Carbon peaking targets and anti-involution policies drive expectations for restructuring in Greater China's materials sector

Overview

This report is Morgan Stanley's weekly monitor of the Greater China materials sector, focusing on carbon peaking targets, energy-saving and carbon-reduction policies, and industry restructuring. The report covers materials and resource products such as steel, aluminum, copper, lithium, coal, cement, glass, and solar glass, combining policy events, prices, inventories, and rating disclosures to assess the sector's short-term operating conditions. Overall, the report assigns an Attractive industry view to Greater China materials, although performance across subsectors is clearly differentiated.

Core views

The core views include: first, China's policy framework continues to strengthen energy saving, carbon reduction, and non-fossil energy development, with targets for carbon emissions intensity, energy mix, and peak coal consumption providing a medium-term framework for supply constraints and structural adjustment in the materials sector. Second, the governance of excess capacity and anti-involution in the solar industry has become a key focus, potentially driving the elimination of inefficient capacity and improving competitive order. Third, weekly performance across base metals and industrial products diverged, with copper inventories falling significantly while aluminum inventories continued to rise; lithium prices continued to increase, indicating a possible improvement in the staged supply-demand balance or sentiment for battery metals; gold, cement, and solar glass prices fell back, reflecting that demand or supply pressures remain in some categories. Fourth, steel price and inventory data improved at the margin, but year-on-year and year-to-date inventory changes still suggest that cyclical pressure has not been fully alleviated.

Analysis framework

The report uses a weekly data-tracking approach, combining policy catalysts with commodity prices, inventories, margins, and industry rating information. On the policy side, it focuses on the National Development and Reform Commission, energy saving and carbon reduction, non-fossil energy, new energy storage, new power systems, and anti-involution measures in the solar sector; on the market data side, it tracks weekly, monthly, year-on-year, and year-to-date changes in prices and inventories for steel, base metals, battery metals, coal, cement, and glass.

Methodology notes

• Industry Weekly MonitoringPrice and Inventory Snapshot

  Use weekly, monthly, year-on-year, and year-to-date changes in prices and inventories to judge the marginal direction of supply and demand.

  Rising prices combined with falling inventories usually indicate marginal improvement in supply and demand; falling prices or inventory accumulation suggests insufficient demand, supply pressure, or inadequate destocking at a given stage.

• Policy AnalysisCarbon Peaking and Energy Saving/Carbon Reduction Policy Framework

  Treat carbon emissions intensity, the share of non-fossil energy, and peak coal consumption targets as variables reshaping the medium- to long-term supply and demand of the materials sector.

  Policy targets may drive capacity constraints in high-energy-consuming industries, changes in the energy mix, and growth in demand for green materials, but the pace of implementation and enforcement intensity will affect the investment implications.

• Rating SystemMorgan Stanley Industry View

  Attractive means analysts expect the industry's coverage universe to deliver attractive relative performance versus the relevant market benchmark over the next 12-18 months.

  This industry view is not a buy/sell recommendation for a single stock, but a judgment on the relative performance of the covered sector.

Asset mapping & comparison

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

• Greater China materials sector equities

  Industry coverage asset

  Strengths

  The industry view is Attractive, and policy support for energy saving, carbon reduction, and industry restructuring provides a medium-term catalyst.

  Weaknesses

  Prices and inventory performance diverge across subsectors, and some categories still face weak demand, high inventories, or excess capacity.

  Comparison

  Relative to the broader market benchmark, Morgan Stanley believes the sector offers attractive performance potential over the next 12-18 months.

  Risks

  Policy execution falls short of expectations, demand recovery is insufficient, capacity clearance is slower than expected, and commodity prices fluctuate.

• Copper

  Tracked base metal

  Strengths

  Shanghai copper prices rose 0.6% week over week, while inventories fell 24.4%, indicating marginal destocking.

  Weaknesses

  The price increase was limited, and the outlook still depends on the sustainability of demand.

  Comparison

  Compared with aluminum, copper inventory performance is stronger, with a more positive marginal supply-demand picture.

  Risks

  Weaker macro demand, renewed inventory accumulation, and changes in the U.S. dollar and global risk appetite.

• Aluminum

  Tracked base metal

  Strengths

  Prices are still positive year to date, and some aluminum-related companies are within coverage.

  Weaknesses

  Shanghai aluminum prices fell 1.6% week over week, while inventories rose 1.3%, indicating weaker short-term supply and demand than copper.

  Comparison

  Compared with copper, aluminum's weekly combination of price and inventory trends is weaker.

  Risks

  Continued inventory accumulation, weak demand, and changes in energy costs and policy constraints.

• Lithium and battery metals

  Tracked new energy materials

  Strengths

  Prices of both industrial-grade and battery-grade lithium hydroxide and lithium carbonate rose on a weekly basis, with strong monthly and year-on-year gains as well.

