"Tongniu" Transmission Chain Of Zijin Mining'S 175 Billion Market Value

Dong Peng, researcher of the 21st Century Capital Research Institute

Copper and gold are associated minerals, so several domestic leading enterprises both produce copper and gold, but their business focuses are different, and there are obvious differences in revenue composition.

Although Zijin Mining is listed in the precious metal plate by the seller, the company still has more than 30 billion yuan of copper smelting and copper concentrate income, second only to its gold ingot business income.

Coincided with the Spring Festival, LME period copper soared, copper plate also brought support for Zijin Mining's share price. However, on closer examination, the company's upward trend began as early as 2020 during the fermentation period.

On March 16, 2020, CMX gold futures bottomed, and LME copper bottomed on March 19. Then, Zijin Mining's share price followed the upward trend, rising to 254.7 billion yuan on the first trading day of 2021, with an increase of 175 billion yuan. And that's just the beginning of the story.

The outstanding performance makes Zijin mining industry become the absolute champion of A-share 132 only color companies, and the largest heavy position stock of ETF in nonferrous industry.

According to the research of the 21st Century Capital Research Institute, with the recent acceleration of the rise of international pricing commodities represented by copper and crude oil, the secondary market's attention to the nonferrous metals and chemical industry has increased sharply, and the share prices of companies including Zijin Mining Co., Ltd. have continued to rise. Even, for a time, it also triggered a discussion about whether cyclical stocks will become a new direction.

Copper rose faster in LME period

From 2010 to 2019, the copper market price generally shows a trend of rising and falling.

Influenced by the global economic recovery, the domestic "four trillion" investment plan, the "quantitative easing" monetary policy of European and American economies and the means of fiscal expansion, the copper price continued to rise and reached its peak in 2011.

Subsequently, affected by the global economic downturn, European debt crisis and domestic tightening policies, copper concentrate production capacity in the supply and demand side was overcapacity, and copper prices fluctuated widely and went down all the way.

In 2017, due to the impact of inventory decline and economic recovery, copper prices rebounded, but since 2018, affected by Sino US trade war, macroeconomic downturn and sluggish consumption, copper prices generally showed a volatile trend.

At the beginning of 2020, after the outbreak of Xinguan epidemic, under the background of a large-scale shutdown in the world, especially in China, the world's largest demand country, the demand side of commodities suffered a huge blow, and the prices of commodities including copper continued to decline.

On March 19, 2020, LME copper reached a new low of US $4371 / T, which is far from the 2016 low of US $4318 / T.

Since then, with the effective control of the domestic epidemic situation, industrial production gradually returned to the right track, commodity bottomed out, and copper prices stabilized and rebounded.

However, the fluctuation of copper price is not only affected by the relationship between supply and demand, but also has a strong financial attribute like gold.

The four major influencing factors summarized in the previous period include: first, fundamental factors. In the medium and long term, the supply of copper concentrate is negatively correlated with copper price, while the increase or decrease of copper consumption in downstream is positively correlated with copper price as a whole; second, macro influencing factor, which reflects strong financial attribute under the influence of macro-economic environment; third, production and consumption are closely related to macroeconomic operation Most of the time, the copper price is negatively correlated with the US dollar index. The changes of interest rate, social finance and M1 / m2 are regarded as the observation indicators of financial operation and monetary liquidity. The periodic expected changes of demand and inflation often affect the fluctuation of copper price; the fourth is the emotional factor, which will affect the fluctuation of copper price whenever market uncertainty events occur This will cause disturbance to market sentiment and aggravate the fluctuation of global asset prices, which will also affect copper prices.

The recent acceleration of copper price rebound is related to its financial attributes.

Jing Chuan, the current chief economist of CUHK futures, joined the industry in 1993, with dual working background of copper enterprises and futures companies.

He believes that in 2020, the Fed's money supply will reach a record level in response to the epidemic and the large-scale repayment of treasury bonds. Historically, the growth of money supply has never been so fast. The 1970s was the only period close to this level. Due to the liquidity of the US dollar, the global monetary liquidity was further overflowed. Under the environment of low interest rate, excess liquidity inevitably leads to the soaring of asset prices and the rise of commodity prices, which is reasonable.

The inflow of funds driven by global excess liquidity into the capital market and the impact on the US dollar due to the unprecedented monetary over issuance of the Federal Reserve have become the main driving forces for the recent rise in commodities.

Compared with LME copper trading data, it can be seen that since the copper price bottomed out in March 2020, the size of positions and transaction activity have increased significantly.

In March 2020, when LME futures fell to the low point of $4371 / T, its single day position and trading volume remained at 280000 and 15000 to 20000 hands. In February this year, the peak position increased to 345000 hands, and the trading volume was enlarged to nearly 40000 hands.

In addition, in terms of domestic commodities, from the beginning of 2021 to now, most of the leading varieties are international pricing commodities, which is the biggest difference from the rise of coal, coke and steel and other black series industrial chain varieties since the start of domestic supply side structural reform in 2016.

