May Materials Data: Aluminum Production Grows Against Trend; Steel, Coal, Glass, and Cement Decline YoY
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May Materials Data: Aluminum Production Grows Against Trend; Steel, Coal, Glass, and Cement Decline YoY
Morgan Stanley reviews China's May industrial data, noting that amid continued weakness in real estate new starts and sales, aluminum production maintained growth due to capacity recovery, while output of steel, cement, coal, and glass all recorded year-on-year declines.
- Aluminum production rose 1.7% YoY in May, with cumulative growth of 3.5% in the first five months, primarily driven by capacity recovery in Liaoning and new capacity in Inner Mongolia.
- Crude steel production fell 2.7% YoY in May, with estimated domestic apparent consumption dropping significantly by 8.5%, mainly impacted by inventory accumulation and slowing net export growth.
- Real estate new starts area fell 24.7% YoY in May, and sales area dropped 14.1%; institutions expect weaker performance in the property market in Q3.
- Coal production fell 1.7% YoY in May but rose 3% MoM; short-term supply is expected to be constrained due to recent mine accidents and tightened safety controls.
- Float glass production fell 6.3% YoY; high inventories and weak demand continue to suppress prices and profit margins.
Report interpretation
Overview
This report is Morgan Stanley's immediate commentary on China's materials sector industrial production data for May 2026. The core conclusion indicates that against the backdrop of sustained pressure on the macroeconomy, particularly the real estate sector, performance across different raw material categories has diverged significantly. Aluminum was the only major material to achieve positive YoY production growth, benefiting from capacity utilization hitting its ceiling and strong industry profitability; meanwhile, production of steel, cement, coal, and glass all recorded YoY declines, reflecting weakness in downstream construction and related industrial demand.
Core views
Continued weakening of demand along the real estate chain is the primary factor dragging down the performance of most materials. In May, real estate new starts area fell 24.7% YoY, a slight narrowing from April but still deeply negative; commercial housing sales area fell 14.1% YoY, and completed area fell 19.6%. Considering fragile resident sentiment, diminishing policy effects, and reduced availability of new homes for sale, institutions expect secondary home sales to turn negative YoY in Q3, with the decline in new home sales widening further. The aluminum sector performed relatively well, standing out as a positive highlight in the May data. Aluminum production reached 3.9 million tons in May, up 1.7% YoY and 0.5% MoM. Cumulative production in the first five months of the year grew 3.5% YoY to 19.2 million tons. This growth was primarily driven by capacity recovery in Liaoning and the commissioning of new capacity in Inner Mongolia. With operating capacity currently near its ceiling and robust industry profitability, institutions expect aluminum production to remain at high levels in the second half of the year. The steel and cement sectors face significant supply-demand pressures. Crude steel production fell 2.7% YoY in May, with a cumulative decline of 3.9% in the first five months. Institutions estimate that domestic apparent steel consumption fell sharply by 8.5% YoY in May, primarily due to noticeable inventory accumulation and a 2 percentage point slowdown in net export growth. Cement production fell 8.1% YoY in May; although the decline narrowed compared to April, this was largely attributable to a low base effect. Cement prices in East China remained weak in early June, affected by insufficient downstream demand, wet weather, and construction suspensions during the college entrance examination period. The coal and glass sectors are also under pressure. Coal production fell 1.7% YoY in May to 397.2 million tons but rose 3% MoM, consistent with seasonal restocking trends before the peak summer electricity season. However, mine accidents in late May and stricter safety control measures in June are expected to constrain domestic coal production release in the short term. Thermal power generation rose 2.1% YoY in May, accounting for 60% of total power generation. Float glass production fell 6.3% YoY in May; despite a MoM rebound, the fundamentals of high inventories and weak demand remain unchanged, and oversupply pressure will continue to suppress glass prices and margins.
Analysis framework
The institution adopted an analytical framework combining typical 'top-down' macro data tracking with 'bottom-up' industry supply-demand decomposition. First, by interpreting monthly Industrial Production (IP) data released by the National Bureau of Statistics, it identified YoY and MoM trends in the production of various bulk commodities. Second, it correlated production data with high-frequency real estate data (such as new starts, sales, and completions) to verify the transmission effect of downstream demand on upstream materials. Finally, combining industry-specific supply-side disturbance factors (such as aluminum's capacity ceiling, tightened safety supervision due to coal mine accidents, and contributions from resumed glass production lines), it projected future volume and price trends.
Methodology notes
Supply-Demand Balance Analysis
The report assesses the prosperity of each material category by comparing production (supply side) with apparent consumption, inventory changes, and downstream operating rates (demand side). For example, it infers that actual consumption demand is weaker than production data based on steel inventory accumulation.
Real Estate-Building Materials Transmission Mechanism
The report focuses on analyzing how the deterioration of new start and sales data in real estate, as the core downstream driver, transmits upstream to industries such as steel, cement, and glass, leading to pressure on production and prices in these sectors.
Key data
- Aluminum Production (May)3.9 million tonsUp 1.7% YoY, up 0.5% MoM
- Crude Steel Production (May)Down 2.7% YoYCumulative decline of 3.9% in first 5 months; estimated apparent consumption down 8.5%
- Cement Production (May)Down 8.1% YoYCumulative decline of 8.6% in first 5 months
- Coal Production (May)397.2 million tonsDown 1.7% YoY, up 3% MoM
- Real Estate New Starts (May)Down 24.7% YoYApril was down 27.1%
- Fixed Asset Investment (FAI) (May)Down 12.5% YoYApril was down 9.4%
Impact & implications
The report believes that the supply rigidity (capacity ceiling) and robust profitability of the aluminum industry provide it with relative defensiveness in a weak macro environment, with production likely to remain high. Conversely, the steel, cement, and glass industries will continue to be suppressed by declining real estate investment and slowing infrastructure growth, with destocking pressure and price competition likely to persist in the second half of the year. The coal sector requires attention to the constraints imposed by safety regulation policies on short-term supply elasticity, which may provide some support to coal prices, though long-term prospects remain subject to energy structure transformation and fluctuations in power demand.
Risks
- Real estate market recovery falling short of expectations, leading to further contraction in building materials demand
- Frequent coal mine safety accidents leading to longer-term production halts and rectifications
- Diminishing effectiveness of macro policy stimulus and sustained low consumer confidence in home purchases
What to watch
- Marginal changes in Q3 real estate sales and new start data
- Capacity utilization rates in the aluminum industry and progress of new capacity commissioning
- Impact of peak summer electricity usage on coal inventories and thermal power generation
- Signals of stabilization and bottoming out in cement and glass prices in East China