Analysis of the Nonferrous Metals Industry in 2024 ( part 1)

Analysis of the Nonferrous Metals Industry in 2024 ( part 1)

Since 2023, the pursuit of safe haven has become a new trend in global economic development. Except for gold, silver and precious metals, the prices of overseas base metals have generally shown a downward trend in 2023; However, the stable and positive trend of China's non-ferrous metal industry is becoming increasingly evident. Large scale non-ferrous metal industrial enterprises have achieved a shift in total profits from a decrease to an increase, and the prices of non-ferrous metal varieties are differentiated. The price fluctuations of commonly used non-ferrous metals are smaller than those of new energy metals. Specifically, let's take a look:

(1) Copper: Strong demand from the new energy industry provides certain support for international copper prices; But the situation of our country's high dependence on imported resources cannot be improved. Copper prices are highly volatile, with processing fees experiencing a sharp decline from the third quarter of 2023 and copper prices clearly rising from the end of the first quarter of 2024. It is necessary to pay attention to the profitability and operational status of smelting enterprises with low self-sufficiency rates in copper concentrate and those with newly built smelting capacity.

(2) Aluminum: Since 2023, aluminum prices have maintained a range oscillation trend, and the macro level impact on pricing has weakened, with fundamental drivers dominating; The consumption growth of photovoltaics and new energy vehicles in China is gradually offsetting the demand reduction caused by weak real estate, but the export volume for the whole year has declined.

(3) Lead: In 2023, the production of China's lead industry will continue to grow, and product prices will rise before falling back; Along with the decline in lead processing fees, downstream lead-acid battery products have performed well in exports, driving a significant increase in the overall shipment volume of lead-acid batteries in China.

(4) Zinc: Since 2023, both zinc prices and processing fees have shown a downward trend; China's zinc ore output has been in a continuous downward trend for a certain period of time. In 2023, the production of zinc concentrate will further decrease, while the import volume will further increase, and the supply of refined zinc will increase.

(5) Gold: Gold has a safety reserve value that cannot be compared to other commodities and financial assets. As a "de risky" asset, gold prices have repeatedly hit new highs. In 2023, China's gold production will increase, and the demand for gold investment at home and abroad will differ. The endowment of mineral resources largely determines the core competitiveness of China's gold enterprises.

(6) Rare earth: In 2023, the prices of various sub rare earth products in China will decrease to varying degrees, and the industry concentration and resource optimization capabilities will further improve.

(7) Nickel: China has relatively scarce nickel ore resources and has long relied on overseas imports. In 2023, there will be an oversupply in the global nickel industry, and nickel prices will rationally fall from their high levels, showing an overall downward trend.

(8) Cobalt: Since the second half of 2022, the price of cobalt salts has shown a rapid downward trend due to the impact of economic cycles and supply and demand.

(9) Lithium: Lithium metal has now entered the list of important industrial metals worldwide. Since 2023, the lithium industry has shown a state of oversupply, and the overall price of battery grade lithium carbonate has entered a downward channel.

1、 Industry Overview

The non-ferrous metal industry mainly includes non-ferrous metal mining, smelting, and rolling processing industries. The industry has obvious cyclicality, large fluctuations in prosperity, and is easily affected by the overall international supply and demand situation and political and economic situation. In 2023, the global geopolitical risks will intensify, the Federal Reserve will continue to raise interest rates, and the superposition of European and American bank risk events, the US debt ceiling crisis and the complex and volatile international situation will increase the uncertainty of the global economy. The pursuit of safety and risk aversion has become a new trend of global economic development. The continuation of the gold allocation boom by central banks around the world and the strong growth in demand for gold jewelry consumption have further boosted gold prices. Factors such as the continued interest rate hikes by the Federal Reserve, persistent inflationary pressures, slowing global economic growth, and lower than expected recovery of downstream demand have led to pressure on international commodity prices.

