Demand remains weak but supply constraints support prices, with significant divergence within China’s basic materials sector

Overview

Using a monthly channel survey, high-frequency data, and industry supply-demand indicators, the report assesses changes in orders, inventories, prices, and profits for China’s basic materials sector in August 2026. Its core conclusion is that end-market demand improved only modestly in line with normal seasonality, while construction and parts of the export chain remained weak. However, supply constraints kept copper, aluminum, and coal prices or profits relatively resilient, while steel, cement, and some packaging demand remained under pressure.

Core views

Overall orders improved only modestly and did not yet indicate a broad-based recovery in demand. Goldman Sachs surveyed more than 60 industry contacts. As of mid-August, 42% of respondents expected end-market orders to improve month over month, up from 27% in July; the proportion expecting a month-over-month decline rose from 36% to 38%. For basic-materials orders, 35% expected improvement, up from 27% in July, but 45% still expected a decline, slightly below July’s 48%. Among all respondents, 7% viewed conditions as stronger than normal seasonality, 59% as in line with normal seasonality, and 35% as weaker than normal seasonality, with the latter concentrated mainly in steel and metals processing. Seasonal changes in automotive activity were the main driver of the order recovery, while machinery, energy storage, and power-related sectors were stronger; construction, aluminum semi-finished product exports, and manufactured-goods exports as reflected in paper-packaging orders continued to weaken. The construction chain remained the most evident drag. High-frequency data for the first half of August showed that cement and construction steel demand was 5% to 10% lower year over year, while copper and flat steel demand was 1% to 2% lower. Infrastructure fixed-asset investment excluding hydroelectric power supply declined 3.6% year over year in the first seven months of 2026, implying an 11.4% decline in July; the construction project commencement rate also weakened month over month in August. The report specifically noted that the lack of new infrastructure project starts and preparatory work appeared unusually quiet at the beginning of a new Five-Year Plan. In property, residential floor area sold declined 12.7% year over year in the first seven months and 15.1% in July; new starts declined 24.0% in the first seven months and 27.8% in July; floor area under construction as of July decreased 12.7% year over year to 812 million square meters; completed floor area declined 23.2% in the first seven months and 20.0% in July. Together, these data explain the persistent weakness in demand for steel, cement, and related construction materials. Manufacturing demand showed a pattern of weakness in traditional sectors and divergent strength in advanced manufacturing. White-goods output rose 0.7% year over year in the first half of 2026 but declined 2.3% in June; air-conditioner output fell 0.6% in the first half and 3.3% in June; automobile output declined 3.4% in the first seven months and 0.1% in July. By contrast, machine-tool output rose 7.3% in the first half and 15.8% in June; new-energy vehicle output increased 9.8% in the first seven months and 26.8% in July; power-battery and energy-storage battery output increased 54.8% in the first seven months and 62.9% in July. However, new photovoltaic installations fell 66.0% in the first half and 13.1% in June, while power-grid investment rose 4.0% in the first half but fell 17.6% in June, indicating similarly pronounced divergence within the new-energy and power chains. Inventories generally declined, but some segments remained above normal levels. The survey covered raw-material and finished-goods inventories held by producers across the industry chain and used seasonally adjusted normal levels as the benchmark. Steel, aluminum, coal, paper, and overall downstream manufactured-goods inventories were above normal; iron ore, metallurgical coal, alumina, copper, and construction-material inventories were at normal levels; and old corrugated container inventories were below normal. The net proportion of respondents reporting steel inventories above normal was 11% and stable; the net proportion for aluminum was 10% but declining, coal was 17% and declining, and overall downstream manufactured goods was 26% and declining. The net proportion reporting containerboard inventories above normal reached 50% and continued to rise, while the net proportion reporting old corrugated container inventories below normal was 100% and continued to decline, reflecting an imbalance between finished packaging demand and raw-material inventories. The copper market reflected a combination of “weak demand, tight scrap, and high prices.” Orders at major processors declined month over month and were weaker than normal seasonality, while August end-use copper demand was estimated to have declined 1.4% year over year and 1.7% month over month. Demand from traditional internal-combustion-engine vehicles, photovoltaics, and home appliances weakened further, and major cable producers said power-grid orders were largely absent; demand from energy storage, data centers, and electric vehicles was relatively resilient. Despite copper prices reaching new highs, downstream acceptance was better than in the past. The report attributed this to the relatively gradual price increase and the rise in downstream acceptable price levels from RMB70,000-80,000 per tonne a year ago to approximately RMB100,000. On the supply side, following regulators’ crackdown on noncompliant copper scrap invoices, domestic copper scrap supply and smelter inventories became tighter. The scrap feed ratio fell from 18% in June to 15% in July, delaying the restart of some smelters after maintenance. As of August 14, combined copper inventories at Chinese exchanges, bonded warehouses, and