China Materials in Q2: Structure Remains, but Macro Noise Drives Trading Rhythm

Overview

This report is HSBC's guided research on China materials in 2Q26, covering aluminium, copper, gold, lithium, paper, steel, cement and glass sectors. The core view is that structural support remains in the industry, especially through nonferrous supply constraints and the longer-term logic from energy, geopolitical risk and AI power demand, which has not been broken. But short-term trading is more affected by dollar liquidity, inflation, interest rate expectations, macro demand and geopolitical disruptions, leading to greater volatility in both prices and stock performance.

Core views

HSBC ranks aluminium as the top pick, arguing that the domestic 45mt capacity policy cap, low overseas inventories, Middle East supply risks, and an expanded LME–SHFE spread limit the downside and keep the structure relatively tight. Copper remains positive, pressured in the near term by macro concerns, but supply disruptions, negative TC/RC, declining mine grades, electrification, and AI-related demand still support repricing. Gold remains constructive over the medium term, with near-term pressure from dollar liquidity and position unwinding, while central bank gold purchases and reserve diversification remain the core long-term narrative. Lithium fundamentals improved since H2 2025, and prices are expected to hold around RMB150k/t, but much of the recovery has already been reflected in equity valuations. Paper has moved from a pricing cycle to demand-led pullback, while steel, cement and glass lack strong demand catalysts and may continue to depend on supply contraction, policy execution, or cost support.

Analysis framework

The report uses a top-down macro and supply-demand framework, combining bottom-up analysis of commodity prices, inventories, utilization rates, capacity constraints, policy restrictions, company valuation, and earnings leverage for industry ranking. The emphasis is not a single price forecast, but rather an assessment of each subindustry's Q2 supply-demand margin, downside price protection, catalyst visibility and stock risk-reward profile.

Methodology notes

• Industry ComparisonSubindustry Preference Ranking

  Compares relative fundamental strength, macro sensitivity, and policy dependence across China materials subindustries.

  Aluminium is the most preferred because of supply rigidity and overseas risks; copper, gold and lithium have structural support but face near-term macro or valuation pressure; paper, steel, cement and glass are weaker due to demand shortfall and inventory pressure.

• Commodity Supply-DemandInventory, Capacity and Price Spread Analysis

  Uses inventory levels, utilization rates, capacity caps, TC/RC and the LME–SHFE spread to gauge margin tightness.

  Aluminium's LME–SHFE spread above RMB3,000/t, copper TC around negative USD69/t, and low lithium inventories with supply disruptions are all used as evidence of tight supply conditions or price support.

• Macro SensitivitySeparating Macro Noise from Structural Trends

  Distinguishes short-term volatility driven by the dollar, interest rates, inflation and risk appetite from medium-to-long-term changes in supply constraints and demand structure.

  The report sees copper and gold facing near-term macro headwinds, but the directional case is still anchored in structural factors such as supply constraints, dedollarization, electrification and AI power demand.

Asset mapping & comparison

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

• Aluminium

  The preferred subindustry, with a constructive allocation tilt.

  Strengths

  Domestic capacity is constrained by a 45mt policy cap, overseas inventories are low, and Middle East supply risks plus rising energy costs and freight support stronger physical and geopolitical premiums.

  Weaknesses

  Short-term domestic inventory accumulation may limit further upside in SHFE aluminium prices.

  Comparison

  Among China materials subindustries, aluminium is viewed as fundamentally strongest and is prioritized above copper, gold, lithium and the black construction materials chain.

  Risks

  If domestic inventory drawdown is slower than expected, overseas supply recovers faster than expected, or the spread narrows, price catalysts may be delayed.

• Copper

  Structurally positive, but under short-term macro pressure.

  Strengths

  Inventory drawdowns are starting, TC/RC is negative, mine disruptions and a downward revision to Kamoa guidance reinforce supply constraints, while electrification and AI power demand provide long-term demand support.

  Weaknesses

  Near-term equities are pressured by commodity price pullbacks, capital rotation, a stronger dollar and weakening GDP expectations.

  Comparison

  Compared with aluminium, copper is more sensitive to macro expectations, but tight supply and new demand momentum still provide medium-term repricing potential.