The stable and positive trend of China's non-ferrous metal industry is becoming increasingly evident, with photovoltaics, wind power, new energy vehicles, power and energy storage batteries becoming the main areas of growth in non-ferrous metal consumption. According to data from the National Bureau of Statistics, in 2023, the industrial added value of the non-ferrous metal industry will increase by 7.5% year-on-year, which is 2.9 percentage points higher than the industrial average level; The production of ten commonly used non-ferrous metals reached 74.698 million tons, an increase of 7.1% over the previous year, surpassing 70 million tons for the first time; Enterprises in the industry saw a shift in profits from decline to increase, with a total profit of 371.61 billion yuan for non-ferrous metal industrial enterprises above designated size, an increase of 23.2% compared to the previous year; The price differentiation of non-ferrous metal varieties is mainly due to the fact that the prices of non-ferrous metals in the Chinese market are stronger than those in the international market, spot prices are better than futures prices, and the price fluctuations of commonly used non-ferrous metals are smaller than those of new energy metals. Among them, the average spot prices of copper and lead increased slightly compared to the previous year, with year-on-year growth of 1.2% and 2.9% respectively; The decline in aluminum prices has continued to narrow, while zinc prices have shown a downward trend, with year-on-year decreases of 6.4% and 14.0%, respectively; The price of battery grade lithium carbonate has significantly decreased, with a year-on-year drop of 47.3%.

It is expected that green development will continue to be the main theme of China's non-ferrous metal industry operation throughout 2024. The consumption of non-ferrous metals in the real estate sector may continue to slow down, but areas such as photovoltaics, wind power, power and energy storage batteries, new energy vehicles, and lightweight transportation vehicles are still growth points for non-ferrous metal consumption. The prices of major non-ferrous metal products are expected to stabilize, and overall may slightly rebound and fluctuate within a reasonable range. Precious metal prices may still rise.

2、 Operation status of segmented industries

There are many sub sectors in the non-ferrous metal industry, and there are certain differences in industry prosperity performance between different sub sectors. This report will focus on analyzing 9 metals including copper, aluminum, lead, zinc, gold, rare earths, nickel, cobalt, and lithium.

1. Copper

As the world's largest consumer of refined copper, China's demand from traditional and new energy industries provides certain support for international copper prices; However, as the world's largest producer of refined copper, copper resources are scarce and insufficient, and the high dependence on imported mineral resources from overseas cannot be improved. Copper prices are highly volatile, with processing fees experiencing a sharp decline from the third quarter of 2023 and copper prices clearly rising from the end of the first quarter of 2024. It is necessary to pay attention to the profitability and operational status of smelting enterprises with low self-sufficiency rates in copper concentrate and those with newly built smelting capacity.

At the beginning of 2023, driven by the two strong expectations of the Federal Reserve's interest rate policy shift and China's economic recovery, copper prices rose to a high for the year (LME copper spot price of $9436/ton on January 18); Subsequently, with the Federal Reserve maintaining a hawkish stance and demand rebounding less than expected, the central volatility of copper prices shifted downwards; Since the third quarter, geopolitical risks have driven up risk aversion sentiment, and the market has been chasing safe assets such as the US dollar and gold. The overall price of non-ferrous metals has been under pressure, and copper prices have fallen to the lowest point of the year (LME copper spot price of $7813/ton on October 5); At the end of 2023, the expectation of the Federal Reserve cutting interest rates, coupled with increased disruptions in overseas mining supply and continued decline in LME inventories, led to a rebound in copper prices. Since 2024, global copper prices have continued to rise, with LME copper prices rising to $9617 per ton on April 18th, an increase of over 14% compared to the beginning of the year.

In terms of supply and demand, according to the World Bureau of Metal Statistics (WBMS) data, in 2023, global copper mine production was 22.3641 million tons, a year-on-year increase of 3.42%, affected by supply disruptions in Chile, Panama, Indonesia, and other countries; The current global refined copper production was 27.6261 million tons, and operational restrictions and smelter shutdowns for maintenance have had a certain impact on the production of countries such as Chile, Indonesia, Sweden, and the United States; The global consumption of refined copper for the whole year was 27.699 million tons. Driven by strong apparent consumption in China, traditional sector consumption remained resilient, while the new energy industry grew rapidly, resulting in a global shortage of refined copper supply. According to the International Copper Research Group (ICSG), the global refined copper market will experience a supply shortage of 87000 tons in 2023, compared to a supply shortage of 434000 tons in 2022.

