Shenwan Hongyuan Group: El NioWhen Will the Macro Impact Peak?

Shenwan Hongyuan Group Securities released a research report stating that El Nio is a phenomenon in which sea surface temperatures in the central and eastern equatorial Pacific remain persistently high, triggering changes in atmospheric circulation. The World Meteorological Organization confirmed on September 3 that this round of El Nio has formed and may continue to strengthen into a super-strong level. This round of El Nio may evolve into the strongest in history, with a duration possibly exceeding one year. In terms of pace, this round of El Nio may peak around November, but the peak impact may lag until the summer of the following year. In terms of scope, this round of El Nio is highly likely to affect the growth of vegetables, rice, and other crops in China, as well as the global supply of soybeans, palm oil, copper, and other commodities. The macroeconomic impact of El Nio may have significant seasonal differences and may be concentrated in the winter of 2026 and the summer of 2027. The main views of Shenwan Hongyuan Group Securities are as follows: The "timeline" of the impact of a "super-strong" El Nio: it may evolve into the strongest in history around November, and the peak impact may lag until the summer of the following year. Key point 1: This round of El Nio may evolve into the strongest in history, with a duration possibly exceeding one year. El Nio is a phenomenon in which sea surface temperatures in the central and eastern equatorial Pacific remain persistently high, triggering changes in atmospheric circulation. The World Meteorological Organization confirmed on September 3 that this round of El Nio has formed and may continue to strengthen into a super-strong level. Looking back, there have been three "super-strong" El Nio events in history, namely 1982-1983, 1997-1998, and 2014-2016, with durations of 15, 13, and 19 months, respectively. Key point 2: In terms of pace, this round of El Nio may peak around November, but the peak impact may lag until the summer of the following year. During the El Nio periods of 2016 and 2023, temperatures in China during autumn and winter were relatively high, with average winter temperatures exceeding the same period in normal years by 0.3C; however, Henan, Shandong, Hebei, and other places all experienced periodic cold waves, with relatively large temperature fluctuations. After the peak of El Nio, higher-intensity precipitation usually occurs in the following spring and summer; for example, the scope and severity of flood disasters in the Yangtze River Basin in the summers of 1983, 1998, and 2016 were all stronger than in the previous year. Key point 3: In terms of scope, this round of El Nio is highly likely to affect the growth of vegetables, rice, and other crops in China, as well as the global supply of soybeans, palm oil, copper, and other commodities. Based on history, autumn and winter cold waves tend to occur in Shandong, Henan, and other places in China, where winter wheat and vegetables account for as much as 59.8% and 32.8%, respectively. Summer floods may be more concentrated in North China and the middle and lower reaches of the Yangtze River, where rice is mainly produced. Overseas, South America and other places are prone to heavy rain and flooding from September to November, affecting copper mining and soybean growth, while Southeast Asia and other places tend to be drier, mainly affecting the growth of palm oil and rubber. Key point 4: The macroeconomic impact of El Nio may have significant seasonal differences and may be concentrated in the winter of 2026 and the summer of 2027. In the winter of 2026, the inflation impact may be positive, with a structural pattern of vegetable prices rising and fruit prices falling, sugar prices rising and soybean prices falling, and copper prices rising and coal prices falling; among economic indicators, consumption may improve while investment may decline. In the spring of 2027, price indicators may continue their previous performance, but the economic impact may be relatively small. In the summer of 2027, the inflation impact may reach its peak, the impact on investment and consumption may both be negative, and the impact on exports may tend to end. Winter 2026: The inflation impact heats up, while the economic impact diverges. Positive for vegetable, sugar, and copper prices and consumption; negative for fruit, soybean, and coal prices and investment. CPI: Vegetables and white sugar may rise in price, while fruits and soybeans may fall, causing CPI to rise additionally. First, a warm winter in China is favorable for vegetable and fruit production and may suppress prices, but periodic cold waves may push up the fresh vegetable CPI in some months by more than 10 percentage points additionally. Second, South America is prone to extreme precipitation, which is conducive to soybean production and may suppress soybean prices and the food CPI, while also constraining sugarcane harvesting and possibly pushing up other food CPI; however, the share of the above varieties in CPI is less than 1%, so the impact may be limited. In summary, fresh vegetable and grain CPI may exceed seasonal levels, fresh fruit prices may be weak, and the overall effect may be positive. PPI: A warm winter in China is negative for coal prices, but heavy rainfall in South America may push up copper prices, and the overall effect may additionally lift PPI. A warmer winter in China may reduce thermal power electricity consumption, leading to lower coal demand and higher coal prices; in terms of magnitude, for every 1 percentage point decrease in thermal power generation, coal prices fall by 0.6 percentage points. However, Chile, Peru, and other places are prone to heavy rainfall from November to April of the following year, which may hinder mining and shipping in copper mining areas. Historically, during El Nio periods, copper prices rose by about 10 percentage points month on month. Overall, PPI may exceed seasonal levels by 0.3 percentage points. Economy: A warm winter may be more favorable for consumption, while periodic cold waves may disturb investment more. On the consumption side, a warm winter is favorable for residents' travel and helps release demand for services consumption; periodic cold waves may cause disturbances, but the impact duration is relatively short. Differently, winter temperatures are not directly related to investment, but periodic cold waves may suppress investment. For example, in December 2023, investment in areas more severely affected by cold waves fell by 1 percentage point, while other areas remained stable. In addition, El Nio may constrain shipping in Panama and other places, but the impact on foreign trade may be limited. Spring and summer 2027: Both the inflation impact and the economic impact reach their peak. Positive for vegetable, fruit, grain, and coal prices, and negative for consumption and investment. Spring: Vegetables, grain, copper, and other commodities may continue to rise in price, the price-raising effect on rubber and palm oil may begin to appear, and inflation may continue to rise, but the economic impact weakens. As vegetables, grain, copper, and other commodities may continue to rise in price, CPI and PPI in the spring of 2027 may continue to rise, by 0.1 and 0.3 percentage points above seasonal levels, respectively. After the earlier high temperatures and drought in Southeast Asia, El Nio's upward push on palm oil and rubber prices may begin to appear at this stage (a 9-12 month growth cycle); however, their weight in PPI is less than 1%, so the boost to PPI may be limited. Summer inflation: The price increases in vegetables, fruits, grain, and coal may increase, possibly further increasing the upward push on CPI and PPI. There are three transmission paths: first, heavy rainfall will hit the production of crops such as vegetables, fruits, and grain, possibly directly pushing up CPI; second, overseas grain price increases may indirectly further push up CPI through domestic grain producers' expectations; third, high summer temperatures and extreme rainfall may increase thermal power demand and push up coal prices; empirically, during El Nio periods, coal prices may rise by about 12 percentage points month on month. In summary, CPI and PPI may exceed seasonal levels by 0.3 and 0.3 percentage points, respectively. Summer economy: Extreme precipitation may cause periodic disturbances to domestic demand, and both investment and consumption face downside risks. For example, in July 2026, three typhoons made landfall in China successively, affecting a wide area and significantly reducing residents' willingness to travel; in terms of data, the national migration scale index fell year on year to a low of about -25%; at the same time, extreme weather also constrained outdoor construction, during which investment growth fell by 0.5 percentage points to -11.7%, among which construction and installation investment, which is more affected by weather disturbances and mainly consists of outdoor construction, plunged by 4.7 percentage points. Risk warnings Weather changes exceed expectations, oil prices change beyond expectations, and the pace of policy implementation falls short of expectations.