain at a high level in the short term, so the ore price would continue to rebound to a certain extent. Subsequently, as the market reduces production in a market-oriented manner or introduces policies to control crude steel output, the supply-demand imbalance will appear, and the ore price is expected to be under pressure to decline. At that time, the end of the month level will most likely be lower than the beginning of the month level, and the overall ore price will show a weakening trend.

Shanxi Securities iron ore (3047.HK) closed at HKD 16.08, up 0.37%

Cumulative return: 1 week: 9.02%, 1 month: 2.75%, 3 months: -10.82%, 6 months: 7.27%, since listing: 115.84%.

The bank pointed out that the recent rise in lithium prices is attributed to several factors: 1) gradually improving demand; 2) some producers unwilling to sell at low prices; 3) the high price of lithium spodumene concentrate provides solid cost support. Looking ahead, given the traditional seasonal pattern, management is confident about the demand outlook for the third quarter of 2023. In addition, Ganfeng Lithium has made several investments in Argentina and plans to start production from this year to improve its self-sufficiency and overall profitability. Management points out the differences between Argentina and Chile and believes that the nationalist risk there is limited. According to the latest market news, Argentina may soon obtain an exemption from the United States International Trade Commission. Regarding the Sonora project in Mexico, the worst case scenario is a delay in the schedule, but Ganfeng Lithium still has confidence in achieving the target production capacity of 300,000 metric tons of lithium carbonate equivalent by 2025.

The bank further stated that Ganfeng Lithium will be basically running at full capacity in the first half of 2023 and will adhere to the guidance of producing 110,000 to 120,000 metric tons of lithium carbonate equivalent in 2023. As of the end of May, its lithium chemical inventory is 1 to 2 months, lower than the peak level at the beginning of 2023.

According to data from the National Bureau of Statistics, in the first four months of 2023, the nonferrous metal smelting and rolling processing industry achieved operating revenue of CNY 2359.98 billion, a year-on-year increase of 0.6%; operating costs of CNY 2245.1 billion, a year-on-year increase of 3.9%; and total profits of CNY 49.3 billion, a year-on-year decrease of 55.1%.

From January to April, the nonferrous metal mining and dressing industry achieved operating revenue of CNY 107.97 billion, a year-on-year increase of 1.0%; operating costs of CNY 70.38 billion, a year-on-year decrease of 1.0%; and total profits of CNY 24.83 billion, a year-on-year increase of 6.7%.

China Galaxy Securities stated that although the performance growth rate of the nonferrous metals industry in the first quarter of 2023 has slowed down and entered a negative growth range compared to the same period last year, there are still signs of marginal improvement in industry prosperity due to the gradual recovery of the domestic economy and the slowing pace of interest rate hikes by the US Federal Reserve overseas. The industry is at the bottom of its performance and is gradually moving towards a reversal. After entering the second quarter, the market will make major decisions and pay more attention to industry prosperity investment. The high prosperity sub-industries in the nonferrous metals industry are expected to have good investment opportunities in terms of sustained high prosperity and a turning point in prosperity.