in the social market declined by 21,000 tonnes month over month, less than the historical seasonal decline of 51,000 tonnes. The spot premium turned into a discount of RMB130 per tonne, while copper concentrate treatment charges fell by another US$43 month over month to negative US$175 per tonne. Including sulfuric acid revenue, the report estimated treatment charges remained negative at US$0.07 per pound, indicating continued pressure on smelters. Aluminum orders were mixed, but inventory drawdowns and exports absorbing supply improved profitability. Processor orders were broadly in line with normal seasonality, with improving orders from energy storage, automotive, and photovoltaics, weakening demand from home appliances and power grids, and a further slowdown in aluminum semi-finished product export orders in August. The report estimated that domestic apparent aluminum demand in June declined 0.5% year over year and was flat month over month after excluding semi-finished and finished-product exports and adjusting for inventories. Higher net aluminum exports in the second quarter and July were equivalent to an annualized increase of 2.8 million tonnes, supporting market balance. As of mid-August, Chinese aluminum inventories declined by 125,000 tonnes month over month, broadly in line with historical seasonality; annualized primary aluminum output reached 45.9 million tonnes in July, up 3.8% year over year. Goldman Sachs estimated the Shanghai Futures Exchange aluminum spread at RMB8,650 per tonne, up 9% month over month; however, marginal alumina producers’ unit cash profit remained negative at RMB170 per tonne, highlighting divergent profitability trends between aluminum and alumina. The lithium market still had a near-term supply deficit, but inventories and recovering supply limited the duration of tightness. Cathode-material demand improved in July, and SMM expected cathode output to rise 5% month over month and 69% year over year in August. Battery and cathode-material companies reported orders stronger than normal seasonality, with some demand brought forward due to the cancellation of value-added tax rebates on battery exports. However, some energy-storage integrators said domestic and export orders were below expectations. Goldman Sachs estimated that China’s lithium market had a supply deficit of approximately 20% as of July, above the 6% to 15% range from May to June, but the deficit could ease from August to September as supply disruptions in Zimbabwe recover. China’s year-to-date cathode-material output was already 19% above demand inferred from downstream requirements, while battery inventories remained above normal levels, with the estimated net inventory increase during the year equivalent to 355,000 tonnes of lithium carbonate equivalent. As of August 14, Chinese spot lithium carbonate prices were broadly flat month over month, while Guangzhou futures prices rose 3% month over month; owing to lower spodumene prices, both China’s lithium carbonate spread and Asia’s delivered lithium hydroxide spread improved month over month. Steel was the primary segment where demand and profitability continued to weaken. Most steel mills reported that August forward orders declined month over month and were weaker than normal seasonality; as of the second week of August, construction steel demand was down 5.2% year over year and flat steel demand was down 1.9%. Construction demand weakened further, while automotive and home-appliance demand also provided no evident support. Steel exports remained high, but the EU Carbon Border Adjustment Mechanism certification process created substantial uncertainty regarding future costs and orders. Steel mills believed recent cost increases remained moderate and far below the theoretical maximum tax burden, but the final outcome depends on verification. Steel mills’ order backlogs shortened month over month to only 10 days to one month. Most mills planned to maintain stable production in August. As of August 14, finished-steel inventories at mills were 4.4 million tonnes, down 2% month over month. Gross profit per tonne on domestic sales declined from RMB40-170 in July to RMB20-60, while export gross profit per tonne fell from RMB110-230 to RMB80-160, indicating further weakness in both prices and margins. Steelmaking raw materials also showed internal divergence. In early August, average daily iron ore port withdrawals were 3.08 million tonnes; in the week ended August 14, daily pig iron output was 2.4 million tonnes, down 1.0% year over year but up 0.4% month over month. Steel mills viewed the iron ore market as oversupplied, while coke and metallurgical coal supply remained tight. Steel mills’ iron ore and metallurgical coal inventories were mostly low, or at normal levels from the mills’ perspective. Traders’ transaction volumes were flat to lower month over month, and some steel mills expected iron ore procurement discounts to widen as CMRG’s influence increased; traders’ price expectations remained at US$90-110 per tonne. Domestic pulverized coal injection prices were flat to down RMB100 per tonne month over month. Other segments continued to follow the same supply-demand divergence. Coal safety regulation continued to constrain output, with 100% of coal respondents expecting August orders to improve month over month, unchanged from July, while coal prices or margins also improved. Cement was weighed down by extremely quiet infrastructure projects and declining construction demand, with prices and profits continuing to weaken. Paper-packaging orders reflected a weaker outlook for manufactured-goods exports, while finished containerboard inventories were high and rising. Overall, the report did not view the seasonal recovery in August orders as a broad-based recovery, instead emphasizing that supply constraints were temporarily supporting certain commodity prices and that industry profitability would continue to depend on each segment’s inventories, exports, raw-material supply, and downstream mix.

