Greater China Materials Weekly: Carbon Peaking Goals Drive Industrial Restructuring

Overview

This report is Morgan Stanley's Asia Pacific weekly monitor on the Greater China materials sector, themed "Carbon Peaking Goals Stimulate Industrial Restructuring." The report combines policy changes, carbon reduction targets, energy mix adjustments, anti-involution in solar, and changes in major commodity prices and inventories to assess short-term trading signals and medium-term structural trends in the materials sector.

Core views

The core view is that policy emphasis on energy conservation and carbon reduction, non-fossil energy, new energy storage, new power systems, and capacity governance will drive the materials sector away from pure capacity expansion toward structural optimization. The industry view remains "Attractive," but weekly commodity performance is clearly differentiated: copper and steel prices are relatively firm and some inventories have declined, while lithium battery material prices continue to rebound; gold, cement, and solar glass are under pressure, and rising aluminum inventories indicate supply-demand conditions still need to be monitored.

Analysis framework

The report adopts a top-down approach combining policy tracking with bottom-up analysis of commodity prices, inventories, margins, and the company coverage list. The policy section focuses on the NDRC, energy conservation and carbon reduction targets, the peaking of coal consumption, and anti-involution measures; the market section uses Bloomberg, FactSet, Mysteel, CCTD, Digital Cement, UM Paper, SCI, and Morgan Stanley research data to compare steel, nonferrous metals, precious metals, lithium battery materials, coal, cement, and glass on a weekly, monthly, yearly, and year-to-date basis.

Methodology notes

• Policy and industry cycleCarbon peaking and energy conservation/carbon reduction policy tracking

  By tracking policy targets such as carbon emissions intensity, the share of non-fossil energy, the peaking of coal consumption, new energy storage, and new power systems, the direction of structural adjustment in the materials sector can be assessed.

  Policy targets may affect supply constraints, demand structure, and profit differentiation in steel, nonferrous metals, coal, solar glass, and battery metals.

• Commodity market monitoringWeekly snapshot of prices and inventories

  Weekly, monthly, yearly, and year-to-date comparisons are made for spot prices, inventories, and margin indicators of major commodities.

  Rising prices combined with falling inventories usually point to short-term supply-demand improvement; falling prices or inventory accumulation suggest weak demand, supply pressure, or insufficient destocking.

• Industry rating frameworkMorgan Stanley Industry View

  Attractive indicates that analysts expect the industry coverage universe to deliver attractive performance relative to the relevant broad market benchmark over the next 12 to 18 months.

  This view is an industry-level judgment and is not equivalent to a buy, hold, or sell recommendation for an individual stock.

Asset mapping & comparison

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

• Steel

  Affected jointly by macro domestic demand, the infrastructure and property chain, energy conservation and carbon reduction, and the inventory cycle.

  Strengths

  Prices of hot-rolled coil, cold-rolled coil, rebar, and billet all rose slightly, while inventories of long and flat products declined.

  Weaknesses

  On a yearly basis, prices of some steel products remain weak, and the industry still faces uncertainty around demand elasticity and capacity constraints.

  Comparison

  Compared with cement, steel showed a more positive combination of price and inventory this week.

  Risks

  If the domestic demand recovery is insufficient or environmental production cuts are unevenly enforced, margin improvement may be difficult to sustain.

• Copper

  Affected by grid investment, new energy, electrification, and inventory changes.

  Strengths

  Shanghai copper rose 0.6%, and SHFE copper inventories fell 24.4% week over week, indicating short-term supply-demand improvement.

  Weaknesses

  Prices have already been heavily influenced by macro factors and US dollar liquidity, with relatively high volatility.

  Comparison

  Compared with aluminum, copper's inventory trend is more favorable.

  Risks

  Global growth expectations, US dollar rates, and weaker-than-expected recovery in Chinese demand could weigh on prices.

• Aluminum

  Related to power costs, industrial demand, the property chain, and new energy demand for aluminum.

  Strengths

  Aluminum prices still show relatively strong performance on a yearly and year-to-date basis.

  Weaknesses

  This week, Shanghai aluminum prices fell 1.6% and inventories increased 1.3%.

  Comparison

  Compared with copper, aluminum's weekly price and inventory signals are weaker.

  Risks

  Continued inventory accumulation, supply releases, or weaker downstream demand may create price pressure.

• Lithium battery materials

  Affected by new energy vehicles, energy storage, supply-demand rebalancing, and the price cycle.

  Strengths

  Industrial-grade and battery-grade prices of both lithium hydroxide and lithium carbonate posted weekly gains.

  Weaknesses

  The industry previously experienced sharp volatility, and the sustainability of the price rebound still needs to be verified.

  Comparison

  Compared with cement and solar glass, lithium battery materials have stronger short-term price momentum.

  Risks

  New supply releases, weaker-than-expected end demand, or slower inventory rebuilding could weaken the rebound.

• Solar glass and the photovoltaic chain

  Directly related to solar installation demand, overcapacity governance, and anti-involution policies.

  Strengths

  At the policy level, the industry is explicitly required to coordinate in addressing excess capacity and advancing anti-involution.

  Weaknesses

  This week, 3.2mm solar glass prices fell 3.2%, with large declines year over year and year to date.