This shows that the driving force of the current round of commodity rising comes from abroad, and it also provides evidence for the judgment of the driving factors of copper price rise.

Can copper price rise?

There are too many variable factors in copper price operation, so it is difficult to solve the problem of whether the copper price can continue to rise. However, at this stage, few people dare to be short and short copper price.

At least, with the previous rise in the market, there is still a certain space above the copper price.

In the past 20 years, copper prices have risen by more than 50% for four times, including 2003-2006, 2007-2008, 2009-2011 and 2016-2018.

For example, Tianfeng futures pointed out that the current rise and rate of copper price is lower than that after the financial crisis, which is basically consistent with the track of the initial rise in 2003, which is obviously stronger than the recent rise in 2016.

Looking back at the market and monetary policy environment at that time, the Institute believes that the rise in 2016 and 2003 is not comparable with the current situation, and the rise in 2009 is more meaningful.

From the main factors, in 2009, the global monetary easing, weak US dollar, and strong demand in China's traditional sectors pushed up the copper price. Although overseas also released a large amount of liquidity in this round, China's attitude towards liquidity has always been cautious, and the elasticity of the traditional demand sector is not as good as that in 2009.

Therefore, this round of increase may be less than that in 2009, but there is still considerable space above.

In addition, compared with the rise in 2016, most of the rebound of major commodities started in March 2020, which is closely related to the development trend of the epidemic situation. With the driving force from the global economic stabilization and demand rebound, its rising strength is expected to surpass the 2016 market.

According to the understanding of the 21st Century Institute of capital, the core logic that triggered the price rise of copper and other international priced bulk commodities and the release of intensive economic policies of various countries still lies in the development and control of epidemic situation in the world.

Compared with the trend of new cases in foreign countries, it can be seen that the inflection point of overseas epidemic situation is larger, and the expectation is 6-9 months behind that in China. In the first half of 2020, after the domestic epidemic situation was effectively controlled, some orders were transferred to the domestic market due to work stoppage overseas, and the stock replenishment demand brought by the resumption of work later than in previous years. In the second half of 2020, the domestic self pricing bulk commodities rebounded significantly, the most direct manifestation of which was the rise of black goods.

In January 2021, the inflection point of overseas epidemic situation appeared, and the number of new cases continued to decline in February, and the inflection point was further verified. Therefore, the overseas market began to experience the domestic market. Since April 2020, the manufacturing industry began to recover.

The improvement in demand side, supported by overseas excess liquidity, has accelerated the rebound of raw material prices such as copper and crude oil, and has become the leading commodity market.

Considering that the global economy is still in the process of slow recovery, the continuity of economic stimulus policies in various countries will bring support to copper from the demand side, and the upward trend of copper price is difficult to reverse in the short term.

The uncertainty comes from the monetary side.

Since the main driving force of this round of commodity rebound is liquidity flooding, the end of the mark will also be the withdrawal of large-scale economic stimulus policies as the node, such as the Fed's QE withdrawal under the environment of maintaining low interest rates, then a large-scale decline in the market will be inevitable.

Zijin Mining's 175 billion market value increment password

On March 19, 2020, the "first brother" of nonferrous metals industry was Shandong gold. At that time, the total market value of the company was 82.2 billion yuan, and the total market value of Zijin mining industry was 78.3 billion yuan.

On February 24, 2021, the market value of Shandong gold was 95.5 billion yuan, while the total market value of Zijin mining industry rose to 318.1 billion yuan.

Behind the changes in the market value of the two companies, there is naturally their corresponding industrial logic.

The two companies are mainly involved in gold business, which has become the core driving force to boost the company's performance and share price against the background of the international gold price soaring from March to August 2020 and reaching a record high of 2089.2 US dollars per ounce.

However, since August 10, 2020, the CMX gold high began to adjust continuously, so far it has returned to the level below $1800 / oz.

On August 7 of the same year, Shandong gold peaked and its stock price dropped from 33.9 yuan to 22.79 yuan.

Zijin mining, on the other hand, rose from 6.64 yuan to 12.98 yuan over the same period, and became the only company with a market value of more than 300 billion yuan in the nonferrous metals sector.

The logic behind it is that Zijin Mining also involves copper, zinc and other metals in addition to gold processing business. Since the gold price flameout in August 2020, copper and zinc prices have risen successively, with the former rising from US $6400 to US $9617 per ton and the latter from US $2382 to US $2952.5.

Obviously, copper's rise is more considerable, which has become the core driving force supporting Zijin Mining's "second half" share price rise.

Compared with the income composition of the two companies, Zijin Mining is also more likely to enjoy the possibility of performance improvement brought by copper price rise.

Taking 2019 as an example, Shandong gold's total revenue is 62.6 billion yuan, all of which come from the purchase of quality gold (mineral gold), gold and small gold bars.