  Risks

  Demand uncertainty, changes in interest-rate expectations, a stronger dollar, sulfur shortages, or uncertainty around mine disruptions could amplify volatility.

• Gold

  Constructive over the medium term, highly volatile in the near term.

  Strengths

  Dedollarization, reserve diversification by central banks, and possible easing expectations support long-term gold prices.

  Weaknesses

  Short-term performance is pressured by tighter dollar liquidity, leveraged position unwinds, and some countries stabilizing their currencies through gold sales.

  Comparison

  Gold equities are more volatile than spot gold, potentially requiring a longer period to base.

  Risks

  If dollar liquidity remains tight, real yields rise, or risk appetite improves, gold and gold stocks may remain under pressure.

• Lithium

  Constructive but much of the upside is already priced into shares.

  Strengths

  Low inventories, strong ESS demand, Zimbabwe export restrictions and downstream output recovery support prices; Ganfeng Lithium has execution, cost and self-sufficiency advantages.

  Weaknesses

  The market is highly sensitive to policy headlines and marginal supply-demand changes, and much of the recovery thesis is already reflected.

  Comparison

  Lithium fundamentals are clearly improving, but risk-reward is not as asymmetric as aluminium’s low-expectation, strong supply constraint setup.

  Risks

  Restoration of Zimbabwe exports, insufficient visibility on EV demand, and changes in inventory or lithium concentrate-to-chemicals spread may shift price expectations.

• Paper

  Moved to neutral, with limited near-term catalysts.

  Strengths

  Easing pulp-cost pressure provides some support to margins.

  Weaknesses

  Weak demand, weaker export orders, and steady pulp mill operations keep supply ample; pricing power has shifted from the sell side to the buy side.

  Comparison

  Compared with nonferrous metals, paper lacks structural supply constraints and strong demand catalysts.

  Risks

  Persistent seasonal demand softness, slow inventory liquidation, and intensifying price competition may continue to suppress profitability.

• Steel

  Neutral and policy-dependent, with near-term range-bound fluctuation.

  Strengths

  Raw material cost and export resilience provide some floor for steel prices, while anti-overcapacity and carbon-emissions policy may induce medium-term supply contraction.

  Weaknesses

  Supply recovery is faster than demand, real estate demand remains lagging, and the industry faces persistent excess capacity and margin compression.

  Comparison

  Steel depends more on policy and cost support than nonferrous metals, and the demand side has yet to establish a clear inflection.

  Risks

  Rapid output growth in April, seasonal demand peaking, and insufficient easing in real estate financing and utilization could bring prices back under pressure.

• Cement

  Neutral and policy-dependent, with little near-term catalyst.

  Strengths

  Infrastructure demand is relatively more resilient than property demand, and prices could stabilize if supply-side policy tightens or execution improves.

  Weaknesses

  Deliveries remain below last year, property demand remains weak, inventories are high, and demand-shifting production is unlikely to sustain price support.

  Comparison

  Similar to steel, cement's key drivers are policy and supply discipline rather than an organic demand rebound.

  Risks

  Seasonal pressure in May–June from agricultural demand and rains, and continued price declines if policy does not materially strengthen.

• Glass

  Weak but downside is partly constrained by costs and losses.

  Strengths

  Higher energy prices provide some cost support, and industry losses may trigger more cold shutdowns and constrain supply.

  Weaknesses

  Downstream demand remains weak, chain inventories are high, and supply contraction is limited and fragmented, with prices making fresh cycle lows.

  Comparison

  Glass is more directly dragged down than cement and steel by high inventories and property-chain demand weakness.

  Risks

  If demand fails to improve and energy costs do not stay elevated, prices may continue to oscillate at low levels.