In 2023, China produced 1.83 million tons of copper concentrate (SMM data), a year-on-year decrease of 6.6%; As the world's largest producer of refined copper, the current refined copper production was 12.988 million tons (according to the National Bureau of Statistics), a year-on-year increase of 17.4%. Based on this estimate, the self-sufficiency rate of copper concentrate in China's mines in 2023 is 14.1%, indicating a low resource self-sufficiency rate. In 2023, the cumulative import volume of copper ore and concentrate in China was 27.536 million tons (according to data from the General Administration of Customs of China), a year-on-year increase of 9.1%. With the expansion of domestic smelting capacity, the dependence on imported mineral resources from overseas will further increase, and attention should be paid to the impact of disturbances in overseas copper mine supply on the domestic smelting end.

Since 2023, the level of copper concentrate processing fees has fluctuated sharply. The China Copper Raw Material Joint Negotiation Group (CSPT) finalized at the end of March that the guidance processing fees for spot copper concentrate procurement in the second quarter of 2023 would be $90/ton and $9.0/pound, respectively, a decrease of $3/ton and $0.3/pound from the guidance processing fees for spot copper concentrate procurement in the first quarter of 2023, still higher than the benchmark for long-term processing fees for copper concentrates in 2023; CSPT confirmed at the end of July that the guidance processing fee for spot copper concentrate procurement in the third quarter of 2023 would be $95/ton and 9.5 cents/pound, reaching the highest level since 2019; However, since September, due to disturbances in the global concentrate supply side (such as the unconstitutional closure and transportation issues of the Cobre Panama mine in Panama, and the downward adjustment of production plans by several leading mining companies worldwide), coupled with the expansion of new smelting capacity, the copper roughing processing fee TC has experienced a significant decline. As of March 29, 2024, it has dropped to $6.30 per thousand tons, the lowest value in history since 2008, which is a serious deviation from the processing fee level of $80 per ton set by CSPT for the first quarter of 2024. According to the consensus reached at the CSPT meeting on March 28, 2024, in view of the serious deviation of copper concentrate spot TC/RC from market fundamentals, in order to take effective measures to promote the return of spot TC/RC to a reasonable level, CSPT has decided not to set a reference figure for copper concentrate spot TC/RC in the second quarter; At the same time, it is proposed that CSPT group enterprises jointly reduce production by 5% to 10%, and promote implementation. According to SMM (Shanghai Nonferrous Metals Network) China's domestic copper concentrate spot smelting balance data, spot smelting has been in a continuous loss state since 2024, with an average loss of 1417 yuan/ton in February, approaching a historical low level.

From 2023 to 2025, global copper mining projects will be in the stage of centralized production, but some ongoing projects will have slower progress and expected output will decrease. Some ongoing mines will experience a decrease in grade and an increase in arsenic content. At the same time, there will be political environment and international large-scale copper mine shutdowns that will disrupt supply; Combined with the sustained strong demand in the new energy industry and the continuous decline in LME inventory since the end of October 2023, copper prices may perform relatively well in 2024. Copper prices are driven by both financial and commodity attributes. If the Federal Reserve initiates interest rate cuts while Chinese demand remains strong, and considering that global copper and smelting capacity will peak after 2025, copper prices are expected to rise and maintain high volatility in 2024.

2. Aluminum

China's electrolytic aluminum production has steadily increased and will remain the world's largest in 2023. In terms of price, since 2023, the overall aluminum price has maintained a range oscillation trend. In terms of demand, there will be a decrease in foreign demand in 2023; With the adjustment of China's control policies, the demand for aluminum in the domestic real estate and automotive industries has increased.

The production of alumina uses bauxite, limestone, and alkali (soda ash and caustic soda) as raw materials, and its cost is closely related to the cost of bauxite. As a major aluminum industry country, China's bauxite reserves are about 700 million tons (accounting for about 2% of the global bauxite reserves), and its poor resource endowment has led to a huge demand for foreign imports and a high degree of external dependence. In 2023, China imported 141.3827 million tons of bauxite, a year-on-year increase of 12.9%. China's primary aluminum (electrolytic aluminum) production maintains a steady growth trend. According to data from the National Bureau of Statistics, in 2023, China's primary aluminum (electrolytic aluminum) production will reach 41.594 million tons, a year-on-year increase of 3.7%, ranking first in the world's electrolytic aluminum production.

