China basic materials demand improved marginally in May, with strong exports offsetting a softer domestic trend

Overview

This report is Goldman Sachs' monthly monitoring of China's basic materials sector, based on research with more than 60 industry contacts, tracking end-market orders, producer and end-user inventories, and price, margin, and supply-demand changes across sub-sectors including steel, coal, cement, aluminum, copper, lithium, and paper packaging. The core conclusion is that May 2026 was a relatively strong month, with robust exports and improving manufacturing-related demand offsetting weak domestic demand, while construction demand also saw a marginal rebound.

Core views

China's basic materials demand in May showed the characteristics of "broad improvement with structural divergence." End-market orders improved notably m/m, with auto, home appliance, machinery, power, and export chains contributing the main incremental demand; construction demand was supported by better infrastructure project starts, but new real-estate starts remained constrained by funding. On the supply side, annualized primary aluminum output rose to 47.1 million tons, steel mills implemented mild production curbs, and scrap copper supply continued to tighten. High-frequency data showed that in the first half of May, cement and construction steel demand was down 3%-4% y/y, copper demand was down 7% y/y, while aluminum and plate demand was up 5%-7% y/y.

Analysis framework

The report combines monthly channel checks, high-frequency industry data, inventory surveys, and tracking of commodity prices and margins. Survey coverage includes producers, traders, downstream manufacturers, property developers, power companies, and industry associations, with a focus on m/m order trends, whether conditions are stronger than normal seasonality, inventory levels relative to normal, and changes in prices and margins.

Methodology notes

• Channel surveyMonthly China basic materials monitor

  Survey of more than 60 industry contacts

  Tracks future order trends and inventory levels across the industrial chain through feedback from producers and downstream companies, covering auto/EV, home appliances, machinery, batteries, solar, real estate, steel mills, iron ore traders, cement, glass, metal processing, paper packaging, coal, and power.

• High-frequency dataHigh-frequency demand and inventory tracking

  Cross-checking orders, output, inventories, prices, and margins

  Uses cement shipments, steel demand, metal processing demand, social inventories, spot/futures prices, and margin estimates to validate channel feedback.

• Valuation and target price12-month target price framework

  Target prices for covered stocks are on a 12-month horizon

  The appendix notes that target prices are set on a 12-month framework, and uncovered or temporarily suspended names may use consensus estimates.

• Disclosure frameworkGS Factor Profile and M&A Rank

  Assessment of growth, financial returns, valuation multiples, and M&A probability

  Goldman Sachs uses Factor Profile to compare a stock's growth, financial return, and valuation characteristics versus the market and industry peers, and uses M&A Rank to assess potential acquisition probability.

Asset mapping & comparison

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

• Steel

  Supported by recovery in auto, home appliances, infrastructure, and export attractiveness

  Strengths

  Orders improved m/m, some steel mills implemented mild production curbs, finished steel inventories fell 11% m/m, and both domestic and export margins improved.

  Weaknesses

  Construction steel demand was still down y/y, and order improvement was weaker than normal seasonality.

  Comparison

  Plate demand rose 4.6% y/y, outperforming construction steel, which fell 2.6% y/y.

  Risks

  If export demand weakens or production curbs are not sustained, steel prices and margin improvements could fade.

• Steelmaking raw materials

  Iron ore supply is increasing while demand is stalling

  Strengths

  Improving steel mill margins and transportation costs supported iron ore price expectations, with traders' price expectations rising from US$100/ton to US$110/ton.

  Weaknesses

  Pig iron output declined y/y, and the iron ore market was described as oversupplied.

  Comparison

  CMRG's supply constraints on some iron ore suppliers have already eased.

  Risks

  A rise in shipments in the second half of the year, combined with stagnant demand, could push inventories higher.

• Coal

  Driven by early stocking by power plants, coal chemical demand, and lower imports

  Strengths

  Orders improved m/m and were stronger than normal seasonality; the Qinhuangdao thermal coal spot price rose 8.6% over the past month.

  Weaknesses

  Daily coal consumption for coal-fired power was basically flat m/m, and metallurgical coal demand was mixed.

  Comparison

  Non-power downstream coal prices were flat to up Rmb100/ton m/m.

  Risks

  If summer heat demand falls short of expectations or imported coal prices retreat, price support could weaken.

• Cement

  Supported by infrastructure projects under construction and a rebound in project starts

  Strengths

  Shipments improved from a low base in mid-May versus April, and project start rates rose to 47%-50%.

  Weaknesses

  New projects remained scarce, funding constraints were obvious, and cement shipments were still down 4% y/y.

  Comparison

  Inventories were 61%-76%, above or near the 52%-75% range seen in the same period last year.

  Risks

  If new real-estate starts do not improve and capacity exit plans are slow to roll out, prices and margins could remain pressured.

• Aluminum/alumina

  Strong exports and some manufacturing demand, but supply is also rising

  Strengths

  Orders for semi-finished and finished exports were strong, and demand from autos, power cables, packaging, and energy storage remained solid.

  Weaknesses

  Domestic demand was relatively weak m/m, the aluminum spread declined 10.1% m/m, and marginal alumina producers' cash profits were negative.

