Raw Material Pressures Generally Manageable; Near-Term Focus for Consumer Stocks Shifts to Demand Recovery
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Raw Material Pressures Generally Manageable; Near-Term Focus for Consumer Stocks Shifts to Demand Recovery
Morgan Stanley believes that trends in PET, sugar, palm oil, and aluminum prices are favorable for most beverage, beer, and convenience food companies, but weak peak-season demand caused by weather disruptions makes volume recovery the key near-term variable.
- For dairy, raw milk prices have stabilized following upstream production cuts. Supply and demand are expected to be more balanced in 2026, benefiting margin improvement at Yili and Mengniu.
- Hog prices rebounded month on month in July, but supply rationalization has been slower than expected. Morgan Stanley does not view this as a sustained inflection point; Muyuan is well positioned to benefit from a subsequent recovery in hog prices.
- Eastroc Beverage has locked in full-year PET costs and approximately six months of sugar costs at low levels, but July demand weakened, requiring attention to the recovery in sales of core SKUs.
- Tingyi and Uni-President China continue to face PET costs and weak demand in beverages; their noodle businesses benefit from lower wheat and palm oil prices, keeping cost pressures manageable.
- Raw material pressure in the beer sector is generally manageable, with lower aluminum prices providing support, but peak-season volume recovery matters more than costs for near-term earnings.
Report interpretation
Overview
This report is a July 2026 raw material price tracking chartbook for China's and Hong Kong's consumer sectors. It reviews changes in cost items including oils and fats, PET, wheat, dairy products, hogs, and metals, and assesses their impact on dairy, farming, beverage, beer, condiment, and convenience food companies.
Core views
The cost environment is mixed: PET fell sharply in June and declined further in July, though it remained above last year's level; weaker or declining sugar, palm oil, and aluminum prices benefit margins for related consumer goods; meanwhile, rising soybean and soybean meal prices increase cost pressure for companies with high soybean exposure, such as Haitian Flavoring. On demand, adverse weather weakened beverage and beer consumption in July, meaning near-term earnings sensitivity depends primarily on volume recovery rather than raw material costs.
Analysis framework
The report uses month-on-month and year-to-date changes in spot, futures, and monthly average prices, together with each company's key raw material exposure, locked-in costs, and industry supply-demand conditions, to assess changes in gross margins, operating leverage, and earnings expectations.
Methodology notes
Maps changes in raw material prices to corporate costs, gross margins, and earnings risks.
Compares price changes in PET, sugar, oils and fats, grains, raw milk, hogs, and metals, and assesses the degree of benefit or pressure based on companies' raw material exposure.
Uses end-demand, weather, inventories, and capacity rationalization to assess the sustainability of prices and sales volumes.
The report considers hog-price rebounds alongside the pace of supply rationalization, and relates beverage and beer sales performance to summer weather conditions.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- Yili 600887.SSBeneficiary of stable raw milk prices and improving dairy industry supply-demand conditions
- Strengths
- Liquid milk business is expected to resume growth in 2026; rising raw milk prices may drive industry consolidation and market-share gains; inventory impairment provisions are expected to decline materially and improve net margins.
- Weaknesses
- Rising raw milk prices may also increase procurement costs, and demand recovery remains to be validated.
- Comparison
- Like Mengniu, it is a key beneficiary of improving raw milk supply-demand conditions and higher industry concentration.
- Risks
- Slower-than-expected liquid milk demand recovery, raw milk price increases outpacing end-market price increases, and intensifying competition.
- Mengniu 2319.HKBeneficiary of stable raw milk prices and improving dairy industry supply-demand conditions
- Strengths
- UHT milk has returned to positive growth year to date; profit margins may improve through market-share gains as smaller players face pressure and through lower impairment provisions.
- Weaknesses
- Earnings improvement still depends on a sustained demand recovery.
- Comparison
- The investment thesis is similar to Yili's, with both benefiting from a more balanced dairy supply-demand environment in 2026.
- Risks
- Weak end demand, competitive promotions, and raw milk cost increases above expectations.
- Muyuan 002714.SZ / 2714.HKBeneficiary of a subsequent recovery in hog prices
- Strengths
- Has favorable earnings sensitivity and upside potential during a more substantive industry recovery.
- Weaknesses
- The current hog-price rebound is viewed as mainly driven by seasonal demand, while supply rationalization has been slower than expected.
- Comparison
- Relative to a short-term seasonal rebound in hog prices, the report places greater emphasis on an industry recovery driven by subsequent supply-demand improvement.
