Citi expects that rising commodity prices will benefit basic materials, while automakers and second-tier battery manufacturers face pressure

Citigroup's research report indicates that commodity prices have risen significantly and seem to be consolidating at higher levels. The bank analyzes the impact on various sectors in the mainland. On the positive side, the basic materials industry is the main beneficiary, especially aluminum, copper, and lithium suppliers; the bank gives "buy" ratings to China Aluminum (02600.HK), China Hongqiao (01378.HK), and Zijin Mining (02899.HK), and is optimistic about pure copper companies such as Minmetals Resources (01208.HK), Luoyang Molybdenum (03993.HK), and Jiangxi Copper (00358.HK). Additionally, gold jewelers will benefit from rising gold prices, and the increase in copper prices will also expand the profit margins of copper-clad laminate (CCL) producers, such as Kingboard Laminates (01888.HK).

On the negative side, automobile manufacturers will be pressured by rising material list costs, with the bank estimating that the cost per vehicle for mass-market BEVs and PHEVs will increase by approximately RMB 6,565 and RMB 4,310, respectively. In the industry, XPeng-W (09868.HK) and GAC Group (02238.HK), due to their smaller scale and lower average selling prices, are more susceptible to these changes; in contrast, BYD (01211.HK) and Geely Automobile (00175.HK), being larger in scale, have the ability to pass on more than 50% of the cost increases to upstream suppliers.

Furthermore, the bank expects that second-tier companies in the battery industry will face short-term pressure, but CATL (03750.HK) has bargaining power, and its Jiangxi lithium mica mine is expected to resume production in the second quarter of this year, making it more defensive than its peers.

The bank believes that sales of energy storage systems will face margin reductions, especially in the second quarter of this year, initiating a 90-day observation period for negative catalysts in the industry. In the solar industry, component manufacturers are more likely to be affected by rising silver costs, which account for about 30% of their production costs, potentially compressing their profit margins. Among China's grid equipment manufacturers, Pinggao Electric (600312.SH) is most sensitive to increases in copper and aluminum costs.

In the technology sector, Xiaomi-W (01810.HK) may face pressure from rising memory costs, squeezing the profit margins of its smartphone business; memory prices account for about 10% to 20% of its smartphone material list costs