China commodities: Copper supply tightness contrasts with a bearish turn on Chinese coal as production policy eases

Overview

The report summarizes a week-long China commodities field trip covering copper, coal, aluminum, construction, EVs and energy storage. Goldman Sachs finds copper supply conditions increasingly supportive, but sees weak broad demand and a faster-than-expected coal supply response that weakens the outlook for Chinese coal producers.

Core views

Goldman Sachs’ central constructive view is on copper. Fieldwork in Jiangxi indicated that domestic copper-scrap flows have been disrupted by tighter reverse-invoicing inspections and the removal of local-government subsidies since 2Q26. China produces 2.8mnt of copper in scrap annually, equivalent to 14% of domestic demand, but the firm estimates roughly 500kt per year could remain stranded for an extended period. A Rmb5mn annual reverse-invoicing quota limits an individual collector to about 45 tonnes of collection volume at prevailing copper prices and implies less than Rmb10k of annual profit, which the report considers unviable. The supply chain therefore faces a multi-year restructuring from fragmented small collectors toward larger, multi-material recycling platforms. Processing volume was expected by one consultant to decline by 400-500kt in 2026E, while some processors reported output reductions of nearly one-third and potentially one-half. Tight scrap availability compounds pressure on copper smelters. A domestic smelter reported negative treatment charges of about US$-200/t and unit losses exceeding Rmb10k/t, partly offset by about Rmb3k/t of sulfuric-acid credit income. Spot treatment charges were estimated at US$-225/t to US$-94/t, compared with profitable contract charges of US$146/t when sulfuric-acid credits are included. Goldman Sachs consequently expects delayed maintenance restarts and lower domestic refined-copper output in 4Q26E and 2027E; output had already fallen 2-4% year-on-year in July-August 2026, equivalent to a 290-570kt annualized decline. Demand signals were mixed: a cable maker’s order book rose 10% year-on-year in 9M26 while its copper consumption fell 9%, with datacenters, shipbuilding, wind and exports offsetting weakness in property-, infrastructure- and grid-linked cable. The report reiterates Buy ratings on Chinese copper equities including Zijin and CMOC. The coal conclusion is materially more negative. Safety enforcement following the Shanxi accident reduced monthly coal output to 11% below earlier-year levels, but high QHD5500 thermal-coal prices above Rmb1,000/t have refocused policy on supply security. Goldman Sachs believes Shanxi SOE output flexibility, resumed suspended mines and capacity coming through commissioning could ease tightness in 4Q26 and potentially overshoot demand by 1H27. It estimates possible production additions of 522mnt, or 11% of the Chinese market, plus another 393mnt or 8% of potential capacity. SOEs account for around 70% of Shanxi capacity and could, subject to approval, operate selected mines at up to 130% of approved capacity. Mongolian met-coal imports are also expected to exceed 100mnt in 2026E, versus 53mnt in 8M26A. Goldman Sachs therefore lowers its 2027E QHD thermal-coal price forecast to Rmb750/t from Rmb850/t; local speakers expected thermal coal to correct to Rmb800-850/t and a deeper correction in met coal. The coal-price revision drives lower earnings estimates and target prices. Goldman Sachs cuts Chinacoal’s 2027-28E earnings estimates by 8-19%, lowers its 12-month targets to HK$12.5 for Chinacoal-H and Rmb16.0 for Chinacoal-A from HK$17.5 and Rmb22.0, and downgrades both to Neutral from Buy. It cuts Yankuang’s 2027-28E earnings estimates by 15-17%, lowers targets to HK$10.0 for Yankuang-H and Rmb14.0 for Yankuang-A from HK$14.0 and Rmb18.0, and downgrades Yankuang-H to Sell from Neutral while maintaining Sell on Yankuang-A. Shenhua’s earnings estimates are reduced by 8-9%; its targets fall to HK$42.0 and Rmb45.0, and both listings remain Neutral. Outside copper and coal, the report describes weak construction, EV and industrial demand. Construction activity was reported 10-20% below the prior year, while a property consultant expected land sales and property starts each to decline 30%. EV dealers did not see the normal seasonal 30-40% month-on-month pickup, although selected high-performance models had two to three months of order backlog and exports remained strong outside the US. ESS battery order books remained strong and production plans were full into 1Q27, but aggressive capacity expansion, divergent returns after spot-market deregulation, local-policy terms and Chinese power-sector oversupply could slow project installation. Steel mills reported weak infrastructure, factory-building and cold-rolled-coil demand, elevated inventory and margins ranging from a Rmb100/t loss to a Rmb30/t profit. Goldman Sachs regards risks to aluminum supply from Yunnan hydropower and El Niño as limited to moderate. The peak risk period is seen in 1Q27E, contingent on end-October water levels; weaker hydro conditions in 4Q26 may be partly offset by added wind and solar generation, making a repeat of the severe 2023 shortfall unlikely. The aluminum capacity cap is viewed as intact at 45mnt, though output can run 5-10% above designed capacity. New Indonesian aluminum projects totaling 550kt were reportedly delayed from 4Q26E to 1Q27E, reducing estimated Indonesian output growth by 0.13mnt in 2026E and 0.43mnt in 2027E. On overseas direct investment, the report sees unchanged core requirements but longer NDRC approval timelines and stricter compliance; copper, aluminum and uranium face less disruption than lithium conversion and rare-earth activities, which are subject to export controls or overseas-transfer restrictions.

