J.P. Morgan China Summit Day 2: Aluminum most favored, copper and cobalt supply cost pressures rising, policy and geopolitical risks heating up in Indonesia and Mali

Overview

This report is J.P. Morgan's Asia-Pacific commodity specialist sales commentary, reviewing Day 2 of the China Summit with coverage of meetings related to energy, mining, materials, and renewables. The report spans CMOC, China Hongqiao, automotive/battery/energy storage system sessions, and investor questions about the Mali incident involving Zijin/Allied Gold, policy changes in Indonesia, and Chinese chemical capex. Overall, the message is that investor views on Chinese mining stocks have become more polarized after significant year-to-date underperformance: some investors worry about rates, inflation, policy, and geopolitical risk, while others believe valuations for certain healthy growth-oriented resource companies are now attractive.

Core views

The key takeaways are: first, there is no obvious sulfuric acid or diesel shortage in the Democratic Republic of the Congo, but companies need to pay higher prices for sulfuric acid and diesel, with sulfuric acid's share of cash costs potentially rising from around 10% to around 20%, and diesel rising from the low single digits to the high single digits. Second, Hongqiao is the most bullish on aluminum prices, believing that LME inventories are only about 300 kt, of which around 200 kt is of Russian origin, while Chinese inventories are about 1.4 million to 1.5 million tonnes; at an export pace of roughly 550 kt per month, the drawdown of domestic inventories could become visible within 1 to 2 months. Third, CMOC maintained its copper growth path, with 2026 guidance at 790 kt and a 2028 target of 800 kt to 1,000 kt through TFM/KFM expansion, and it does not currently see customer demand destruction from prevailing cobalt prices. Fourth, security issues in Mali, taxes and cobalt quotas in the Democratic Republic of the Congo, centralized export regulation in Indonesia, chemical capacity additions, and ESS cost pressure are the main risks for the next stage.

Analysis framework

The report uses a meeting-notes and investor-feedback synthesis approach, organizing the material along four threads: company meetings, sector supply and demand, policy changes, and investor questions. Its focus is not a formal valuation model, but rather capturing management commentary on supply and demand, costs, capital management, and policy risk, as well as the marginal changes investors care about most.

Methodology notes

• Meeting notesCompany meeting feedback synthesis

  Extracting supply-demand, cost, production guidance, capital management, and risk points from meetings with CMOC, China Hongqiao, and others.

  This approach is well suited to identifying expectation gaps and short-term catalysts, but it is not equivalent to a formal rating or target price update.

• Supply-demand analysisCommodity supply-demand and inventory mismatch analysis

  Judging price pressure by looking at LME inventories, China inventories, export pace, capacity release constraints, and evidence of customer demand destruction.

  The aluminum section focuses in particular on the time lag between tight LME inventories, the Rotterdam premium, SHFE prices, and the drawdown of Chinese inventories through exports.

• Risk analysisPolicy and geopolitical risk tracking

  Tracking taxes and quotas in the Democratic Republic of the Congo, security incidents in Mali, and export regulations and approval uncertainty in Indonesia.

  These risks may affect miners' expansions, M&A completion, production delivery, cash costs, and investor risk appetite.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Aluminum and China Hongqiao-related exposure

  Positive

  Strengths

  Tight LME inventories, overseas premiums above SHFE, Chinese exports drawing down domestic inventories, and the company's ongoing buybacks and capital returns.

  Weaknesses

  Convertible bond issuance has raised investor concerns about dilution, and there are funding and inventory-management needs around bauxite and alumina procurement.

  Comparison

  Compared with other meetings, the Hongqiao meeting was described as the most bullish.

  Risks

  If China's 45 million tonne capacity constraint is breached, Indonesian supply is released faster than expected, or demand is destroyed, the bullish aluminum thesis weakens.

• Copper and cobalt exposure linked to CMOC

  Neutral to positive

  Strengths

  The 2026 copper production guidance of 790 kt is still on track, TFM/KFM expansion provides further growth into 2028, and current cobalt prices have not yet led to customer demand destruction.

  Weaknesses

  Sulfuric acid and diesel costs are rising, while DRC taxes, employee ownership stakes, and cobalt quotas dilute earnings.

  Comparison

  Relative to aluminum, copper/cobalt has a clearer supply-growth path, but policy and cost constraints are more pronounced.

  Risks

  The DRC's pro-U.S. policy stance, expansion restrictions, a 50% windfall tax if LME prices exceed $11,500 in 2027, cobalt quotas, and cost inflation.

• Zijin/Allied Gold and Mali gold exposure

  Negative

  Strengths

  If the security incident is resolved and approvals progress, the asset could still contribute to production growth.

  Weaknesses

  The situation in Mali has deteriorated, with a reported kidnapping at the mine site, and the market rumor is that Zijin has not yet obtained NDRC acquisition approval.

  Comparison

  Compared with normal gold-mining operating risk, this event is more about geopolitical security and transaction-execution risk.

  Risks

  Employee safety, approval delays, acquisition failure, and difficulty in meeting production targets.

• Indonesia coal, palm oil, nickel, and ferroalloy export-related assets

  Negative

  Strengths

  If policy implementation becomes clear, the centralized export mechanism could improve government regulatory transparency.

  Weaknesses

  Indonesia requires relevant exports to be handled through a central state-owned enterprise entity, involving documentation, sales and procurement agreements, customers, and payment terms, which increases execution complexity.

  Comparison

  This is another sharp policy shift following quota cuts, mine takeovers, higher royalties, and export tariffs.

