As the market landscape evolves, analysts predict a potential weakening of the US dollar due to a scenario characterized by "strong expectations paired with weak realities." The domestic economy shows signs of resilience; the declines in the Producer Price Index (PPI) are narrowing, the growth of money supply (M2) is on the rise, and purchasing managers' index (PMI) figures show an upward trendThis sets a macroeconomic climate conducive for a rise in resource pricesMidstream building materials, particularly cement, seem to be positioned for price increases, supported by an expected rally in upstream industrial metalsInvestment in aluminum and refractory materials companies is advised, alongside resource-related sectors in construction, which could display significant growth potential.

The macroeconomic conditions are ripe for a bull market in resource prices.

The anticipated interest rate reductions by the Federal Reserve are expected to enhance liquidity, subsequently bolstering commodity prices.

Since 1954, the Federal Reserve has undergone thirteen complete interest rate hikes, each of which has profoundly impacted the US economy's output levels, inflation rates, financial markets, and exchange ratesThese alterations have also exerted substantial spillover effects on foreign exchange markets and financial sectors in emerging economiesOn March 17, 2022, the Federal Reserve raised rates by 25 basis points, marking the onset of a new interest rate cycleThis latest cycle has facilitated the migration of capital from emerging markets back to developed ones, consequently elevating global interest ratesBy July 27, 2023, the target federal funds rate reached 5.5%. Post this period, the US unemployment rate and core Consumer Price Index (CPI) have shown a downward trend, with core CPI declining to 3.9% year-on-year by December 2023, while unemployment stood at 3.7%. As the Federal Reserve commenced rate cuts in September 2024, starting with a 50 basis point reduction, forecasts suggest that this trend might continue into 2025.

The essence of the resource price bullish market stems from a combination of monetary easing, increasing demand, and restricted supply.

Analyzing the broader economic picture, it becomes evident that a bull market in resources typically accompanies a period of monetary easing (with declining US Treasury yields and rising M2 growth) and a weakening dollar

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Heightened inflation expectations drive macro bullish logicA close look at fundamental macroeconomic indicators reveals that PPI and PMI are generally on an upward trajectory, with inventory levels in declineBy the end of 2024, the one-year US Treasury yield may drop to about 4.2%. The dollar's exchange rate against the renminbi is approximately 7.2, while China reports CPI, PPI, and M2 growth rates at +0.1%, -2.3%, and +7.3%, respectivelyThe PMI for China and the US stand at 50.1 and 49.3, respectivelyThis context suggests that the dollar could weaken due to "strong expectations against weak realities," alongside tightening PPI declines and enhanced M2 growth rates, indicating a substantial base for rising resource prices.

Specific building materials, particularly cement, present logical grounds for price increases based on current dynamics.

Examining cement, demand is poised to stabilize after the erratic 25Q1 performanceDespite a low operational rate of 8.6% up to the week before the Spring Festival, there is a year-on-year increase of 7.6 percentage pointsSupply conditions are tightening as various provinces have announced staggered production schedules to manage kilns, with many districts increasing their off-peak production days compared to the previous yearAdditionally, expectations for enhanced capacity management policies still loomShould fiscal measures roll out post-holiday, there might be an upward push in infrastructure project demands, notably in Eastern and Southern China, leading to improved supply-demand balances in cement.

From an inventory perspective, early 2025 inventory levels for cement sit at relatively low levels, with clinker storage nearing a five-year lowIn the last week before the Spring Festival this year, the cement/clinker inventory ratios stood at 56.3% and 44.4% respectively, reflecting year-on-year losses of 8.9 and 30.4 percentage points, thus providing a strong foundation for price increases.

Looking into fiberglass, the segment showcases structurally high demand, anticipating price rises.

The demand for fiberglass is closely tied to macroeconomic trends, with a GDP growth forecast of +5% for 2024. Regional annual meetings have now begun, and most provinces aim for GDP growth of at least 5% for the coming year, indicating a potential firming in demand

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High demand is expected particularly from the wind energy and thermoplastic segments.

On the supply side, expectations regarding fiberglass capacity remaining constrained lingerBy December 2024, fiberglass industry stocks were recorded at 77.85 million tons, a drop of 6.4 and 2.9 thousand tons year-on-year and quarter-on-quarter, respectively, setting the stage for potential price increasesNotably, in late November, industry leader China Jushi announced price hikes for wind energy and thermoplastic fiberglass products, indicated hikes between 10% and 20%.

In terms of consumer building materials, trends in raw material prices are mixed, with pricing for waterproofing materials and plasticizers showing upward movements driven by costs.

For consumer segments, it is evident that besides the impact of supply-demand balances, raw material costs are similarly influential on pricesObservations from the last three years demonstrate uneven trends in raw material prices before and after the Spring Festival this year.

Specifically, the procurement costs of waterproofing products, particularly through asphalt and industrial naphthalene, are on the rise, potentially providing momentum for price increases in these areas post-festivalMoreover, coatings are expected to remain supported by existing housing demand, indicating a longer-term upward pricing trajectory.

Additionally, glass prices and inventory levels are near historical lows, suggesting a likelihood of price recovery post-festival.

The upstream industrial metals market might take the lead in this potential rally, especially for aluminum and refractory materials companies.

On one end, building material companies engaged in the processing and sales of upstream resources (largely centered around aluminum products) could stand to gain, including firms like Haomei New Material, Zhite New Material, and Lidao New Material, all of which report over 80% of their revenues arising from aluminum-related activities

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Profit margins of over 70% further underline their strong positioning.

On another front, should steel prices rise, the overall profitability of the steel sector will likely enhance, prompting steel manufacturers to scale production or boost efficiency, thereby increasing their demand for refractory materialsThis could lead to greater price acceptance for these productsKey players in the refractory sector include companies like Donghe New Material and Beijing Lier, which possess resource-based businesses that will also benefit from rising resource prices.

Construction firms engaged in resource-oriented projects exhibit a notable capacity for upward flexibility in operations.

Construction industries with diversification into resource-related operations categorize their business into three main typesGiven the context of rising commodity prices, it is expected that performance elasticity and share price catalysts will become increasingly promising:

Firstly, resource development and trade encompass efforts through equity acquisitions, self-funded development initiatives, and infrastructural reforms to acquire mineral resources necessary for their operational projectsThis typically involves sales from commodities such as copper concentrate and various ore typesCompanies such as China Railway and Sichuan Road and Bridge exemplify these holdings across domestic and international mines.

Secondly, resource service operations don’t directly delve into resource development but focus on supporting vital services around resource project operations like mineral construction and equipment supplyExamples include Sinoma International, which specializes in cement production line construction and mining maintenance services, as well as Huadian Technology and China Railway Construction, further supporting these essential operations.

Thirdly, resource processing activities center on leveraging incoming resources, generally functioning through a cost-plus model for earning processing fees

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