  Weaknesses

  The sector has historically been highly volatile, and the price rebound may be driven by sentiment, inventories, and short-term supply and demand.

  Comparison

  Compared with cement and solar glass, lithium has stronger price momentum.

  Risks

  Release of new supply, end-demand for EVs falls short of expectations, and prices retreat from high levels.

• Steel

  Tracked traditional material

  Strengths

  Weekly prices for hot-rolled, cold-rolled, rebar, and Tangshan billet moved higher, while inventories of long and flat products declined.

  Weaknesses

  Some inventory metrics remain high year on year and year to date, and the recovery in industry profitability may not be stable.

  Comparison

  Compared with cement, steel delivered better weekly price performance.

  Risks

  Insufficient demand from real estate and infrastructure, raw material cost volatility, and unsustainable destocking.

• Solar glass

  Tracked photovoltaic material

  Strengths

  Anti-involution and capacity governance policies may improve competitive order over the medium term.

  Weaknesses

  The price of 3.2mm tempered solar glass fell 3.2% week over week, with large declines year on year and year to date.

  Comparison

  Compared with lithium and steel, solar glass faces more obvious short-term price pressure.

  Risks

  Persistent excess capacity, continuing price wars, and insufficient effectiveness of policy coordination.

Key data

• China carbon emissions intensity targetMore than 65% lower than 2005A medium- to long-term decarbonization target proposed in the policy measures.
• Non-fossil energy consumption share target25%The policy measures set a target for the share of non-fossil energy in total energy consumption.
• Coal consumption targetPeak before 2030Related to carbon peaking and energy mix adjustment.
• Shanghai copper price+0.6% WoWAt the same time, Shanghai copper inventories fell 24.4% week over week.
• Shanghai aluminum price-1.6% WoWAt the same time, aluminum inventories rose 1.3% week over week.
• Industrial-grade lithium hydroxide price+3.0% WoWBattery-grade lithium hydroxide rose 2.8%.
• Industrial-grade lithium carbonate price+3.4% WoWBattery-grade lithium carbonate rose 3.3%.
• Gold priceUS$4,694/oz, -2.8% WoWPrice declined on a weekly basis.
• Shanghai hot-rolled coil price+1.5% WoWCold-rolled rose 0.7%, rebar rose 0.2%, and Tangshan billet rose 1.3%.
• China cement priceRmb320/t, -1.8% WoWAs of April 24.
• Qinhuangdao 5500 kcal coal priceRmb701/t, +0.1% WoWInventories rose to 5.78mnt, up 1.4% week over week.
• Solar glass 3.2mm tempered priceRmb15.0/m2, -3.2% WoWIndicates photovoltaic glass remains under pressure.

Impact & implications

For investors, the policy theme supports the materials sector's shift away from inefficient expansion toward energy saving and carbon reduction, capacity constraints, and industry consolidation, benefiting leading companies with advantages in cost, scale, resources, and compliance. Short-term data suggest that subsectors need to be differentiated: improving prices for lithium and some steel products, along with a sharp drop in copper inventories, may provide trading or fundamental improvement signals; weekly pullbacks in aluminum, cement, solar glass, and gold, or inventory pressure, call for greater caution. The Attractive industry view provides a relatively positive medium-term framework, but individual stocks still need to be assessed in conjunction with ratings, valuation, prices, and company-specific risks.

Risks

• Policy execution intensity or pace may fall short of market expectations.
• Governance of excess capacity in sectors such as solar may underperform expectations, and anti-involution measures may have limited implementation effects.
• Insufficient macro demand, weakness in the property chain, or weak infrastructure demand may cause continued price pressure on steel, cement, glass, and similar categories.
• Base metal and battery metal prices are highly volatile, and inventory trends may reverse quickly.
• Morgan Stanley may have investment banking, shareholding, or other business relationships with some covered companies, and investors should pay attention to potential conflicts of interest disclosed.
• The report includes reminders related to sanctioned jurisdictions or entities, and investment activities must comply with applicable laws and regulations.

What to watch

• Follow-up macro policy mix from the National Development and Reform Commission, policies to expand domestic demand, and detailed rules for energy saving and carbon reduction.
• Progress in implementing policies on non-fossil energy, new energy storage, and new power systems.
• Anti-involution measures in the solar sector, capacity clearance, and price recovery.
• Changes in copper and aluminum inventories and the SHFE/LME spread.
• The sustainability of rising lithium salt prices and changes in downstream battery demand.
• Steel social inventory destocking, steel mill profits, and demand from real estate and infrastructure.
• Whether prices of cement, float glass, and solar glass continue to decline.
• Rating and price updates for companies covered by Morgan Stanley.