Dongxing Securities: Global total inventory of non-ferrous metals shows signs of destocking again, the industry still needs to focus on three main lines in the second half of the year

According to the Zhitong Finance APP, Dongxing Securities released a research report stating that since October 2024, the explicit inventory of global non-ferrous metals has once again shown a trend of reduction. Currently, the total global explicit inventory is at approximately the 25th percentile level since 1990, having decreased by 34.6% from the peak within 2024 by May 2025. Considering the rising prosperity and cyclical allocation of the metal industry, combined with the switch to a loose liquidity market globally in the second half of 2025, the metal industry still needs to focus on three main lines: 1) Industrial metals with a sluggish inventory cycle but a resilient supply-demand state, 2) Small metals with expanded demand elasticity under strengthened industry growth attributes, and 3) Precious metals with strong hedging attributes and a continued tight balance in supply and demand fundamentals. It is recommended to pay attention to the sectors of gold, aluminum, and copper.

The main viewpoints of Dongxing Securities are as follows:

The global metal industry is still in a weak supply cycle

The effective supply increment at the global mining end is showing rigid characteristics. In 2024, global upstream exploration investment in the mining industry continued to decline for the second consecutive year against the backdrop of overall high metal prices, with global metal exploration investment dropping by 3% to $12.5 billion. Although the average capital investment cycle data for the mining sector over three years suggests that there may be room for supply elasticity to be released in the metal industry in the coming years, such as the average annual exploration investment in the global mining sector from 2021 to 2023 rising to $12.32 billion (a cumulative increase of 35.4%), this figure is the second highest among nine cycles since 1997 and has reached the levels of the 2009-2011 period (QE period). However, high financing costs in overseas markets, weakening quality of effective mining projects, and fluctuations in long-term growth expectations caused by the global political and economic environment have all worsened the upstream expenditure environment for global mining projects.

From the latest data perspective, the proportion of greenfield exploration projects in 2024 has dropped to a record low (at $2.79 billion, accounting for 22.36%), while the corresponding proportion of investment in producing mining area projects has continued to grow (at $4.98 billion, accounting for 40%). The data clearly shows that the complexity of the global mining investment environment has led to a significant weakening of capital risk appetite (for example, the PAI index has fallen to its lowest level since 2016 in the third quarter of 2024). Considering that the substantial reduction in exploration investment in greenfield projects will make the lagging effect of actual capacity release more pronounced, the supply state of global mining may continue to exhibit strong rigidity characteristics before 2028.

The overall supply growth rate of the global metal industry is rigidly under pressure, with the average supply growth rate at the global mining end significantly lower than the growth rate of metal output

From the perspective of the average annual output growth rate of 28 types of mining projects globally, the actual supply growth rate at the mining end in 2024 has dropped from 6.35% to 2.22%, which is only 49.8% of the average supply growth rate over the past 30 years (the average annual growth rate of global mining supply from 1995 to 2024 is 4.45%). From the perspective of China's actual metal output, the average cumulative supply growth rate of 10 types of non-ferrous metals in China between 2023 and 2024 is 6.79% (with the average for 2024 dropping to 5.95%), maintaining within the fluctuation range of output growth since 2012, indicating that the supply growth rate of metal output still exhibits a cyclically rigid characteristic. Global total inventory of non-ferrous metals remains near a 35-year low and shows signs of further depletion

The inventory cycle of metals has been in a long-term trend of depletion since 2013. Although there has been effective cyclical accumulation in the first three quarters of 2024, starting from October 2024, global visible inventory has once again shown a trend of depletion. Currently, the global visible total inventory is at approximately the 25th percentile level since 1990, having decreased by 34.6% from its peak in 2024. The changes in visible inventory indicate the continued rigidity of global metal supply on one hand, and on the other hand, suggest the strengthening of the trading logic of low inventory in strong metal pricing.

Focus on the cyclical, growth, and hedging value of the industry

Considering the rising prosperity and cyclical allocation of the metal industry, combined with the easing switch in the global liquidity market in the second half of 2025, the metal industry still needs to focus on three main lines: industrial metals that are in a low inventory cycle but still show resilient supply and demand conditions, small metals with expanded demand elasticity under strengthened industry growth attributes, and precious metals with strong hedging attributes and a continued tight balance in supply and demand fundamentals. These three main lines represent cyclical (supply cycle and inventory cycle), growth (long-term demand expansion), and hedging (inflation and risk) allocation opportunities.

Copper and gold sectors drive the return of non-ferrous allocation attributes

In the first quarter of 2025, the proportion of public fund holdings in the non-ferrous industry increased to 4.34%, up 1.49 percentage points from the fourth quarter of 2024. Observing from the sub-sectors, the increase in fund allocation mainly comes from the two major sectors of industrial metals and precious metals, which grew by 1.17 percentage points to 2.99% and by 0.36 percentage points to 0.76%, respectively. The corresponding public fund holding market values also increased by 61% to 71.1 billion yuan and by 84% to 19.6 billion yuan, respectively. Breaking it down by metal type, the public fund holding proportion in the copper sector increased by 1.04 percentage points to 2.38%, and the public fund holding proportion in the gold sector increased by 0.36 percentage points to 0.76%. Together, these two contributed 94% of the increase in the non-ferrous sector's holding proportion in the first quarter of 2025 (+1.4 percentage points).

Copper: Supply gap still has the potential to trend larger. The global mining capacity growth rate is showing a trend of rigidity due to the resonance of macro cycles, policy cycles, and industrial cycles, while the global refined copper demand side has undergone extreme pressure testing due to event disturbances, policy stimuli, and liquidity contraction. Actual copper mine supply remains under pressure relative to smelting demand, and the growth rate of China's refined copper production may currently weaken.

According to Dongxing Securities' calculations, the cumulative phased copper consumption globally from 2024 to 2027 may increase by 11.3% to 11.345 million tons, while by 2028, the copper consumption in China's four major industries may cumulatively increase by 335,000 tons to 1.537 million tons (CAGR 6.3%). The relative rigidity of supply growth compared to demand growth suggests that the supply gap still has the potential to widen, and changes in the inventory cycle will significantly impact the copper supply-demand balance sheet.

Copper sector related targets: Zijin Mining (601899.SH), JCHX (603979.SH), Jiangxi Copper (600362.SH), Western Mining (601168.SH) Aluminum: Structural optimization of the bauxite market supply and demand may boost the continuation of high industry prosperity. The supply of bauxite in China has shown structural contraction, with a self-sufficiency rate that can only sustain consumption for 7.53 years. The average annual compound growth rate of bauxite production from 2020 to 2024 is -12%, and the dependence on imports has risen to 94%, with a high concentration of import sources (CR2=95%). The demand growth for bauxite stems from the significant expansion of the global alumina industry. By capacity and consumption share, the global annual consumption of bauxite may increase to approximately 376 million tons by 2025, with China's annual consumption of bauxite rising to 206 million tons; the total demand for bauxite has increased by 198 million tons (+99%) and 263 million tons (+398%) compared to 2014.

Related stocks in the aluminum sector: CHALCO (601600.SH), Yun Aluminum Co., Ltd. (000807.SZ), SHENHUO COAL&POWER (000933.SZ), NANSHAN ALUMINIUM (600219.SH).

Risk Warning

Policy implementation may fall short of expectations, interest rates may rise sharply beyond expectations, metal inventories may increase significantly, and spot discounts may widen, leading to accelerated market risk sentiment decline, as well as intensified and spread regional conflicts