China has a huge impact on global demand for non-ferrous metals, with copper, aluminum, zinc, and other important non-ferrous metal products accounting for over 40% of the world's total demand. If that's the case, if the Federal Reserve does not make a major economic misjudgment and the global economic situation improves, it will definitely support the increase in China's export demand and generate a new driving force for China's non-ferrous metal demand.

China has a huge impact on global demand for non-ferrous metals, with copper, aluminum, zinc, and other important non-ferrous metal products accounting for over 40% of the world's total demand. Since China's nonferrous metal consumption is closely related to China's macroeconomic trends, fixed assets investment and industrial production, and the former determines the latter, how about China's macroeconomic trends in the new year? It has significant reference significance for looking forward to the non-ferrous metal market in 2016.

Overall, in 2015, China's economic growth rate continued to decline, and important economic indicators have already halved compared to their previous highs. PPI has been declining for more than 40 months, and structural deflation has begun to emerge. Affected by this, the demand for the entire non-ferrous metal industry chain is weak, highlighting oversupply, leading to a significant decrease in market prices, a contraction in corporate profits, and a significant increase in losses. Looking ahead to the macroeconomic trend of China in 2016, some negative demand factors will be concentrated in the first half of the year, especially the Federal Reserve's interest rate hike and speculative capital taking the opportunity to short, which is bound to become a heavy blow to the non-ferrous metals and ore market. But after entering the second half of the year, due to the increased emphasis on stabilizing growth measures by the decision-making level and the gradual effectiveness of the loose policies introduced in the early stage, the macroeconomic potential may reach a bottom and rebound, driving an increase in demand for non-ferrous metals; On the other hand, after the continuous sharp drop in prices, the losses of enterprises will become even more severe, which may force some high-cost production capacity to exit the market, leading to an improvement in supply and demand relations and driving a rebound in the price market.

1、 The economic growth rate continues to decline in the first half of next year, and the non-ferrous metal market remains sluggish

1. Negative factors in demand are concentrated. Because the policy makers do not advocate not to take drastic measures, and the stimulus is weak, it is difficult for the approved investment projects to start quickly and comprehensively, so the level of fixed assets investment and industrial production in the first half of 2016 is still not high. It is expected that China's economic growth will continue to fall back in the first half of 2016, which may be close to 6.5%.

The trend of macroeconomic growth rate declining has led to the continued destocking of the non-ferrous metal industry in the first half of the year, and further shrinkage of inventory in the circulation sector and production enterprises. Continuing to reduce inventory and production capacity will inevitably exacerbate the problem of unemployment. On the other hand, the continuous decline in economic growth for many years, as well as the downturn in some domestic manufacturing industries and construction markets, a significant decrease in profits and an increase in losses, will also force some enterprises to reduce production and lay off workers. Therefore, some views believe that China will experience a second wave of layoffs, which will strengthen residents' storage tendencies and generate consumer restraint. In this situation, China's demand for non-ferrous metals is bound to be weakened.

From the perspective of the international environment, the expected continued slowdown of the Chinese economy will also suppress the global economic recovery, which in turn will increase the pressure on the Chinese economy, resulting in a negative cycle of domestic and foreign economies. Moreover, the Federal Reserve may raise interest rates in December of this year or in the first quarter of next year, resulting in a wider monetary policyFrom the perspective of the international environment, the expected continued slowdown of the Chinese economy will also suppress the global economic recovery, which in turn will increase the pressure on the Chinese economy, resulting in a negative cycle of domestic and foreign economies. Moreover, the Federal Reserve may raise interest rates in December this year or in the first quarter of next year, further tightening monetary easing efforts, which is bound to have a temporary negative impact on emerging economies and the global economy. So recently, international institutions such as the International Monetary Fund have lowered their world economic growth expectations for 2015 and 2016, generally by 0.2 to 0.3 percentage points. If the global economic recovery in 2016 is truly unsatisfactory, it will mainly be reflected in the first half of the year, and due to the intensification of anti-dumping measures in some countries, the overall export environment during the same period is not optimistic.

2. Non ferrous metal enterprises will not reduce production even if they increase losses. According to statistics, in the first three quarters of 2015, the cumulative production of 10 types of non-ferrous metals in China was 38.24 million tons, a year-on-year increase of 9%, maintaining a high level of growth. The main reason is that production enterprises hope that the other party will fall before themselves in exchange for greater market share and greater development space in the future, so even if losses increase, production will not be reduced; At the same time, employment pressure will also constrain the government's efforts in "iron handed environmental protection". Therefore, it is expected that the national production of non-ferrous metals will continue to maintain a large quantity scale in the first half of 2016, exceeding 23 million tons, and will continue to increase without decrease

3. Oversupply oppresses the sluggish price market. While negative factors in demand are concentrated, non-ferrous metal enterprises are striving to maintain production scale as much as possible, and even if losses increase, they are not willing to reduce production. Therefore, in the first half of 2016, the supply pressure of China's non-ferrous metal resources continued to be heavy, and the oversupply situation cannot be reversed. Affected by this, the overall market of non-ferrous metals in the first half of the year was sluggish, making it difficult to achieve a sustained and significant overall increase.

