China Galaxy Securities: Non-ferrous metals profit momentum weakens; industry earnings growth slows

China Galaxy Securities released a research report stating that global copper mine production disruptions continue. In the third quarter, copper mine output at major global copper mining enterprises declined both year-on-year and quarter-on-quarter. Tightening copper mine supply has intensified, and smelting processing fees have continued to decline, prompting domestic copper smelters to increase maintenance shutdowns after entering October. China's refined copper output in 2026Q4 may decline further, and the shortage at the mine end is accelerating its transmission to the smelting end, which is expected to support copper prices. Democrats won back both chambers of Congress in the U.S. midterm elections, and the Democratic leaders of the U.S. Senate and House of Representatives explicitly stated that they would push to end the war against Iran. Once the U.S. war against Iran ends and navigation through the Strait of Hormuz resumes, oil prices and U.S. inflation expectations may decline. Combined with market concerns over the unsustainability of AI investment returns and debt, as well as growth concerns triggered by Democratic policies delaying AI construction, Federal Reserve rate hike expectations may decrease, which is expected to drive a rebound in gold prices. The main viewpoints of China Galaxy Securities are as follows: Industry prosperity is declining; overall earnings growth of the A-share non-ferrous metals industry fell back in 2026Q3 The escalation of the U.S.-Iran conflict and the rise in oil prices caused by the blockade of the Strait of Hormuz continued to have a negative impact on the non-ferrous metals industry in the third quarter. The inflation threat brought by the rapid rise in oil prices to high levels caused the Federal Reserve to shift monetary policy and enter a rate hike cycle in the third quarter. The marginal tightening of market liquidity suppressed the prosperity of the non-ferrous metals industry and non-ferrous metal commodity prices. The rise in energy, transportation, and other costs brought by higher oil prices also appeared in the third quarter, further eroding industry profits and weakening the profitability of non-ferrous metals enterprises. Coupled with a higher base, the overall earnings growth of the A-share non-ferrous metals industry showed a clear decline in 2026Q3. Specifically, in the first three quarters of 2026, the A-share non-ferrous metals industry's operating revenue increased by 26.64% year-on-year, and earnings increased by 85.98% year-on-year; in 2026Q3 alone, the A-share non-ferrous metals industry's operating revenue increased by 17.75% year-on-year, and earnings increased by 56.31% year-on-year. Profitability weakened; the overall ROE level of the A-share non-ferrous metals industry declined in 2026Q3 for the first time after 2024 The overall ROE of the A-share non-ferrous metals industry fell from 5.00% in 2026Q2 to 4.14% in 2026Q3, down 0.86 percentage points quarter-on-quarter, the first decline after 2024. Among this, the overall sales profit margin of the A-share non-ferrous metals industry fell from 8.27% to 7.33%, affecting ROE by a 0.53 percentage point decline, and was the most core factor in the overall ROE level of the non-ferrous metals industry in 2026Q3. The decline in the overall gross profit margin of the A-share non-ferrous metals industry in 2026Q3 became the main reason for the decline in the industry's sales profit margin in the third quarter of 2026. With the U.S.-Iran conflict continuing and the Strait of Hormuz blockaded, the inflation threat brought by higher oil prices caused the Federal Reserve to tighten monetary policy and shift to rate hikes in the third quarter. The marginal decline in market liquidity led non-ferrous metal commodity prices to fall in the third quarter; combined with the transmission of higher oil prices in the third quarter to rising energy costs, transportation costs, and auxiliary material costs, the production and sales costs of non-ferrous metal products were pushed up, further compressing the profitability of non-ferrous metals enterprises and the industry's gross profit margin level. The overall operating cash flow situation of the A-share non-ferrous metals industry continued to improve in 2026Q3 The overall operating net cash flow of the A-share non-ferrous metals industry in 2026Q3 increased by 35.12% year-on-year compared with 2025Q3, and increased by 19.18% quarter-on-quarter compared with 2026Q2. In 2026Q3, the overall operating cash flow of the A-share non-ferrous metals industry grew quarter-on-quarter compared with 2026Q2, and achieved year-on-year growth for three consecutive quarters after 2025Q4, showing continued improvement in the cash situation of A-share non-ferrous metals enterprises. Risk warnings: 1) The risk that the domestic macroeconomic recovery progress falls short of expectations; 2) The risk that the Federal Reserve tightens monetary policy and the magnitude of rate hikes exceeds expectations; 3) The risk of a sharp decline in non-ferrous metal commodity prices; 4) The risk that Middle East geopolitical conflicts continue to ferment and evolve beyond market expectations.