Chapter 286 Policies indicate the direction of future investment
Thursday, May 30, 2024.
Last night, a major piece of news was released in major domestic and foreign media, attracting attention - the "2024-2025 Energy Conservation and Carbon Reduction Action Plan".
As we all know, my country is serious about its "dual carbon" strategy, its measures are rigorous, and its policies are serious.
Therefore, this policy is a crucial document for our investments, especially those in cyclical stocks (oil, gold, copper, aluminum, zinc, iron, tin, lithium, silicon, etc.), and requires careful study. Let's break it down and examine it in detail. (If possible, print it out and read it carefully. Reading this is far more important than reading the annual report or the chicken soup of influencers.)
1. Coal industry
Strictly and reasonably control coal consumption.
It is strict because coal consumption is a major carbon emitter and needs to be strictly controlled.
This is reasonable because in 2021, the "one-size-fits-all" approach in the coal sector, coupled with the supply-side reforms in the previous few years, led to a short squeeze in coal prices.
Therefore, for coal, the focus is on "reducing non-power coal consumption" and "low-carbon transformation and construction of coal-fired power plants."
Overall, although my country has begun to implement strict control over the coal industry during the period of high inflation, as inflation develops, the price of coal should remain relatively strong, and the performance of coal stocks should stabilize.
However, due to the coal industry's coercive behavior in the past few years, coupled with the opening of international import channels and the implementation of the "dispatchable capacity reserve" policy, it is unlikely that this industry will achieve a simultaneous increase in quantity and price between 2021 and 2022.
2. New Energy Industry
"By the end of 2025, the proportion of non-fossil energy power generation in the country will reach about 39%."
That is to say, by the end of 2025, the proportion of new energy power generation such as wind power, photovoltaic power, hydropower, and nuclear power will rise to 39%.
Among them, the focus is on developing large-scale wind power and photovoltaic bases mainly in the northwest deserts, Gobi and wastelands.
What is certain is that the demand for the new energy industry will continue for some time to come.
However, due to the disorderly construction of a large amount of production capacity in the new energy industry in the past few years, the surge in supply, and the overdraft of performance due to the surge in stock prices in the past few years, stocks in the new energy-related industries should be treated with caution.
3. Steel industry.
The steel industry is also a major carbon emitter. For this industry, the overall policy is to control crude steel output and "newly built and expanded steel smelting projects must meet energy efficiency benchmark levels and environmental performance Class A levels."
Reduce carbon emissions by adjusting product structure and improving technological transformation.
Overall, the steel industry is in a good state of total quantity control.
However, due to the decline in the real estate industry and the control of iron ore, the raw material of the steel industry, by foreign countries (perhaps the production of Simandou in Guinea will improve things), the profits of the steel industry will rise with the upward trend of the industry cycle, but it will be very limited.
Therefore, when profits are limited and demand is hindered, the steel sector should be avoided as much as possible.
4. Petrochemical Industry
Strictly control new production capacity in industries such as oil refining, calcium carbide, ammonium phosphate, and yellow phosphorus.
When investing in resource stocks, it is important to choose the industry.
The worst industry is the one where volume increases but prices fall.
Competition in this industry is fierce and disorderly. A large number of companies often face the embarrassing situation of no production, no income, and the more they produce, the more losses they suffer. Unless a large number of companies die and production capacity is cleared, there will be no improvement, such as the current silicon and lithium industries.
So, be sure to stay away from it.
The better industries are those where both volume and price are rising.
In this type of industry, the quantity and price of corporate products increase, which can achieve a "double click"; but the disadvantages are also obvious, that is, after a large amount of production capacity is put into production, it will lead to oversupply, which will lead to a drop in product prices, such as the coal industry starting at the end of 2021.
Therefore, you must choose to intervene in the early stage of the industry cycle turning point, and remember to sell in the middle and late stages of the performance turning point.
The best industry is one where volume decreases and prices increase.
In this industry, resources are scarce, supply is strictly limited, and the competitive landscape is clear. Even if prices rise sharply, it cannot effectively stimulate the increase in production capacity, which will cause the product cycle to become very long, such as in the gold, copper, aluminum and tin industries.
I don’t know much about the chemical industry, but if you are interested you can research it.
5. Nonferrous Metals Industry
"Strictly implement the replacement of electrolytic aluminum production capacity, strictly control the new production capacity of copper, alumina and other smelting industries, and rationally plan the new production capacity of silicon, lithium, magnesium and other industries."
In one sentence, the positioning of mainstream varieties in the non-ferrous metals industry is made clear.
Electrolytic aluminum is a major contributor to carbon emissions, so the attitude towards it is to strictly implement capacity replacement. What this means is that the "hat" of 45 million tons of electrolytic aluminum cannot be lifted.
The smelting capacity of copper and alumina is strictly controlled. The bottlenecks currently encountered by these two industries are mainly at the mining end for the former and the mining end for the latter, so these two controls do not make much sense at present.
For the three industries of silicon, lithium and magnesium, it is a reasonable layout, which implies encouragement.
The downstream of silicon is glass, photovoltaics, chips, etc., and the downstream of lithium is mainly new energy batteries, which are the main areas of development in my country now. Judging from this statement, the supply of these two industries has not been tightened. In addition, there is an oversupply of products in these two industries, which should be avoided as much as possible.
Magnesium is very special. This metal, like aluminum, is also a high energy consumer. Producing one ton of magnesium consumes more energy than producing one ton of aluminum. However, the attitude towards it is much more relaxed than that towards aluminum. This shows that policies are encouraging the production of magnesium to a certain extent.
6. Cement, ceramics, and glass.
These three industries are also high energy consumers, and the overall policy is to "strictly implement the replacement of cement and flat glass production capacity" and "strictly control the access of new building materials projects."
The overall competitive landscape is very good, but due to the decline in the real estate industry, the performance of these two industries is poor.
7. Transportation Industry
"Improve the level of electrification of energy consumption in stations, railways, airports, etc." and "gradually remove restrictions on the purchase of new energy vehicles in various regions."
Further decarbonization of the transportation industry mainly involves encouraging and developing new energy industries, especially the new energy vehicle industry.
However, it should be noted that although industrial policies are good, the automotive industry is a capital-intensive and technology-intensive industry with relatively low gross profit margins and fierce competition. It is not a particularly good time at this stage.
Taking into account domestic and international fiscal and monetary policies, as well as industrial policies, commodity investment is still favorable to industries such as gold, copper, aluminum, tin, zinc, and lead, especially those with controlled supply sides.
The analysis is finally finished. If you have time, fellow stock friends, please click to urge for more updates and I will give you a free copy of "Generate Power for Love".
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