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In 2022, due to the impact of the European energy crisis, geopolitical conflicts, and global public health events, domestic and foreign aluminum production and processing enterprises reduced production, leading to a temporary supply shortage and causing LME aluminum prices to rapidly rise to a historical high of 3966.0 US dollars/ton in March 2022. As aluminum production enterprises in Yunnan region of China resume work and production, the supply and demand situation has eased to some extent; At the same time, the high inflation in Europe and the United States, the rapid interest rate increase by the Federal Reserve, and the decline in the price of US treasury bond bonds but the rise in the yield have put some pressure on the prices of aluminum and other commodities, leading to the rapid decline of aluminum prices. The LME aluminum price in three months rapidly dropped from the highest level in history to the lowest level of $2128.0/ton in 2022. At the beginning of 2023, due to the adjustment of China's control policies and market expectations of a slowdown in the Federal Reserve's interest rate hikes, LME aluminum prices rose to their highest point of the year on January 18, reaching $2660.0 per ton for three months; Subsequently, the price continued to fall, and the overall aluminum price remained in a range of fluctuations (2100~2400 US dollars/ton). At the macro level, the impact on pricing weakened, and fundamental drivers dominated. The global aluminum industry experienced multiple disturbances such as mining supply, demand, prices, and inventory.

In terms of demand, electrolytic aluminum is processed into products such as aluminum profiles, aluminum pipes, and aluminum bars, with end consumption mainly in industries such as construction, transportation, electricity, and packaging. In 2023, with the adjustment of China's control policies and the introduction of support policies, the operating rates of the real estate and automotive industries have increased, the investment scale of the photovoltaic industry has further expanded, and the overall demand for aluminum has increased. Among them, the completed area of houses increased by 17.0% year-on-year to 99800 square meters; China's automobile production increased by 9.6% year-on-year to 30.1132 million vehicles; The newly installed capacity of photovoltaics reached 216.88GW, a significant increase of 148% year-on-year, setting a new historical high. In terms of exports, in 2022, with the recovery of foreign demand and the rise in aluminum prices, the export value of aluminum products has increased. China's exports of unprocessed and rolled aluminum and aluminum increased by 17.56% year-on-year to 6.6036 million tons. However, since entering 2023, the demand for aluminum exports has been sluggish, and processing fees have decreased. With the opening of the EU Carbon Border Adjustment Mechanism (CBAM) in October 2023, it has had a certain impact on China's aluminum exports. China's annual export volume of unprocessed and rolled aluminum and aluminum materials has decreased by 13.90% year-on-year to 5.6753 million tons.

In 2024, the expansion of domestic electrolytic aluminum production capacity is limited, coupled with Indonesia's increasingly stringent environmental requirements, resulting in limited incremental supply of electrolytic aluminum; But as the consumption growth of photovoltaics and new energy vehicles gradually offsets the demand reduction caused by the weak real estate cycle, it is expected that the supply and demand of electrolytic aluminum will maintain a tight balance in 2024, and aluminum prices may remain the same as those in 2023.

3. Lead

In 2023, the production of China's lead industry will continue to grow, and product prices will rise before falling back; Along with the decline in lead processing fees, downstream lead-acid battery products have performed well in exports, driving a significant increase in the overall shipment volume of lead-acid batteries in China.

In 2023, the production of China's lead industry will continue to grow, and prices will soar to recent highs driven by supply and demand mismatches and arbitrage funds before falling back. According to data from the National Bureau of Statistics, China's lead production will reach 7.564 million tons in 2023, a year-on-year increase of 11.2%; In terms of price, the annual average price of lead (1 #) was 15630 yuan/ton, a slight increase of 2.3% year-on-year.

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In terms of native lead, according to publicly available data, the production of Chinese refineries in 2023 has slightly increased compared to 2022; In terms of processing fees, except for the increase in import processing fees in February, the processing fees for lead concentrate have been declining in all other time periods, and the processing fees for primary lead have decreased year-on-year throughout the year.