Analysis framework

The report first uses a proprietary monthly survey of more than 60 industry contacts to assess forward orders and inventories held by producers and end users, then cross-checks demand using high-frequency data on fixed-asset investment, property, manufacturing output, trade, installations, and transportation. It subsequently analyzes orders and demand drivers, supply and inventories, and prices and profits across copper, aluminum, lithium, steel, and steelmaking raw materials, before mapping the conclusions to covered stocks using peer valuation comparisons and a 12-month target-price horizon.

Methodology notes

• (Out-of-vocabulary method)

  Monthly channel survey of more than 60 industry contacts

  The report aggregates feedback from producers, processors, end-market manufacturers, developers, traders, and industry associations to assess the month-over-month direction of future orders, the strength of seasonality, and inventory positions across the industry chain.

• (Out-of-vocabulary method)

  Cross-validation using high-frequency industry data

  The report compares survey results with high-frequency data on infrastructure, property, manufacturing output, inventories, trade, and prices to distinguish subjective order feedback from actual changes in demand.

• Industry/Sector Analysis FrameworkSupply-demand framework

  Commodity supply-demand balance analysis

  The report places end-market demand, output, imports and exports, scrap supply, and inventory changes within a single framework to explain why supply constraints can still support certain commodity prices amid weak demand.

• Industry/Sector Analysis FrameworkUpstream-Midstream-Downstream Industry Chain Transmission

  Transmission from raw materials to processed products and end-market industries

  The report tracks inventory, cost, and order transmission between copper scrap and smelting; aluminum and alumina; lithium ore and cathode materials; steelmaking raw materials and steel; and paper-packaging raw materials and finished products.

• Industry/Sector Analysis FrameworkVolume-price decomposition

  Decomposition of demand volume, commodity prices, and unit profits

  The report separately examines demand growth, inventory drawdowns, spot or futures prices, processing charges, and profit per tonne to avoid directly equating price increases with stronger demand.

• Event Games and Behavioral FinanceEvent-driven analysis

  Impact of regulatory and policy events on supply and demand

  The report analyzes how events such as coal-mine safety enforcement, the crackdown on copper scrap invoices, EU CBAM certification, and the cancellation of value-added tax rebates on battery exports alter supply, orders, costs, or the timing of demand.