  Risks

  Uncertain implementation mechanics, reduced willingness for long-term foreign investment, and disruption to miners' cash flow and sales processes.

• Chinese chemical capacity and exposure to Sinopec/PetroChina

  Cautious

  Strengths

  PetroChina's ethylene capacity additions are meaningful, and it has remained profitable thanks to advantages in ethane feedstock.

  Weaknesses

  Sinopec is the larger source of new capacity, and its chemical business has been loss-making for four years, making it the real point of focus.

  Comparison

  The report explicitly clarifies that the market should not focus only on PetroChina chemical capex; Sinopec is more important.

  Risks

  Chemical oversupply, continued pressure on profitability, and uncertainty around capex timing.

• Energy storage systems, batteries, and the new energy chain

  Neutral to cautious

  Strengths

  The meetings still show active demand themes in batteries and ESS, and industry news included CATL supplying 1.5 GWh of batteries for a project in Spain.

  Weaknesses

  Both the title and the meeting agenda highlight ESS cost pressure and IRR issues.

  Comparison

  Relative to aluminum and copper, ESS is more constrained by project returns and cost curves.

  Risks

  Insufficient cost declines, pressure on internal rates of return, project delays, or slower procurement cycles.

• Baker Hughes Co. (BKR.US)

  Indirectly mentioned

  Strengths

  A related research note mentioned record gas turbine orders in 1Q26 and market share gains driven by the NovaLT platform.

  Weaknesses

  This report is not a formal deep-dive on BKR and does not include rating, target price, or updated financial forecasts.

  Comparison

  BKR appears only as a company-research link within the energy and oilfield services news flow.

  Risks

  Gas turbine order conversion, the oilfield services cycle, and volatility in energy equipment demand.

Key data

• CMOC 2026 copper production guidance790 ktThe company said it remains on plan.
• CMOC 2028 copper production target range800 kt to 1,000 ktPrimarily driven by TFM/KFM expansion.
• Sulfuric acid cost pressureCash cost share rises from about 10% to 20%There is no shortage in the DRC, but higher prices need to be paid.
• LME aluminum inventoriesAbout 300 kt, of which around 200 kt is Russian originHongqiao views LME inventories as very tight.
• Chinese aluminum inventoriesAbout 1.4 million to 1.5 million tonnesThe original text says 1.4-1.5kt, but the context indicates a million-tonne scale.
• Chinese aluminum export paceAbout 550 kt/monthHongqiao expects the impact on domestic inventories to show up within 1 to 2 months.
• Hongqiao share buybacksAbout HK$5.2 billion year to dateThe company said it will continue stabilizing the share price and protecting investors.
• Hongqiao aluminum price outlookStaying elevated for 12 to 18 monthsBased on tight inventories, overseas premiums, and constraints on supply release from Indonesia.
• Zijin/Allied Gold Mali incidentReportedly, nine Chinese employees were kidnapped by armed personnel at a mine site in MaliInvestors are worried about safety conditions and delivery of production targets.
• Indonesia market reactionJCI fell 4% the previous day and is down 34% year to dateThe report links this to uncertainty over Indonesia's latest export regulatory policy.
• J.P. Morgan view on Chinese chemical capexDown 10% year on year in 2026The report says the real point of focus is Sinopec, not PetroChina.

Impact & implications

For investment implications, the aluminum chain has the strongest positive near-term surprise potential. Inventory mismatches and constraints on Indonesian supply support prices staying high. Copper and cobalt growth remains intact, but taxes, quotas, and cost pressure in the Democratic Republic of the Congo will cap some of the earnings upside. Gold and copper are highlighted by CMOC as pillars of its M&A strategy, showing that resource companies still have capital allocation appetite. Chemicals and ESS, by contrast, face cost pressure, IRR pressure, and new capacity headwinds, requiring a more cautious view of earnings quality.

Risks

• Rising sulfuric acid and diesel costs in the Democratic Republic of the Congo may compress copper and cobalt miners' margins.
• The Democratic Republic of the Congo's windfall tax, local employee ownership dilution, cobalt quotas, and policy stance may limit expansion.
• Deteriorating security conditions in Mali and kidnapping incidents may affect Zijin/Allied Gold transactions and production targets.
• Indonesia's centralized export regulation policy has unclear implementation mechanics and may disrupt mining, coal, palm oil, and nickel-related investment.
• New capacity additions in Chinese chemicals and losses in Sinopec's chemical business may weigh on industry profitability.
• ESS cost pressure may weaken project IRRs and slow new installations.
• If aluminum demand is destroyed, Indonesian supply is released faster than expected, or China's capacity constraint is broken, the bullish aluminum thesis faces a pullback.

What to watch

• CMOC's actual purchase prices for sulfuric acid and diesel in the Democratic Republic of the Congo, and inventory coverage duration.
• CMOC's 2026 copper production guidance of 790 kt and progress toward the 2028 800 kt to 1,000 kt expansion.
• Changes in LME aluminum inventories, Chinese aluminum inventories, the Rotterdam premium, and the SHFE spread.
• Whether China's monthly aluminum export pace of about 550 kt continues to draw down domestic inventories.
• The detailed implementation rules, coverage, and payment process for Indonesia's centralized state-owned enterprise export mechanism.
• Follow-up on the Mali security incident involving Zijin/Allied Gold and progress on NDRC approval.
• Sinopec and PetroChina chemical capex, loss narrowing, and the timing of new capacity additions.
• The pace of cost declines in ESS and the recovery in project IRRs.
• Hongqiao's follow-on buybacks, dividends, renewable energy investment, and bauxite inventory strategy.