  Comparison

  May end-demand for aluminum was up 6.5% y/y, but down 1.8% m/m.

  Risks

  Primary aluminum output rising to a 47.1 million ton annualized rate and a new alumina project in Guangxi entering trial operation could intensify supply pressure.

• Copper

  High copper prices are suppressing new downstream orders

  Strengths

  Demand from ESS, data centers, and exports outside the power grid remained relatively resilient, and inventory destocking exceeded seasonal norms.

  Weaknesses

  Orders fell m/m and were weaker than normal seasonality; copper prices of Rmb106k/ton slowed new order signings.

  Comparison

  Copper demand in May was down 7% y/y and down 5% m/m, weaker than aluminum and plate.

  Risks

  TCRC remained negative and worsened m/m; if prices stay elevated, downstream buyers may further shift to just-in-time purchasing.

• Lithium

  Tighter supply-demand conditions due to better battery and cathode production schedules

  Strengths

  Cathode output is expected to rise 8% m/m and 71% y/y in May, and lithium carbonate spot prices rose 13% m/m.

  Weaknesses

  Some ESS projects have been suspended or delayed because returns deteriorated, and the pass-through of battery price increases is still under negotiation.

  Comparison

  China's lithium market had about a 1% surplus in April and may swing to a shortage in May.

  Risks

  The resumption of Zimbabwe lithium concentrate exports, with arrivals expected in July, could ease supply tightness later on.

• Paper packaging

  Shipments were boosted by 618, e-commerce, textile/apparel and electronics exports, and downstream restocking

  Strengths

  Shipments improved m/m in May, and paper mill inventories were below normal levels.

  Weaknesses

  Costs for OCC, coal, and chemical additives rose, and ND Paper's estimated unit net profit was negative Rmb216/ton.

  Comparison

  Box plant inventories rose to above normal levels, diverging from the low inventories at paper mills.

  Risks

  If higher costs cannot be fully passed through, margins will remain under pressure.

Key data

• Share expecting end-market order improvement45%45% of downstream respondents expected end-market orders to improve m/m in May, up from 27% in April.
• Share expecting basic materials order improvement58%58% of basic materials respondents expected orders to improve m/m in May, up from 42% in April; the share expecting a decline was 18%, down from 30% in April.
• Share stronger than normal seasonality13%Across all respondents, 13% thought the m/m trend was stronger than normal seasonality, 58% thought it matched normal seasonality, and 29% thought it was weaker than normal seasonality.
• China primary aluminum annualized output47.1 million tonsIn April, annualized primary aluminum output reached 47.1 million tons, driven by restarted idled capacity, overproduction, and net additions from replacement projects.
• Cement and construction steel demandDown 3%-4% y/yHigh-frequency data in the first half of May showed cement and construction steel demand below the same period last year.
• Copper demandDown 7% y/y, down 5% m/mHigh copper prices suppressed new downstream order signings, and copper processing demand was weaker than normal seasonality.
• Aluminum and plate demandUp 5%-7% y/yAluminum and plate demand was supported by exports, autos, power cables, packaging, and energy storage.
• Steel gross marginsRmb120-130/ton for domestic sales, about Rmb100/ton for exportsImproved from Rmb40-100/ton in April, with the report attributing the change mainly to mild production constraints.
• Qinhuangdao 5500 kcal thermal coal spot priceRmb835/ton, up 8.6% over the past monthCoal prices were stronger than normal seasonality.
• Lithium carbonate spot priceUp 13% m/mAs of May 15, China's lithium carbonate spot price rose m/m, and supply-demand conditions shifted from roughly balanced in April to a possible shortage in May.

Impact & implications

For investors, the report points to a marginal near-term improvement in China's basic materials cycle, but sustainability still depends on export orders, infrastructure project progress, recovery in new real-estate starts, and the impact of prices on demand. Steel, coal, and lithium showed the clearest improvements in prices and margins; aluminum demand was strong but margins weakened; copper remained pressured by high prices, with notable demand and processing-fee pressure; and paper packaging shipments improved, but rising costs kept margins weak.

Risks

• If export demand weakens, the sustainability of the May order improvement could diminish.
• Improvements in real-estate new starts and land acquisition remain only marginal signals, and funding constraints may continue to weigh on construction materials demand.
• Cost or price volatility in industries such as copper, aluminum, and paper packaging could compress margins.
• Increased supply of aluminum and iron ore may lead to higher inventories and weigh on prices.
• Once lithium supply resumes with arriving cargoes, the current tight supply-demand balance may ease.

What to watch

• Whether end-market orders continue to improve in June, especially in the auto, home appliance, machinery, power, and export chains.
• Whether infrastructure project start rates, real-estate new-start assessments, and land acquisition plans truly translate into physical demand.
• Whether steel production curbs continue and finished steel inventories keep declining.
• The impact on margins from the 47.1 million ton annualized primary aluminum output and new alumina capacity in Guangxi.
• Whether grid, auto, and air-conditioner orders continue to slow at elevated copper prices.
• The impact of resumed Zimbabwe lithium concentrate exports on the lithium supply-demand balance after July.
• Whether price increases in the paper packaging industry can cover rising costs for OCC, coal, and chemical additives.