  Comparison

  Compared with float glass, solar glass price performance is weaker.

  Risks

  If capacity exits more slowly than demand recovery, prices and profitability may remain under pressure.

• Coal

  Affected by energy security, coal consumption peaking targets, and power demand.

  Strengths

  Qinhuangdao 5500 kcal prices rose slightly by 0.1%, indicating stable short-term pricing.

  Weaknesses

  Inventories increased 1.4%, and long-term policy targets call for coal consumption to peak.

  Comparison

  Compared with assets linked to non-fossil energy, coal faces more visible medium- to long-term policy constraints.

  Risks

  Seasonal demand, inventory accumulation, and energy transition policies may limit valuation expansion.

• Cement

  Related to property, infrastructure, regional supply-demand conditions, and staggered production.

  Strengths

  The price level can still serve as an indicator for observing demand recovery.

  Weaknesses

  National cement prices fell 1.8% this week to Rmb320/t, with weak monthly, yearly, and year-to-date performance.

  Comparison

  Compared with steel, cement lacks clearer weekly improvement signals.

  Risks

  Weakness in the property chain, regional competition, and inventory pressure may drag on profitability.

• Gold

  Affected by safe-haven demand, real rates, the US dollar, and inflation expectations.

  Strengths

  It still shows substantial gains on a yearly basis.

  Weaknesses

  This week, prices fell 2.8% to US$4,694/oz.

  Comparison

  Compared with industrial metals, gold is driven more by macro-financial factors than by industrial demand.

  Risks

  If real rates rise or safe-haven demand cools, gold prices may continue to correct.

Key data

• Industry viewAttractiveThe Greater China materials industry view is Attractive, with a typical time horizon of 12 to 18 months.
• Carbon reduction targetCarbon emissions intensity to decline by more than 65% from the 2005 level before 2030The report mentions that China released related measures, while also emphasizing non-fossil energy and the peaking of coal consumption.
• Non-fossil energy share target25%The target is to increase non-fossil energy consumption to 25% of the total.
• Coal consumption targetPeak by 2030The policy target requires coal consumption to peak around 2030.
• Shanghai copper+0.6% WoW；inventory -24.4% WoWCopper prices rose slightly, while inventories declined significantly.
• Shanghai aluminum-1.6% WoW；inventory +1.3% WoWAluminum prices pulled back and inventories increased, so short-term supply-demand pressure still needs to be monitored.
• Lithium salt pricesLithium hydroxide +3.0%/+2.8% WoW；lithium carbonate +3.4%/+3.3% WoWBoth industrial-grade and battery-grade products posted weekly gains.
• GoldUS$4,694/oz；-2.8% WoWPrecious metal prices retreated this week.
• SteelShanghai HRC +1.5%, CRC +0.7%, rebar +0.2%, Tangshan billet +1.3% WoWTrader inventories of long products and flat products fell 4.2% and 2.3%, respectively.
• CementRmb320/t；-1.8% WoWAs of April 24, national cement prices declined.
• Qinhuangdao 5500 kcal coal priceRmb701/t；+0.1% WoWPort inventories rose to 5.78mnt, up 1.4% week over week.
• GlassFloat glass +1.5% WoW；solar glass 3.2mm tempered price -3.2% WoWAverage price of 2400tex fiberglass was flat, while photovoltaic glass remained under pressure.

Impact & implications

In terms of investment implications, the policy theme is more favorable for leading companies with advantages in cost, technology, scale, and compliance, and may drive the exit of excess capacity and a rise in industry concentration. For short-term trading, copper and steel with declining inventories and lithium battery materials with rebounding prices are worth watching; however, rising aluminum inventories, declining solar glass, weak cement, and a pullback in precious metals show that the sector is not moving up across the board, so positioning needs to incorporate supply-demand data, policy execution strength, and the quality of company balance sheets.

Risks

• Policy execution strength or timing may fall short of expectations, potentially weakening the effects of industrial restructuring and anti-involution.
• If excess-capacity governance advances slowly, prices of solar glass, some metals, and building materials may remain under pressure.
• Commodity prices are affected by macro demand, US dollar rates, inventories, and supply disruptions, so short-term volatility could be significant.
• Products such as cement and steel are still affected by uncertainty in property and infrastructure demand.
• Signals such as rising aluminum inventories and increasing coal inventories suggest that supply-demand conditions for some commodities have not yet fully improved.
• The report discloses that Morgan Stanley has investment banking, shareholding, or service relationships with multiple covered companies, and investors should be aware of potential conflicts of interest.
• The report mentions sanctions compliance reminders, and related investment activities must comply with applicable laws and regulations.

What to watch

• The intensity of follow-up macro policy combinations and domestic demand expansion measures from the NDRC.
• Detailed policy rules related to energy conservation and carbon reduction, the share of non-fossil energy, and the peaking of coal consumption.
• The actual execution effectiveness of anti-involution and excess-capacity governance in the photovoltaic industry.
• Whether weekly inventory changes for copper, aluminum, steel, coal, and glass will continue.
• Whether the rebound in lithium salt prices can be supported by end demand and the inventory cycle.
• Developments related to Indonesian bauxite supply-demand and refining balance, as well as digital price-locking mechanisms.
• After trader steel inventories decline, whether spot margins and demand recovery can be sustained.