- Risks
- Delayed supply rationalization, renewed weakness in hog prices, and weaker-than-expected recovery in farming profitability.
- Eastroc Beverage 605499.SS / 9980.HKBeneficiary of locked-in PET and sugar costs
- Strengths
- Full-year 2026 PET costs and approximately six months of sugar costs are locked in below prior-year levels, resulting in limited raw material pressure.
- Weaknesses
- Adverse weather weakened beverage demand in July.
- Comparison
- Has a clearer cost-locking advantage than other beverage companies, but near-term performance is driven more by sales volumes than costs.
- Risks
- Slow recovery in sales of energy drinks, bottled water, and other core SKUs, and prolonged weather impacts.
- Tingyi 0322.HK / Uni-President China 0220.HKBeneficiaries of an improving cost environment for beverages and convenience foods
- Strengths
- Noodle businesses are supported by lower wheat and palm oil prices, keeping cost pressures manageable.
- Weaknesses
- PET prices remain above last year, while beverage demand weakened significantly in July, pressuring operating leverage.
- Comparison
- The cost environment for noodles is better than for beverages; near-term performance depends more on demand recovery and competitive intensity.
- Risks
- Weak beverage sales volumes, renewed PET price increases, and intensifying competition.
- Haitian Flavoring 603288.SS / 3288.HKCompany facing cost pressure from rising soybean prices
- Strengths
- No clear positive catalyst from raw materials.
- Weaknesses
- Soybean prices continue to rise, and raw material costs account for more than 80% of cost of sales, creating pressure on third-quarter gross margins.
- Comparison
- Compared with food companies benefiting from easing costs such as oils and fats and wheat, Haitian is more sensitive to soybean prices.
- Risks
- Further increases in soybean-related prices, delayed cost pass-through, and gross-margin contraction.
Key data
- PET PriceDown 0.9% month on month in July 2026; up 4% year to dateContinued to decline after falling 6.5% month on month in June, but remained above the prior-year level.
- Palm Oil PriceTianjin spot price down 0.8% month on month in July 2026; up 1% year to dateCost pressure is relatively manageable for companies using oils and fats, such as instant noodle producers.
- China Wheat PriceDown 1.1% month on month in July 2026Down 5.1% month on month in June.
- Average Whole Milk Powder Auction PriceDown 5.3% month on month in July 2026; down 6% year on year year to dateFavorable for the dairy cost environment.
- Sugar PriceDown 1.5% month on month in July 2026; down 10% year to dateProvides cost support for beverage companies.
- China Hog PriceRmb11.4/kg as of July, up 10.6% month on monthDriven by seasonal demand, but the report does not consider it a sustained price inflection point.
- Raw Milk PriceRmb3.06/kg at end-July, up 0.6% month on month and down 1% year to datePrices stabilized after upstream production cuts and are expected to rise gradually in 2026.
- Metal PricesCopper price up 0.1% month on month in July; aluminum price down 2.8% month on monthCopper and aluminum are up 26% and 16% year to date, respectively.
Impact & implications
The impact of raw materials on the consumer sector is shifting from a broad cost shock to structural divergence. Certain cost items for dairy, beverages, convenience foods, and beer have eased, while the scope for margin improvement depends on achieving demand recovery at the same time; rising soybean-related prices create more direct gross-margin pressure for condiment companies. From an investment perspective, priority should be given to companies with locked-in costs, improving supply-demand conditions, or strong market-share gains, while remaining alert to weather- and competition-driven downside risks to sales volumes.
Risks
- Persistent adverse weather could continue to suppress peak-season demand for beverages and beer, resulting in weaker-than-expected sales volumes and operating leverage.
- Raw material price movements could reverse, particularly for PET, soybeans, soybean meal, raw milk, and oils and fats.
- If the hog-price rebound is not supported by supply rationalization, improvement in farming industry profitability may be delayed.
- Increased industry competition and promotional intensity may limit the pass-through of lower costs to profit margins.
- Most commodity and price data in the report are as of July 31, 2026; subsequent changes may affect the conclusions.
What to watch
- The pace of sales-volume recovery in core categories such as energy drinks, bottled water, and beer after weather normalizes.
- Monthly changes in PET, sugar, oils and fats, wheat, and soybean prices, as well as the timing of cost-locking expirations.
- Whether raw milk prices and dairy end demand improve in tandem.
- Hog supply rationalization, the sustainability of hog prices, and changes in farming profitability.
- Haitian Flavoring's soybean-related cost pressure and its ability to raise prices or pass through costs.