• Valuation Method

  Peer valuation comparison and 12-month target-price horizon

  The report presents valuation peers for each basic-materials subsector and consistently uses a 12-month horizon for target prices on covered stocks; the input does not provide sufficient information to confirm the specific valuation model used for each stock.

Asset mapping & comparison

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

• Copper

  Demand declined both year over year and month over month, but tight copper scrap supply, smelting constraints, and greater downstream price acceptance supported copper prices.

  Strengths

  Demand from energy storage, data centers, and electric vehicles remained resilient, while inventories of non-cable copper products were low.

  Weaknesses

  Orders from internal-combustion-engine vehicles, photovoltaics, home appliances, power grids, and some indirect exports weakened, while the domestic spot premium turned negative.

  Comparison

  Price and profit performance was better than for steel and cement, but smelting treatment charges were negative, so benefits were uneven across the industry chain.

  Risks

  Further weakening of end-market demand amid high copper prices and persistently elevated cable finished-goods inventories.

• Aluminum and alumina

  Domestic demand was nearly flat, and normal inventory drawdowns and higher net exports supported the aluminum spread, but marginal alumina producers remained loss-making.

  Strengths

  Orders from energy storage, automotive, and photovoltaics improved; the aluminum spread rose 9% month over month.

  Weaknesses

  Orders from home appliances, power grids, and semi-finished product exports weakened.

  Comparison

  Aluminum’s profit trend was better than alumina’s, with the latter’s unit cash profit estimated at negative RMB170 per tonne.

  Risks

  A continued slowdown in export orders or primary aluminum output growth could weaken inventory drawdowns.

• Lithium

  The July supply deficit and increased cathode-material production supported the near-term market, but high inventories and recovering supply may ease tightness.

  Strengths

  Cathode-material orders were stronger than seasonal norms, August output was expected to rise 5% month over month and 69% year over year, and lithium chemical spreads improved month over month.

  Weaknesses

  Some energy-storage orders were below expectations, cathode output was 19% above inferred demand, and battery inventories were above normal levels.

  Comparison

  Spot lithium carbonate prices were broadly stable month over month, while Guangzhou futures prices rose 3%.

  Risks

  Recovering supply from Zimbabwe could narrow China’s market deficit from August to September.

• Steel

  Weak construction, automotive, and home-appliance demand caused orders, prices, and gross profit per tonne to continue declining.

  Strengths

  Exports remained high, while finished-steel inventories at mills declined 2% month over month.

  Weaknesses

  Order backlogs shortened to 10 days to one month, while construction steel and flat steel demand declined 5.2% and 1.9% year over year, respectively.

  Comparison

  Price and profit trends were weaker than for copper, aluminum, and coal.

  Risks

  EU CBAM certification results and actual costs could affect subsequent steel exports.

• Iron ore, coke, and metallurgical coal

  Steel mills viewed iron ore as oversupplied, while coke and metallurgical coal supply remained tight.

  Strengths

  Steel mills’ iron ore and metallurgical coal inventories were at low or normal levels.

  Weaknesses

  Traders’ transaction volumes were flat to lower month over month, while iron ore procurement discounts could widen.

  Comparison

  Iron ore supply-demand conditions were weaker than for coke and metallurgical coal, which remained supported by tight supply.

  Risks

  Persistent weakness in steel demand could further suppress iron ore procurement and prices.

• Coal, cement, and paper packaging

  Coal received price support as safety regulation constrained output; cement was weighed down by sluggish infrastructure demand; paper packaging reflected weakening export orders.

  Strengths

  In the coal order survey, 100% of respondents expected month-over-month improvement, while coal inventories, though above normal, were declining.

  Weaknesses

  Cement demand declined year over year, while containerboard inventories were above normal and continued to rise.

  Comparison

  Coal price and profit trends improved, while cement continued to weaken and the outlook for paper-packaging export demand remained weak.

  Risks

  Persistently sluggish infrastructure project starts and a further decline in manufactured-goods export orders.

