China's Basic Materials: Weak Domestic Demand, Strong Exports
AI summary card
China's Basic Materials: Weak Domestic Demand, Strong Exports
Goldman Sachs monitoring indicates that in June 2026, downstream orders for China's basic materials sector improved month-over-month, yet domestic demand remains weak, with exports serving as the primary support.
- Mid-June user orders continued to rebound, showing seasonally stronger performance than in May.
- Domestic exports related to automobiles and packaging paper performed well, while demand remained weak in electronics, home appliances, and hardware sectors.
- Tightening coal production safety enforcement has made it difficult to pass on cost pressures to downstream industries such as steel and cement.
- The EU carbon tax poses challenges to steel exports, and small cement plants face mounting supply pressures.
Report interpretation
Overview
This report is Goldman Sachs' monthly monitoring of China's basic materials industry, focusing on supply and demand dynamics in June 2026. The report notes that despite persistently weak domestic demand, strong export performance has become the main pillar supporting the sector. Meanwhile, stricter coal production safety enforcement has resulted in cost pressures across industries like steel and cement that are difficult to pass down the supply chain.
Core views
In mid-June, downstream orders in the basic materials sector continued to recover, exhibiting better seasonal performance compared to May. Specifically, domestic exports related to automobiles and packaging paper showed relatively strong results, whereas demand remained sluggish in electronics, home appliances, and hardware segments. Construction demand remains subdued, with no further signs of incremental improvement. On the supply side, coal production safety enforcement has tightened and may extend through year-end. However, industries such as steel, cement, and paper struggle to pass higher coal costs onto downstream customers. Additionally, the newly implemented EU carbon tax presents challenges for steel exports, while small cement plants are experiencing escalating supply pressures. High-frequency data reveal that during the first half of 2026, China's cement and construction steel demand declined by 5%–6% year-on-year, flat steel demand fell by 1%, while copper demand increased by 2%. Coal profits have improved somewhat, but prices and profit margins for copper, aluminum, steel, cement, and lithium have all weakened.
Analysis framework
Goldman Sachs assesses supply and demand dynamics in the basic materials sector by analyzing downstream orders, import/export data, price trends, and high-frequency economic indicators. The report integrates sector-specific performance—such as steel, copper, and cement—with policy factors like coal safety enforcement and the EU carbon tax, offering a comprehensive industry perspective. For data tracking, the report employs monthly and quarterly metrics, including inventory levels, price changes, and import/export volumes. These data help identify structural shifts and short-term fluctuations within the industry.
Methodology notes
Assessing industry dynamics by analyzing supply and demand relationships.
The report adopts a supply-demand framework, examining both the demand side (downstream orders, export performance) and the supply side (coal enforcement, cost pass-through) to evaluate the current state and future trends of the basic materials sector.
Determining the industry's cyclical phase based on changes in inventory levels.
The report references data such as coal inventories and cement stockpiles to reflect shifts in supply-demand balance and potential cyclical adjustments.
Key data
- Cement Demand YoY Change-5% to -6%China's cement demand declined year-on-year in the first half of 2026.
- Construction Steel Demand YoY Change-5% to -6%China's construction steel demand decreased year-on-year in the first half of 2026.
- Flat Steel Demand YoY Change-1%China's flat steel demand fell year-on-year in the first half of 2026.
- Copper Demand YoY Change+2%China's copper demand grew year-on-year in the first half of 2026.
Impact & implications
The report concludes that the basic materials sector currently faces a situation where weak domestic demand coexists with robust exports. Tighter coal production safety enforcement could constrain supply, while the EU carbon tax and mounting supply pressures on small cement plants may further reshape the industry landscape. In the long term, the sector must closely monitor evolving policies and global market demand trends.
Risks
- Continued weakness in domestic demand could further weigh on industry performance.
- EU carbon tax policies may impose additional pressure on steel exports.
- Rising coal costs could squeeze corporate profit margins.
What to watch
- The specific implementation status of coal production safety enforcement.
- Developments in EU carbon tax policies.
- Whether supply pressures from small cement plants spread to other regions.