CICC: Product demand is marginally slowing or is still the benchmark path, and some varieties are facing supply-side pressure

The Zhitong Finance App learned that CICC released a research report saying that looking forward to the second half of the year, after the peak construction season, the growth momentum may be pressured by insufficient infrastructure space, the gradual end of PV installations, etc., and demand from trade-in boosting efficiency; overseas energy demand may also face pressure on demand for transportation fuel and oil terminals due to slowing economic growth and trade frictions between Europe and the US Wait for an unfavorable situation. The number of products in the oversupply pattern is expected to increase this year. At present, the domestic aluminum market and the US natural gas market are expected to maintain a pattern of shortages among the main varieties. Under the majority pattern of excess, the bank believes that cost feedback and premium revaluation after falling more than enough may be the second change faced by the commodity market in the second half of the year.

CICC's main views are as follows:

Tariff shock risk appetite, and sudden external factors drive commodity price resonance

In the first half of the year, the commodity market frequently experienced a resonance of rising and falling, but the driving force behind it was not an endogenous frequency of fundamentals, but more stemming from external shocks from unexpected variables. The bank believes that repeated US tariff policies are a core variable faced by the commodity market. From trade policy uncertainty driving cross-market arbitrage transactions and boosting overseas metal prices, to “equal tariffs” exceeding expectations and ushering in sell-offs in the commodity market.

The intense flow of market capital may have shown that the impact of the current US tariff policy on risk appetite in the commodity market is no less than during the 2020 global pandemic and the 2022 Russian-Ukrainian conflict. The bank believes that the interpretation and pricing of consistent expectations may have been sufficient. Following the Trump administration's signal of tariff policy easing on April 23, and the release of the joint statement of the Sino-US economic and trade talks in Geneva on May 12, tariff uncertainty seemed to have initially peaked, concerns about the global economic recession abated, and the recovery of commodity prices and market positions all showed that the revised process of consistent expectations had begun.

Changes after consistent expectations may be due to volatile factors in the fundamentals of the product

Looking ahead to the second half of the year, the impact of trade policies and the geographical situation on the commodity market may go from expectation to reality, and this itself is also a process of uncertainty from inspection to correction. The volatile factors facing different commodity fundamentals may bring opportunities for poor expectations, which is one of the market changes after unanimous expectations. The bank believes that the following three aspects are worth paying attention to: First, although the probability of an extreme demand impact of the economic recession has declined, demand for major commodities may still inevitably slow marginally in the second half of the year. After the peak construction season, domestic industrial metal demand may grow under pressure from insufficient infrastructure space, gradual completion of PV installations, and reduced efficiency due to trade-in; overseas energy demand may also face adverse situations such as slowing economic growth in Europe and the US and pressure on demand for transportation fuel and oil terminals due to trade frictions.

Second, in terms of tariff policy, increased US tariffs on steel and aluminum have already been implemented, while tariff rules on copper and agricultural products have not yet been finalized. Trade flexibility and supply resilience in the industrial metals and agricultural products markets may still be tested by their respective tariff policies. Third, in terms of the geographical situation, when negotiations between the US, Iran, and the US and Russia are ongoing, the OPEC+ production increase cycle begins, and it is expected that the direct and indirect effects on energy supply will also be verified.

Most surplus varieties may vary depending on cost feedback and premium revaluation

The bank updated its forecast for the balance between supply and demand for major commodities this year and next two years. Compared with the judgment at the end of last year, the number of products in an oversupply pattern has increased this year, which mainly reflects general pressure on the demand side. At present, the domestic aluminum market and the US natural gas market are expected to maintain a pattern of shortages among the main varieties. Under the majority pattern of excess, the bank believes that cost feedback and premium revaluation after falling more than enough may be the second change faced by the commodity market in the second half of the year.

Looking ahead to the second half of the year, the bank expects non-ferrous metals and energy to remain at a certain premium over costs. Among them, copper and aluminum may benefit from supply rigidity and green demand, and long-term copper shortages may continue to broaden their “inventory premium”; the drilling costs of new shale oil wells in North America have been tested, and superimposed crude oil inventories are still at a relatively low level in history. The bank believes that opportunities to reassess crude oil supply premiums in the second half of the year may come from uncertainties such as OPEC+ production policies and geographical conditions.

In contrast, the bank believes that the premium on iron ore and domestic pig stocks may be difficult to maintain, or continue to bottom out costs. However, for agricultural products that have fallen below or are close to the cost, the bank believes that the discounted cost of soybeans may be expected to narrow as the area under cultivation in the US is reduced in the new season, but the price of corn may continue to fall below the cost line.