Key data

• Proportion expecting August end-market orders to improve month over month42%27% in July; as of mid-August 2026
• Proportion expecting August basic-materials orders to improve month over month35%27% in July, but 45% of respondents still expected a month-over-month decline
• Seasonal distribution of ordersStronger than normal 7%／Normal 59%／Weaker than normal 35%Those reporting weaker-than-normal conditions were concentrated mainly in steel and metals processing
• Construction-related demand in the first half of AugustDown 5%-10% year over yearApplies to cement and construction steel
• Copper and flat steel demand in the first half of AugustDown 1%-2% year over yearEstimate based on high-frequency data
• Infrastructure fixed-asset investmentDown 3.6% year over year in the first seven months of 2026Excluding hydroelectric power supply; July estimated to be down 11.4% year over year
• Residential floor area soldDown 12.7% year over year in the first seven monthsDown 15.1% year over year in July 2026
• Residential new-start floor areaDown 24.0% year over year in the first seven monthsDown 27.8% year over year in July 2026
• New-energy vehicle outputUp 9.8% year over year in the first seven monthsUp 26.8% year over year in July 2026
• Power and energy-storage battery outputUp 54.8% year over year in the first seven monthsUp 62.9% year over year in July 2026
• End-use copper demandDown 1.4% year over year and 1.7% month over monthEstimate based on industry processing data for August 2026
• Change in China’s copper inventoriesDown 21,000 tonnes month over monthAs of August 14; the historical seasonal decline was 51,000 tonnes
• Copper concentrate treatment chargesNegative US$175/tonneDown US$43/tonne month over month; estimated at negative US$0.07/pound after including sulfuric acid revenue
• Change in China’s aluminum inventoriesDown 125,000 tonnes month over monthAs of mid-August, broadly in line with historical seasonality
• Annualized primary aluminum output45.9 million tonnesJuly 2026, up 3.8% year over year
• Shanghai aluminum spreadRMB8,650/tonneGoldman Sachs estimate, up 9% month over month
• China’s lithium market supply deficit20%As of July 2026; 6%-15% from May to June
• Net increase in battery inventories355,000 tonnes of lithium carbonate equivalentGoldman Sachs estimate for 2026 year to date
• Steel demandConstruction steel down 5.2% year over year, flat steel down 1.9%As of the second week of August 2026
• Finished-steel inventories at mills4.4 million tonnesAs of August 14, down 2% month over month
• Steel gross profit per tonneDomestic sales RMB20-60／Exports RMB80-160RMB40-170 and RMB110-230, respectively, in July
• Iron ore traders’ price expectationsUS$90-110/tonneAgainst a backdrop of perceived oversupply in iron ore

Impact & implications

The report believes that seasonal improvement in demand is insufficient to eliminate weakness in the construction and export chains, meaning basic-material prices and profitability will not move in tandem. Tight copper scrap supply, aluminum exports, and coal safety regulation relatively benefit copper, aluminum, and coal; steel and cement are weighed down by construction demand, while paper packaging reflects weakening export orders. The near-term lithium supply deficit supports the market, but recovering supply and high battery inventories mean the deficit may ease from August to September.

Risks

• The final verification results and actual costs of the EU CBAM remain uncertain and could alter Chinese steel export orders and profits.
• As supply disruptions in Zimbabwe recover, China’s lithium market supply deficit could ease from August to September 2026, while battery inventories remain above normal levels.

What to watch

• Whether the proportions reporting improvement in end-market and basic-materials orders in the monthly channel survey can exceed normal seasonality.
• Whether new infrastructure project starts and preparatory work emerge at the beginning of the new Five-Year Plan.
• Whether export orders for aluminum semi-finished products, manufactured goods, and paper packaging continue to weaken.
• Changes in copper scrap supply, smelter restarts following maintenance, copper inventories, and negative treatment charges.
• EU CBAM certification and verification and steel mills’ actual export costs.
• Recovery in lithium supply from Zimbabwe, China’s lithium market balance from August to September, and battery inventories.
• The continued impact of coal-mine safety regulation on coal output, inventories, and prices.