Key data

• Report Date2026-04-14The issuer is The Hongkong and Shanghai Banking Corporation Limited.
• Expected Aluminium Price RangeRMB24,000–25,000/tHSBC expects 2Q26 SHFE aluminium prices to be capped upward by domestic inventory constraints, while overseas prices and spreads provide downside support.
• LME–SHFE Aluminium Spread>RMB3,000/tWidening spread could stimulate arbitrage exports and help tighten the domestic supply-demand balance.
• China Aluminium Industry EarningsSmelting profits above RMB8,000/tBy end-March, profits remained strong and operating rates were close to the 45mt policy cap.
• Copper Price Level>USD12,000/tDespite Middle East and macro disruptions, copper remains materially above the 2025 average of USD9,941/t.
• Copper Concentrate TCabout negative USD69/tWorsening TC/RC indicates tight supply of copper concentrates.
• Kamoa-Kakula 2026 Production Guidance290–330ktPreviously 380–420kt, cut due to geological and dewatering issues.
• Gold Priceabout USD4,800/ozNear the 1Q26 average of USD4,897/oz, but with elevated short-term volatility.
• PBOC Gold PurchasesAdded 5t in March 2026Marked the 17th consecutive month of buying gold, supporting the long-term reserve diversification narrative.
• Lithium Price Outlookabout RMB150k/tLow inventories, stronger downstream production scheduling in April-May, and Zimbabwe ore shipment disruptions support near-term prices.
• Impact of Zimbabwe Export Restrictionsabout 40kt LCEHSBC estimates potential global lithium supply could be reduced by about 40kt LCE in 2026.
• Lithium Demand Growth19% year-on-year in 2026, CAGR 13% to 2030Primarily driven by fast-growing ESS demand.
• Steel OutputHot metal output about 2.4mt per dayIn April, supply recovery outpaced demand growth, which could reintroduce supply pressure.
• Glass Outputabout 140kt/dayBelow 151kt/day at year-end 2025, with inventories still high and demand weak.
• Key Covered Stock RatingsMostly BuyThe table shows China Hongqiao, Chalco-H/A, Zijin Mining-H/A, CMOC-H/A, China Nonferrous, Zijin Gold and Ganfeng Lithium-H/A as Buy.

Impact & implications

The investment implication is to position selectively within China materials rather than simply betting on a broad cyclical recovery. Categories with supply constraints, resilient cost curves and low global inventories have more downside defense and upside elasticity, especially aluminium. Copper and gold retain medium-term appeal, but entry timing should account for macro volatility. A significant part of lithium’s fundamental improvement is already reflected in share prices, so monitor policy and supply-demand marginal shifts closely. In the construction materials chain, waiting for policy execution, supply contraction, or demand improvement signals appears more appropriate in the near term.

Risks

• Macroeconomic uncertainty may continue to suppress valuations of cyclicals and materials shares, including a stronger dollar, rising inflation, delayed easing expectations, and weaker GDP outlook.
• Geopolitical conflict may either lift energy and transport costs or, through shifts in dollar liquidity and risk appetite, trigger sharp commodity price swings.
• If Chinese real estate and traditional infrastructure demand are weaker than expected, steel, cement, glass and some industrial metals demand will remain burdened.
• If supply-side policies are not implemented as expected, oversupply conditions in steel, cement and glass may not improve.
• Policy and export-restriction shifts in lithium, inventory margin changes, and EV demand uncertainty could quickly alter price expectations.
• Gold may continue to be pressured in the near term by leveraged position unwinds, tighter dollar liquidity, and gold sales by some countries.

What to watch

• When domestic aluminium inventories begin to draw down, and whether the LME–SHFE spread stays high enough to sustain arbitrage exports.
• Copper inventories, TC/RC, mine disruptions and Kamoa-Kakula output execution.
• The impact of dollar liquidity, real yields, oil prices and PBOC gold-purchase data on gold prices and gold-stock valuations.
• Execution of Zimbabwe lithium export quotas, the scale of global lithium supply reduction, and visibility on ESS output scheduling and EV demand.
• The actual pace of policy execution on steel anti-overcapacity, capacity replacement, environmental upgrades and expansion of the national carbon market.
• Cement load-shifting production, inventories, shipments, and updates to supply-side policy.
• Scale of glass cold shutdowns, inventory drawdown, real estate completion demand, and energy cost movements.
• Whether target prices, earnings forecasts and ratings change for core coverage names such as China Hongqiao, Chalco-H/A, Zijin Mining-H/A, CMOC-H/A, China Nonferrous, Zijin Gold and Ganfeng Lithium-H/A.