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"Replacing Fuel with Electricity" Opens a New Chapter in Non-Ferrous Metals Investment

In September this year, the MIIT announced it has started the research and establishment of a timetable for stopping the sale of fuel-powered vehicles and will soon issue and implement a double-credit policy for energy vehicles. Many European countries have already launched a timetable. Meanwhile, domestic and foreign well-known manufacturers are vying to establish a presence in the new energy vehicle market and have consecutively launched 2020 and 2025 strategy plans, setting off a wave of transformation from traditional vehicles to new energy ones. For example, Volvo announced that it will no longer produce fuel-powered vehicles since 2019, becoming the world's first company that has announce to stop the sale of fuel-powered vehicles.

Various signs indicate that in the next few decades, the fuel-powered vehicle market will be gradually swallowed by new energy vehicles. "At present, electric vehicles only account for 1% of the global market. But as major automotive data markets such as China, France and the UK have consecutively put on their agendas a prohibition against the sale of fuel-powered vehicles, a future world with its automotive market dominated by electric vehicles is not far away." An industry insider commented.

China's latest new energy vehicle production and sales data has confirmed the advent of this trend. According to the data released by the China Association of Automobile Manufacturers (CAAM) on October 12, new energy vehicle production and sales were 77,000 and 78,000 units respectively in September, up by 79.7% and 79.1% year-on-year. Among them, pure electric vehicle production and sales were both 64,000 units, up by 85.2% and 83.4% year-on-year, and plug-in hybrid vehicle production and sales were 13,000 and 14,000 units respectively, up by 57.6% and 61.9% year-on-year.

In addition, according to the data released by the CAAM, from January to September, new energy vehicle production and sales were 424,000 and 398,000 units respectively, up by 40.2% and 37.7% year-on-year. Among them, pure electric vehicle production and sales were 348,000 and 325,000 units respectively, up by 51.6% and 50.1% year-on-year, and plug-in hybrid vehicle production and sales were 76,000 and 73,000 units respectively, up by 4.0% and 0.6% year-on-year.

Shi Jianhua, Secretary General of the CAAM, said, "According to the performance of the new energy vehicle market in the past two years, new energy vehicles will enter a high growth period from the second half of the year. If the growth in September can be maintained in the next few months, the target of selling 700,000 new energy vehicles is expected to be met this year."

"To reduce oil dependence and carbon dioxide emissions, new energy vehicles have bcome the development trend of the automotive industry.The world's major automobile producers and sellers such as the United States, Germany, Japan and South have continuously launched clear new energy plans to promote the rapid development of new energy vehicles." Everbright Securities analyst Li Weifeng pointed out.

Li predicated, "The global cobalt consumption will reach 150,300 tons in 2020. The compound growth rate from 2016 to 2020 is 11%. Assuming that the global refined cobalt production grows at a rate of 6% per year (regardless of production reduction or discontinuation of mines and other factors. The compound growth rate from 2011 to 2016 is 6%), the cobalt supply and demand pattern is expected to shift from oversupply to shortfall in 2018. Then the gap continues to expand, boosting the overall rise in cobalt prices."

TF Securities said that after entering the fourth quarter, the traditional peak season for new energy vehicles, the production is expected to continue to rise and the lithium carbonate demand is expected to continue upward. “Battery-grade lithium carbonate prices recently rose to RMB 171,000 / ton, and are expected to continue to rise due to the growing demand.”

"We are optimistic about the demand for cobalt brought by the vigorous development of the new energy vehicle industry. Meanwhile, as the cobalt resources are centralized and inadequately supplied, we may see a supply and demand inflection point. We've given the cobalt industry "Buy" rating for the first time." said Li.

Haitong Securities pointed out that the new energy vehicle industry chain is the general direction, including five upstream varieties: lithium, cobalt, copper foil, nickel sulfate and magnet. "Recently, Ganfeng Lithium has raised prices, showing the industry has performed better than expected."

Ao Chong with the Research Department of CITIC Securities said, "The new energy vehicle production and sales made a new record high in September. The double-credit policy has produced a significant driving effect. The annual target of selling 700,000 new energy vehicles is expected to be met. I recommend paying close attention to how the continued prosperity of the new energy sector has promoted upstream resource products, how products with upgraded technology and high added-value have continuously brought opportunities to the processing sector, and how the repaired supply and demand relations have boosted the sales of basic metal, especially copper companies.

As for the specific configuration strategy, Ao pointed out, "First of all, the fourth quarter is the core season for upstream new energy resource products. The strong rebound of new energy vehicle production and sales and the full-load production of cathode materials manufacturers will further promote transaction. On the whole, the product prices of cobalt, lithium, neodymium, and cathode materials enterprises remain high and the enterprises are saturated with orders. I am optimistic about the performance of individuals stocks in these sectors. Second, as the repaired supply and demand relations support the high cooper prices, this sector's sales are expected to further grow. The domestic and foreign net positions of copper are once again reaching the previous high point and the inventory continues to decline. Due to environmental protection and overhaul factors, the growth rate of China's copper production only remains about 1%. The downstream demand is stable. In September, the export data was strong. The cooper prices in the fourth quarter remain high. At last, the processing sector has performed steadily and sustainably and remains the focus of the third-quarter financial report. Enterprises of a certain scale that focus on product upgrading and high-end manufacturing are expected to benefit from the transformation of the consumption structure.”