In terms of recycled lead, according to publicly available data, refinery production for the whole year of 2023 has decreased compared to 2022. From the perspective of processing fees for recycled lead, the tax inclusive price of recycled lead raw materials and waste batteries in China will exceed 10000 yuan/ton in 2023. From May to August, due to low market consumption and limited supply of waste batteries, prices will rise, leading to an increase in the cost of recycled lead smelting. Coupled with poor sales of downstream lead ingots, most domestic recycled lead enterprises are in a loss making state; In the second half of the year, with a significant increase in downstream terminal lead-acid battery inventory in the industry, terminal lead-acid battery consumption continued to weaken, leading to a high drop in lead prices since October. This intensified losses for recycled lead enterprises, and some of them began to reduce production and losses.

In terms of consumption, lead-acid batteries are still the most important product in China's primary consumption of refined lead, followed by lead alloys and materials, and other uses include lead salts. According to publicly available data, from January to October 2023, the total shipment of lead-acid batteries in China reached 405 million KVAh (by capacity), a significant increase of 1.67 times compared to the same period last year. Due to the general domestic demand, lead-acid battery production enterprises have lowered their operating rates due to high raw material costs and sluggish sales prices. It is expected that there will be little year-on-year change in annual production. However, the export performance of lead-acid battery products is good. According to data from the General Administration of Customs of China, from January to November 2023, the export volume of lead-acid batteries was 221.5993 million units (by quantity), a year-on-year increase of 13.14%, mainly exported to the Middle East market.

Looking ahead to 2024, after the domestic lead product prices surge and fall in 2023, considering that there has been no significant change in supply and demand, it is expected that the prices of lead products in China will remain relatively stable.

4. Zinc

Since 2023, global zinc prices have remained relatively low, and processing fees have shown a downward trend. The development of China's zinc industry is limited by factors such as mining impoverishment, safety and environmental costs, and downstream industry development, resulting in a sustained downward trend in zinc ore output over a certain period of time; In 2023, China's zinc concentrate production will further decline, while imports will further increase; During the same period, benefiting from relatively high processing fees, the supply of refined zinc has increased.

According to data from the International Lead Zinc Research Group (ILZSG), global zinc ore supply will decrease by 1.4% year-on-year in 2023, with global zinc ore production reaching 12.258 million tons (according to data from Zijin Tianfeng Futures Co., Ltd.); In addition to several mines shutting down due to profit pressure, factors such as declining ore grade, worker strikes, slower than expected expansion, and accidents have also disrupted supply, causing a contraction in global zinc ore supply. Benefiting from the high raw material guarantee and processing fees in the first half of 2023, zinc smelting capacity has been released, and refined zinc supply has steadily recovered. The global refined zinc production for the whole year was 13.863 million tons (Mysteel data), an increase of 510000 tons from 2022. On the demand side, under high interest rates, overseas consumption is not boosted enough, domestic real estate investment is sluggish, but infrastructure investment continues, automobile production and sales are good, and the global annual supply surplus is about 204000 tons (ILZSG data).

According to the "Global Mineral Resource Reserve Assessment Report 2023" released by the China Geological Survey of the Ministry of Natural Resources, China's lead and zinc resource reserves both exceed 10% of the global proportion (global lead and zinc reserves are 75.47 million tons and 225.67 million tons, respectively), making them advantageous minerals. The reserves of zinc resources in China are mainly distributed in Yunnan, Guangdong, Inner Mongolia, and Gansu. In recent years, the development of zinc mines and refineries in China has been constrained by stricter environmental policies, declining mine grades, and sluggish downstream demand.

In 2023, China's zinc concentrate production decreased by 5.35% year-on-year to 3.3649 million tons (Mysteel data); Since 2016, China's zinc ore output has been in a continuous downward cycle. In terms of imports, in 2023, the cumulative import volume of zinc concentrate in China was 4.7232 million tons, a year-on-year increase of 14.23%; Australia, Peru, Türkiye, South Africa and Kazakhstan are the main import source countries. In terms of smelting, according to Mysteel data, the total refined zinc production of 53 zinc smelters in China (involving a refined zinc production capacity of 6.5 million tons per year, accounting for more than 90% of the national statistical production capacity) in 2023 is 5.7499 million tons (including planned production), a slight increase year-on-year.