Analysis framework

Goldman Sachs combines 23 meetings and site visits across Beijing, Jiangxi, Jiangsu and Shanghai with discussions involving processors, smelters, miners, traders, dealers, power-sector participants, industry associations, policy specialists and economists. It connects field observations on supply, demand, regulation and operating conditions to commodity-price assumptions, earnings revisions, valuation and ratings for covered coal companies.

Methodology notes

• Industry AnalysisSupply-demand framework

  Commodity supply-demand analysis

  The report evaluates copper, coal and aluminum pricing through changes in scrap flows, smelter economics, mine output, imports, capacity additions and end-market demand.

• Valuation methodsPB valuation

  Historical P/B versus ROE correlation

  Coal-company target prices are derived using historical relationships between price-to-book multiples and forecast return on equity.

Asset mapping & comparison

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

• Zijin Mining

  Chinese copper equity supported by Goldman Sachs’ more positive copper outlook.

  Strengths

  Included among Chinese copper equities with reiterated Buy ratings.

  Risks

  Further supply-side disruption is cited as a potential driver of copper-price volatility.

• CMOC

  Chinese copper equity supported by Goldman Sachs’ more positive copper outlook.

  Strengths

  Included among Chinese copper equities with reiterated Buy ratings.

• China Coal Energy / Chinacoal (1898.HK, 601898.SS)

  Covered coal producer affected by lower coal-price assumptions.

  Strengths

  2027E targets imply 17% upside for H shares and 13% for A shares.

  Weaknesses

  2027-28E earnings estimates are reduced by 8-19% and ratings are downgraded to Neutral.

  Comparison

  Goldman Sachs views valuation as fair relative to the company’s historical trading range.

  Risks

  Coal prices, renewable-energy substitution, oil prices, safety and environmental disruptions, and the ramp-up of Libi and Weizigou mines.

• Yankuang Energy (1171.HK, 600188.SS)

  Covered coal producer negatively affected by lower thermal- and PCI-coal assumptions.

  Strengths

  Potential upside could come from higher coal or oil prices, slower renewable substitution, fewer disruptions, faster project execution or parent asset injections.

  Weaknesses

  2027-28E earnings estimates are reduced by 15-17%; Yankuang-H is downgraded to Sell and Yankuang-A remains Sell.

  Comparison

  Goldman Sachs sees fundamentals as weak relative to valuation, with -14% downside for H shares versus 11% average upside for its commodities coverage.

  Risks

  Coal-price changes, renewable substitution, oil-price movements, mine disruptions and execution risk for new mines.

• China Shenhua Energy (1088.HK, 601088.SS)

  Covered coal producer affected by lower coal-price assumptions.

  Weaknesses

  2027-28E earnings estimates are cut by 8-9%, and targets are reduced to HK$42.0 and Rmb45.0.

  Comparison

  Both H and A shares remain Neutral.

  Risks

  Coal prices, renewable substitution, oil prices, production disruptions and new-mine execution.

Key data

• Stranded domestic copper scrapc.500kt per annumEstimated prolonged shortfall caused by invoicing bottlenecks.
• Copper scrap processing decline400-500kt in 2026EOne consultant’s estimate following tighter inspections and subsidy removal.
• Copper spot treatment chargesUS$-225/t to US$-94/tCompared with US$146/t contract TC including sulfuric-acid credit.
• Potential coal production increase522mnt, or 11% of the Chinese marketPotential 4Q26-1H27 additions, with a further 393mnt or 8% stretch capacity.
• 2027E QHD thermal-coal forecastRmb750/tReduced from Rmb850/t.
• Chinacoal-H/A target pricesHK$12.5 / Rmb16.0Reduced from HK$17.5 / Rmb22.0.
• Yankuang-H/A target pricesHK$10.0 / Rmb14.0Reduced from HK$14.0 / Rmb18.0.

Impact & implications

The report links copper’s tighter scrap and smelter supply conditions to a more favorable price outlook and continued Buy ratings on selected Chinese copper equities. Conversely, a policy-led recovery in coal supply underpins lower coal-price, earnings and valuation assumptions for Chinese coal producers. Aluminum supply disruptions from hydropower and ODI rules are viewed as manageable, though timing and compliance risks remain.

Risks

• Copper supply conditions could change if scrap-supply disruption, smelter production cuts or global production disruptions differ from expectations.
• Coal-company revenue, earnings and cash generation are sensitive to coal prices, supply-demand conditions and government price-control measures.
• Faster renewable-energy substitution could weaken long-term coal demand and coal-operation profitability.
• Safety and environmental inspections may disrupt coal output and alter cost performance.
• El Niño-related hydropower conditions and water storage could affect Yunnan aluminum production in 1Q27E.
• Stricter ODI compliance and longer approvals could delay selected overseas resource projects.

What to watch

• The pace of compliance-driven restructuring in China’s domestic copper-scrap supply chain.
• Spot and contract copper treatment-charge negotiations and smelter maintenance restarts.
• Shanxi SOE production flexibility, suspended-mine restarts and new capacity commissioning through 1H27E.
• QHD thermal-coal and met-coal price corrections as supply-security policy takes effect.
• End-October Yunnan water levels and hydropower conditions ahead of the 1Q27E risk window.
• NDRC approval timing and compliance outcomes under the revised ODI framework.