In 2015, the prices of non-ferrous metal smelting raw materials such as copper concentrate and alumina in China continued to decline significantly. According to customs statistics, the average import price of copper ore and concentrate nationwide in October this year was 1326 US dollars per ton, a year-on-year decrease of 28%; The average import price of alumina is 319 US dollars per ton, a year-on-year decrease of 19%; The average import price of lead ore sand and concentrate is 988 US dollars per ton, a year-on-year decrease of 17%. The import CIF prices of other non-ferrous metal smelting raw materials have also significantly decreased. The significant drop in raw material prices for non-ferrous metal smelting has led to a collapse in raw material cost support and has also become an important factor in the decline in non-ferrous metal prices. Affected by the continued slowdown of the Chinese economy, interest rate hikes by the Federal Reserve, and sluggish energy prices, it is expected that the prices of non-ferrous metal smelting raw materials may further decline in the first half of 2016, leading to another collapse of domestic production cost support. Under the guidance of these fundamental factors, domestic and foreign speculative capital takes the opportunity to suppress, and there is a possibility of a new round of decline in the national non-ferrous metal prices. The non-ferrous metal industry's profits continue to decrease and losses increase significantly.

2、 After the bearish situation is exhausted, the non-ferrous metal market may rebound in the second half of the year

The continued decline in national economic growth in the first half of 2016, approaching the 6.0 level, will gradually lead to many economic and social problems, such as large-scale losses for enterprises, shrinking fiscal and tax revenue, rising industrial rates, default in loan repayment, and even triggering financial systemic risks. If China's economic growth rate continues to be below 6.0%, it will enter a stage of medium to low growth, which will inevitably make it difficult to achieve the goal of doubling China's income during the 13th Five Year Plan. Due to the widespread belief in the market that the downward pressure on the Chinese economy has not yet been fully released and may even increase, it is not impossible for China's economic growth rate to break through the important 6% threshold in the next one or two years if it is allowed to fall freely. So, the still heavy downward pressure on the economy will prompt decision-makers to increase stimulus measures. These measures are expected to have approximately five aspects:

One is to strengthen the key role of investment in the old growth function. In terms of the driving force of China's economic growth, there are mainly two aspects. One is the traditional growth function, which is the economic growth momentum provided by investment and export growth; Another is the so-called new function, which refers to the economic growth momentum provided by reform, innovation, and resident consumption. Since the new functions and new drivers are still in the primary stage of growth, they can not be the main engine of China's economic growth for the time being, and the export of the old functions is not entirely up to us, not all of which are decided by China the final say, which makes China's economic growth stable, and can only rely more on the investment in the old functions for the time being, that is, to play a key role in investment. For this reason, the National Development and Reform Commission has continuously made significant efforts to approve investment projects, with the approved project investment amount reaching 3.2 trillion yuan in the first three quarters of 2015. Since September, the National Development and Reform Commission has approved 39 projects with a total investment scale of 1.26 trillion yuan. In the future, it will continue to approve and take measures to promote the commencement of the approved projects. The National Development and Reform Commission recently made it clear that in the fourth quarter of 2015, stable investment growth should be given top priority in all work.

The key issue affecting the recovery of investment levels now is the lack of funds, which prevents the rapid and comprehensive commencement of approved investment projects. It is expected that the decision-making level may introduce measures to address this issue within the new year. If China's investment growth rate can significantly increase, especially if approved investment projects can start construction quickly and comprehensively, the weak demand for non-ferrous metals in China will significantly improve, and the market situation for non-ferrous metals and smelting raw materials will also be boosted.

The second is the introduction of more real estate "rescue measures". The pillar role of the real estate industry in promoting investment growth has been once again strengthened. Stimulating real estate investment will become the main focus of local governments to stabilize investment and growth. Recently, the central leadership proposed to dissolve the inventory of real estate and promote the sustainable development of the real estate industry. It is expected that relevant supporting measures will be introduced soon, such as reducing down payments for home purchases, meeting mortgage needs, reducing loan interest rates and taxes for home purchases, providing housing subsidies, and government housing purchases. Of course, the above-mentioned "rescue measures" are mainly limited to third - and fourth tier cities with a large backlog of housing inventory. The measures to loosen real estate control have already shown effects in first tier cities and some second tier cities. Mainly manifested by increased sales and stabilizing prices. According to statistics, in October 2015, over half of the new house prices in cities across the country increased month on month, and the number of cities with year-on-year increases also increased to 12. The stabilization and recovery of real estate prices may indicate a stabilization and recovery of real estate investment in the future. It is expected that with the introduction of more "market rescue" measures, especially the acceleration of national inventory reduction of commercial housing, there may be an increase in real estate construction projects in the second half of 2016, increasing demand for non-ferrous metals.