In terms of prices, the continuous interest rate hikes by the Federal Reserve have led to high interest rates and relatively weak overseas demand. Since 2023, international zinc prices have risen in the short term (LME zinc spot price of $3509/ton on January 27) and then fluctuated back to the lowest level in recent years (LME zinc spot price of $2224/ton on May 25). Subsequently, zinc prices have continued to be under pressure due to the weak macroeconomic situation and expectations of increased production.

Due to current product prices, high costs, and inflationary pressures, there is significant uncertainty in overseas mining supply, and global concentrate supply may be tight in 2024; Due to the shortage of raw materials and the decline in processing fees, the increase in refined zinc may be relatively limited. However, with the resumption of production by overseas refineries and the production of new capacity in China, there may be overcapacity in the smelting end; Under the interest rate cut cycle, the marginal improvement of overseas consumption, global demand may be repaired, and supply and demand may tend towards a tight balance state. Zinc prices benefit from cost support and may show a slight upward trend, but the overall upward space is limited.

5. Gold

The factors affecting gold prices are complex and intricate. Since 2023, geopolitical risks have boosted gold risk aversion, and expectations of interest rate cuts by major central banks around the world have increased. Coupled with the continued gold allocation boom by central banks in various countries and the strong growth in demand for gold jewelry consumption, international gold prices have significantly risen. In 2023, the demand for gold in China will be strong, and the investment demand trends in the domestic and international gold markets will be different; Affected by the increase in imported raw material gold production, China's gold production has increased.

Gold has both commodity and financial attributes, and at present, gold demand is mainly divided into global central bank purchases, commodity manufacturing and consumption, and market investment demand. The factors affecting gold prices are complex and intricate. In 2023, geopolitical risks have boosted gold risk aversion, and expectations of interest rate cuts by major central banks around the world have increased. Coupled with the continued gold allocation boom by central banks in various countries and the strong growth in demand for gold jewelry consumption, international gold prices have significantly risen. In the first quarter of 2023, concerns in the global market about a "hard landing" for the US economy fueled expectations of interest rate cuts, leading to an increase in gold prices. However, due to unexpected US economic data, gold prices fell back; In the second quarter, risk factors such as the Silicon Valley bank event and the US debt ceiling crisis pushed up the demand for gold as a hedge, and the gold price rose rapidly. Later, due to the weakening expectation of the US economic recession, the gold price fell again; Since October, benefiting from the continuously rising expectations of interest rate cuts by the Federal Reserve, coupled with the Israeli Palestinian conflict driving up market risk aversion, gold prices have rebounded strongly, breaking through historical highs at one point. On December 28, 2023, LBMA spot gold prices rose to $2078.40 per ounce, an increase of 12.76% compared to the beginning of the year; The annual average price is $1940.54 per ounce, up 7.80% from $1800.09 per ounce in 2022. Since 2024, the global market's risk aversion has driven strong demand for gold, and spot gold prices have hit a new historical high, reaching $2280.15 per ounce on April 3.

According to the Global Gold Demand Trends Report (2023 full year and fourth quarter) released by the World Gold Council, the total global gold demand in 2023 reached 4899 tons (including over-the-counter trading and inventory flows), setting a historical record. Among them, the purchase volume of central banks and other institutions reached 1037 tons, down only 4.11% from a record year in 2022. The People's Bank of China and the National Bank of Poland were the largest central bank buyers of gold, while the Central Bank of Uzbekistan and the National Bank of Kazakhstan were the world's largest sellers of gold; The demand for gold jewelry manufacturing (including consumption and inventory) is 2168 tons, and despite record breaking gold prices, the demand for gold jewelry remains strong; The demand for technology gold is 298 tons, and the demand for electronic gold has rebounded (with a year-on-year increase of 14%). However, the demand for consumer electronics products remained sluggish throughout the year, resulting in a year-on-year decrease of 3.53% in the demand for technology gold. In terms of investment, in 2023, major markets in the East and West will experience a balance of gains and losses. Due to rising interest rates and the cost of living crisis, investment in gold bars and coins in Europe will sharply decline, leading to a slowdown in global investment demand. The total demand for gold bars and coins for the year will decrease by 2.71% year-on-year to 1190 tons; European ETF holders took profits due to the soaring interest rates, the strengthening of the US dollar and the soaring cost of living, while North American ETF holders reduced their holdings due to the rising yield of treasury bond bonds and the strong US dollar. The global gold ETF had a net outflow for the third consecutive year. In 2023, the global holdings decreased by 244 tons (about US $15 billion) in total; In the same period, the investment demand of Chinese Mainland was strong (gold investment increased by 61 tons to 280 tons on a year-on-year basis). However, due to the sharp decline in gold investment in Europe and the United States, the global gold investment demand for the whole year fell by 15.09% to 945 tons on a year-on-year basis. Overall, the sustained gold buying behavior of global central banks has effectively boosted gold demand, partially offsetting the impact of weak global ETF demand. On the supply side, in 2023, global gold mining production increased slightly by 0.54% year-on-year to 3644 tons, still below the record high level set in 2018; The annual gold recovery is consistent with the trend of gold prices, with a year-on-year increase of 8.53% in recovery volume to 1237 tons. Taking all these factors into consideration, the total gold supply for the year increased by 3.09% year-on-year to 4899 tons.