In the same period, the total revenue of Zijin mining industry was 136.1 billion yuan, including 80.8 billion yuan from gold processing, 20.9 billion yuan from copper smelting, 9.4 billion yuan from copper concentrate, and some zinc products.

Compared with other listed companies whose income is mainly copper products, Zijin mining industry is not lagging behind in this round of non-ferrous plate rising market, and is in the first echelon of the industry as a whole.

According to the statistics of the 21st Century Institute of capital research, from February 1 to 24, the top varieties of Shenwan basic metals were lead-zinc (17.68%), copper (16.44%) and aluminum (15.91%).

The corresponding plate led the rise of stocks, including Western Mining (38.68%), Jiangxi copper (50.16%) and Xinpu (61.02%), while Zijin Mining also increased by 36.46% in the same period, which was significantly higher than that of gold plate stocks, but the increase was not much different from the above-mentioned basic metal industry leaders.

The secondary market is so optimistic on the basis of relatively certain future earnings growth expectations.

Zijin Mining once provided a group of data on the investor interaction platform. In 2019, the unit sales cost of the company's mine gold production was 172.69 yuan / g, the unit sales cost of smelting and processing gold was 308.61 yuan / g, the unit sales cost of copper concentrate was 18333 yuan / ton, and the unit sales cost of smelting copper production was 40356 yuan / ton.

After the rise in 2020, the settlement price of 2103 contracts in Shanghai gold futures and Shanghai copper futures, which are infinitely close to the spot, have risen to 375.7 yuan / g and 69640 yuan / ton respectively.

"Copper is king"

There are 15 A-share listed companies included in Shenwan copper industry.

Among them, Jiangxi copper, Tongling Nonferrous Metals and Yunnan copper are in the forefront of the industry in terms of secondary market performance and main business data scale.

Compared with the historical data, it can be seen that the profitability of the industry is average, and the profit margin is at a low level in each major cycle industry.

Taking the rise cycle from 2009 to 2011 as an example, LME copper price rose from $3000 to $10000. Under the background of copper price reaching an absolute record high, the gross profit rate of cathode copper of Jiangxi copper industry increased slightly from 5.6% in 2008 to 7.66% in 2009 and 7.37% in 2010. Since then, with the fall of copper price, the gross profit rate once fell to less than 2%, and remained at 4.5% to 4.7% in recent three years.

This is determined by the current situation of its industry and its profit model.

China is a big copper smelting country in the world, and also one of the main importers of copper ore and its concentrate in the world. Since 2018, China's copper concentrate production has increased year by year. In 2020, China's copper concentrate production will reach 1.6732 million tons, while the domestic import of copper ore and concentrate will reach 21.787 million tons.

Under the above background, copper smelting enterprises in the middle reaches mainly earn smelting costs, and their bargaining power is far weaker than that of upstream mines, so they can only earn a small amount of smelting and processing costs for a long time.

The former is the crude refining cost and the latter is the refining cost. Recently, the copper price has been raised, the supply of upstream concentrate has been reduced, and the domestic smelting capacity has been oversupplied, and the TC / RC cost has continued to fall.

According to industry data, as of February 19, the weekly TC cost of copper concentrate tracked was 38.5 US dollars / dry ton, down 4% month on month and 47% year on year. In 2016, the cost once exceeded $100 per ton.

By the end of 2020, the 12 copper companies, including the industry leaders, set the TC / RC cost for the first quarter of 2021 at $53 per ton and 5.3 cents per pound. In the context of the reduction of copper concentrate supply and the rise of copper price, the smelting cost will probably remain at a low level, which will have a negative effect on most copper enterprises.

This means that copper enterprises with certain upstream copper concentrate resources and relatively high self-sufficiency rate are more likely to enjoy the dividend of this round of copper price rise.

In contrast, domestic copper enterprises do not have an advantage in this respect. There are only 26 world-class super copper mines (copper metal resources and reserves of more than 20 million tons). BHP Billiton and other giants have a large number of head resources. Domestic enterprises have only selected kamoa copper mine of Zijin Mining and duolong mining area of Chalco in Tibet.

For the listed companies in the above copper industry, Jiangxi copper is the most self-sufficient copper enterprise, followed by Yunnan Copper and Tongling Nonferrous Metals.

Feedback to the secondary market trend also shows the pricing logic of "copper is king".

According to the 21st Century Capital Research Institute, the growth of Zijin Mining and Jiangxi copper is significantly higher than that of Yunnan Copper and Tongling Nonferrous Metals from March 2020 and short-term stock price performance.

As for other copper enterprises with small scale and lack of upstream copper resources, it is difficult to improve their own performance. Even in the context of lower TC / RC costs, profitability will decline.

Without considering the secondary market disturbance factors, the main beneficiaries of copper price rise cycle will also be the industry leaders with higher self-sufficiency rate, and the excitement of general rise in the whole industry will eventually end with individual stock differentiation.