The third is to continue the "double reduction" of financial institutions. In 2015, the national foreign exchange accounts showed a decreasing trend, and the PPI in the price index remained negative for more than 40 months. CPI growth slowed down, and structural deflation was evident. At the same time, compared to the nearly zero loan interest rates in developed countries, China's actual loan interest rates are still around 5%, and the interest burden borne by real economic activities is too heavy. At the same time, our reserve requirement ratio is still as high as ten percent, freezing a huge amount of funds. However, we have only approved investment projects but lack funds to fully and quickly start construction, increasing the pressure of economic downturn. This makes it possible for financial institutions to continue "double reduction" in the future, and the reduction in reserve requirements will be greater than the reduction in interest rates. Financial institutions continue to 'double dip', which has a positive effect on stimulating economic growth, especially on the real estate market, which is also conducive to boosting demand for various non-ferrous metals.

The fourth is to expand fiscal deficits and revitalize accumulated funds. With the expansion of the total economic volume, there is also room for improvement in the scale of China's fiscal deficit. It is expected that the scale of China's fiscal deficit may increase to 3% in 2016. This allows the government to increase its available funds, thereby increasing support for investment activities in the weak areas of the domestic economy. From the perspective of fiscal and monetary policies, efforts were made in the second half of 2015, but investment levels still fell, mainly due to lower market prices and unclear investment efficiency prospects, resulting in insufficient investment willingness from local governments and other parties, and idle funds. Therefore, the decision-making level requires the revitalization of existing funds and the promotion of investment and construction. As of the end of August 2015, the government has recovered 10.9 billion yuan and 296.6 billion yuan of existing central and local funds. According to data, as of the end of September 2015, the group deposits of national government agencies were enormous, exceeding expectations. The revitalization of these massive deposits of funds entering the investment field is bound to promote a rebound in investment levels in the second half of the year.

The fifth is to increase the amount of local government debt replacement. With the approval of the National People's Congress and the State Council, the Ministry of Finance has issued 600 billion yuan of new local government bonds and 3.2 trillion yuan of local government bonds to replace existing debt quotas in 2015. Recently, there have been rumors in the market that the Ministry of Finance plans to increase the amount of local exchange bonds in 2015 again, from 3.2 trillion yuan to 3.8 trillion yuan, or even to 4 trillion yuan, with an increase of up to 25%. It is expected that local government debt swaps will continue to be implemented within 2016, and the scale may also be expanded to cover annual maturing debts and support investment activities.

Affected by the five measures mentioned above, and due to the obvious effect of the previous loose policies, China's economic growth rate will hit the bottom and rebound in the second half of the year. It is expected that the economic growth rate (statistical data) will rebound to 7.0% in the second half of the year, even higher than 7.0%. Driven by this, the demand for non-ferrous metals in China increased in the second half of the year, and the overall market tends to recover.

While increasing domestic measures to stabilize growth, the global manufacturing industry, especially in developed countries, has shown signs of recovery due to the extreme monetary easing of major countries in the early stage. According to relevant information, the global factory order index (jointly launched by JPMorgan Chase and Markit) reached a 7-month high in October this year. Among developed countries, the US saw its first increase in new orders and output in October since the summer, with the PMI index consistently above the 50 expansion line; The UK Purchasing Managers' Index (PMI) has surged to its highest point in 16 months, reaching 55.5, which is currently the highest in the world; Japan's industrial production is also at its highest point in a year. Some argue that strong industrial data from Japan may indicate that East Asia has emerged from its worst situation. In addition, India, Russia, Vietnam, and some Central European countries have also experienced industrial growth. The global manufacturing industry is turning towards recovery, which has a positive effect on improving China's export environment and will ultimately become a blessing for non-ferrous metal demand.

The Federal Reserve is raising interest rates, which means that the global economy will "run out of bad news" for a period of time. On the other hand, we also need to see that if the Federal Reserve raises interest rates at the end of this year or early next year, it will mean a period of "short selling". Because the necessary condition for the Federal Reserve to raise interest rates is for economic data to improve, such as employment and inflation rates, this indicates that the worst-case period for the world economy, especially the US economy, has passed and the global economy will usher in a stable recovery. If that's the case, if the Federal Reserve does not make a major economic misjudgment and the global economic situation improves, it will definitely support the increase in China's export demand and generate a new driving force for China's non-ferrous metal demand.