Zhongjin: "Equivalent tariffs" exceed expectations, commodity risk aversion sentiment heating up.

CICC released a research report stating that the recent selling sentiment in the commodity market is a deduction of the logic that if tariffs have a macro impact, they will also affect commodity demand expectations from top to bottom, thereby influencing prices. Regarding precious metals, on April 2nd, the Trump administration implemented equal tariffs policy, explicitly mentioning that precious metal commodities were exempted, leading to a high-level retreat in gold and silver prices. Gold prices have already retraced their gains since the beginning of the year compared to COMEX silver prices during the same period. In the short term, CICC believes that the resolution of tariff risks may bring pressure for premium clearance on gold, but considering the increasing uncertainty in the U.S. economic outlook and the accumulating risk of recession, the support level for gold may be higher than the reasonable median calculated in CICC's annual outlook. CICC's views are as follows: Regarding precious metals, on April 2nd, the Trump administration's implementation of equal tariffs policy led to a high-level retreat in gold and silver prices. As highlighted in CICC's report "Gold: Spot Trading Anomalies Outside Traditional Framework," the influx of physical gold into the U.S. market since December has caused exceptional tightness in the gold spot market liquidity, serving as a significant support for the high-level breakthrough in gold prices, possibly due to concerns about tariff risks. After the implementation of tariffs, the price difference between COMEX-LBMA gold on April 3-4 plummeted to negative territory, and the SPDR Gold ETF slightly reduced its holdings. Compared to the same period, COMEX silver prices have already retraced their gains since the beginning of the year. CICC believes that geopolitical risks may provide some support for gold. In the short term, CICC believes that the resolution of tariff risks may bring pressure for premium clearance on gold, but with the increasing uncertainty in the U.S. economic outlook and the accumulating risk of recession, the support level for gold may be higher than the reasonable median calculated in CICC's annual outlook. Concerning non-ferrous metals, although copper and aluminum are not within the scope of this round of equal tariffs policy, the growing concerns about recession and the rapid escalation of risk aversion have brought strong selling pressure on copper and aluminum. In the two trading days of April 3 and 4, LME copper prices dropped by 10.88% to $8690 per ton, COMEX copper prices fell by 13.65% to $4.39 per pound, and the price difference between New York and London retreated to 1.11. Compared to aluminum, copper is more sensitive to global macroeconomic factors. In the short term, as the report mentioned, after the clarity of the tariff policy, arbitrage trading is accelerating, leading to deeper falls in overseas copper prices in the past two trading days. If recession trading further intensifies, copper prices may converge towards cost support. CICC expects the dual tensions of concentrate and scrap copper supply to continue to provide support for copper prices. Taking the previous trade tensions as an example, copper prices can still maintain around a 20% premium relative to 90th percentile cash cost plus capital expenditure. Therefore, CICC believes that $8,000 per ton may serve as a support level this time. As for aluminum, the previous round of Section 232 tariffs prompted a change in the export form of Chinese aluminum, transitioning from direct export of aluminum products to exporting end consumer products manufactured in third-party countries to the United States. The negative impact has gradually been absorbed. The burden brought by this round of "equal tariffs" will inevitably be shared by the industry chain, leading to a compression of profits upstream. However, CICC believes that electrolytic aluminum, with relatively rigid supply constraints, will remain the most robust link in the industry chain and may retain some profits. Considering the potential downside in alumina prices, CICC expects aluminum prices to find support around $2,300 per ton, corresponding to domestic electrolytic aluminum profits of 3,000 yuan per ton. Regarding soybeans/soybean meal, CICC believes that the adjustment of the China-U.S. tariff policy will have limited impact on the fundamental drivers of soybeans. However, catalyzed by bullish sentiment, the divergence in price movements between "falling U.S. soybeans and rising domestic soybean meal" may occur again, leading to a potential adjustment in the valuation of DCE soybean meal futures contracts in the far months. Fundamentally, since China implemented retaliatory tariffs against the U.S. in March, the imports of U.S. soybeans into China have significantly decreased, with China's import target for the new season of U.S. soybeans mostly achieved. After this round of tariff adjustments, CICC expects China's soybean imports to increasingly lean towards South America, which may directly support premium offers for Brazilian soybeans, increasing the cost of importing soybeans in the far months. In terms of futures trading, CICC believes that the short-term market may continue to be influenced by the positive effects of tariff policies, with on-hand soybean supply being abundant in April to June, but with increased uncertainty and cost expectations for the arrival of far-month supplies, companies may advance their soybean meal purchases, leading to demand front-loading and thus supporting the near-term. On another note, policy markets will still drive pricing for the far months, as seen in the significant contango for contracts such as 09 and 11, and the widening spread between 9-1 contracts. Overall, CICC predicts that there is a low probability of significant imbalance in supply and demand for soybean meal in China, with future trade likely reflecting a shift from "U.S. soybean export redirected to other countries, with Brazil selling more to China." However, CICC warns that there is potential for upward momentum in prices for the Shenzhen Agricultural Power Group in Brazil: 1) under rigid demand, when U.S. supply is lacking, Brazilian exporters may adjust their premium prices to transfer some of the tariff costs to Chinese buyers. 2) The "see-saw effect" of the global supply chain. Brazil's soybeans, maize, and other agricultural products still have production potential (USDA forecasts a 10% increase in Brazil's soybean production to 169 million tons in 2025), and the U.S. equal tariff policy may prompt China to increase imports of Brazilian agricultural products, giving Brazil the advantage in pricing negotiations for the Shenzhen Agricultural Power Group and intensifying global trade negotiations. In the black commodity sector, after the unexpected announcement of the U.S. equal tariff policy, SGX iron ore prices dropped from around $103 per ton to $98 per ton. However, amidst the rapidly escalating risk aversion in the global commodity market, the decline in black commodities has been relatively restrained. This can be attributed to the re-enactment of recession trading in the U.S. under heightened tariff pressure, with black commodities being more closely related to domestic demand; and the current decent fundamentals of the black commodity sector.Especially in the manufacturing sector, demand remains strong, molten iron production is steadily increasing, and steel inventory is also clearing smoothly.Chart: Changes in the price of commodity futures in the past two weeks Data sources: Wind, Bloomberg, CICC Research Department Chart: Changes in the price of commodity futures in the past year Data sources: Wind, Bloomberg, CICC Research Department Chart: Monitoring of commodity prices (as of April 2, 2025) Data sources: National Bureau of Statistics, IPE, Zhengzhou Commodity Exchange, Shanghai Futures Exchange, Dalian Commodity Exchange, Guangdong Futures Exchange, NYMEX, COMEX, LME, CBOT, MDE, Wind, iFinD, Bloomberg, CICC Research Department.