According to statistics from the China Gold Association, in 2023, China's raw material gold production was 375.155 tons, a slight increase of 0.85% year-on-year. Among them, 297.258 tons of gold mineral gold were produced, and 77.897 tons of non-ferrous by-product gold were produced. During the same period, China's total gold production from imported raw materials was 144.134 tons, a year-on-year increase of 14.59%; If the imported raw materials for gold production are included, the total gold production in China is 519.289 tons, a year-on-year increase of 4.31%. During the same period, the national gold consumption was 1089.69 tons, an increase of 8.78% compared to the same period in 2022. Among them, the consumption of gold jewelry was 706.48 tons, a year-on-year increase of 7.97%; The consumption of gold bars and coins was 299.60 tons, a year-on-year increase of 15.70%; Industrial and other gold consumption was 83.61 tons, a year-on-year decrease of 5.50%. In 2023, the People's Bank of China accumulatively increased its gold holdings by 224.88 tons. Since November 2022, it has increased its gold holdings for 14 consecutive months. By the end of the year, China's gold reserves had reached 2235.41 tons.

In terms of trading, in 2023, the cumulative trading volume of all gold varieties on the Shanghai Gold Exchange was 41500 tons on both sides (20800 tons on one side), a year-on-year increase of 7.09%; The bilateral transaction volume was 18.57 trillion yuan (9.28 trillion yuan on one side), a year-on-year increase of 22.31%. During the same period, the cumulative trading volume of all gold varieties on the Shanghai Futures Exchange was 124200 tons on both sides (62100 tons on one side), a year-on-year increase of 43.90%; The bilateral transaction volume was 47.76 trillion yuan (unilateral 23.88 trillion yuan), a year-on-year increase of 55.43%. In 2023, the holdings of Chinese gold ETFs are showing a steady growth trend. As of the end of the year, the domestic gold ETF holdings in China were approximately 61.47 tons, an increase of 10.04 tons compared to the same period last year, representing a year-on-year growth of 19.53%.

As a resource-based industry, the abundance of gold mineral resources largely determines the development space and core competitiveness of gold enterprises. China's gold resources are mainly distributed in Shandong, Yunnan, Jiangxi and other regions, concentrated in large gold enterprises. After long-term mining, most gold mines have experienced a decline in ore grade, and some mines have experienced resource depletion and difficulty in resource replacement. The limited mineral resources within the country have gradually become a bottleneck for the development of the gold industry; At the same time, new mines generally face the problem of difficult mining, which makes mineral development increasingly dependent on the technology and equipment level of enterprises; In addition, with the rise in energy, logistics, and labor costs, the comprehensive production cost of gold continues to rise, and overseas mines face geopolitical risks.

Gold has a safety reserve value that cannot be compared to other commodities and financial assets. From 2022 to 2023, the global central bank's gold purchases reached a historical record, and gold prices remained high during the strong US dollar cycle. Gold, as one of the main allocation directions for central bank incremental reserves, provides strong support for gold prices. In 2024, the Federal Reserve's monetary policy is likely to shift towards easing, and if its economic data remains strong, there may be certain limitations on the upward potential of gold prices.