JPMorgan remains constructive on China basic materials 1H26 earnings recovery, with copper and gold still the preferred direction

Overview

This report is JPMorgan's 1H26 earnings outlook for China's basic materials sector and several covered stocks. The report argues that in recent months the market was pressured by supply-side geopolitical disruptions and rate concerns, but investor focus will gradually return to company earnings, commodity supply-demand, and valuation recovery. Copper, gold, aluminium, lithium, and selected coal companies may issue constructive earnings previews, with copper names showing the strongest earnings sensitivity.

Core views

Key views include: first, copper and gold equities had seen valuation repricing down under aggressive rate-hike expectations, but physical fundamentals remain relatively healthy, and copper prices are expected to stay elevated due to factors including Section 232 tariffs. Second, easing rate-worry concerns support gold, and Zijin Mining and Zijin Gold remain top picks. Third, aluminium equities rose earlier as Middle East tensions intensified but have since pulled back; the report argues that concerns about additional Indonesian supply and China’s excess capacity are partially overstated, and Chalco and China Hongqiao have room for valuation re-rating. Fourth, lithium prices declined after the April peak, but downstream demand has remained resilient; with replenishment season approaching and short-term negative catalysts absorbed, Ganfeng Lithium was upgraded to Overweight. Fifth, coal rose after the Shanxi mine incident but retreated in June, so the report keeps a Neutral view; steel prices have risen modestly but margins remain pressured, with no near-term rebound signal.

Analysis framework

The report applies a top-down commodity price and supply-demand framework, combined with company-level earnings forecasts, target-price valuation, A/H-share premiums, DCF parameters, and relative valuation, to rank the China basic materials sector and make stock recommendations. It emphasizes tracking copper, gold, aluminium, lithium, coal, and steel on commodity price trends, inventories, cost curves, earnings sensitivity, and valuation percentiles.

Methodology notes

• Valuation methodsDCF Valuation

  Discounted cash flow, WACC, terminal growth rate

  Zijin Mining A-shares target price RMB46 is based on DCF valuation, with WACC at 13% and terminal growth at 2%; CMOC A-shares target price RMB26 is based on DCF valuation, with WACC at 12% and terminal growth at 2%; Jiangxi Copper A-shares target price RMB55 is based on DCF valuation, with WACC at 9% and terminal growth at 2%.

• Valuation methodsA/H Share Premium Mapping

  Based on A-share target price with consideration of the average A/H premium

  Zijin Mining H-shares target price HK$50 is based on a 6% three-month average A/H premium applied to the A-share target; CMOC H-shares target price HK$25 is based on a 20% average A/H premium; Jiangxi Copper H-shares target price HK$44 is based on a 44% three-month average A/H premium.

• Profit ForecastCommodity Price Assumptions and 1H26 Earnings Preview

  Commodity prices, production growth, cost assumptions, earnings forecast

  The report raised 2026-2028 copper price assumptions, lowered some gold price assumptions, and incorporated sulfuric acid prices, lithium costs, TC/RC, M&A integration, and ramp-up of new projects to derive the changes in company earnings forecasts.

Asset mapping & comparison

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

• Zijin Mining A/H

  Dual copper-gold exposure and one of the report's top picks

  Strengths

  Copper and gold each represent a meaningful share of 2025 gross profit, with good mine expansion and cost-control history; target production CAGR is above 10% through 2028.

  Weaknesses

  Lower gold assumptions, delayed Allied Gold consolidation, and higher lithium costs have reduced FY26-28 earnings forecasts by 4%-7%.

  Comparison

  A-shares target price RMB46, H-shares target price HK$50, both remaining Overweight.

  Risks

  Overpaying for M&A, overseas mine geopolitical risk, gold or copper prices below expectations, and delay or failure of Allied Gold or Chifeng transactions.

• CMOC A/H

  Diversified copper-cobalt miner with strong cyclical upside exposure

  Strengths

  Copper accounts for about 60% of gross profit and is highly sensitive to copper prices; DRC production ramp-up shows cross-region operating capability; project expansion and incremental gold contribution support medium-term earnings.

  Weaknesses

  Rising unit copper costs and higher input costs such as sulfuric acid may constrain short-term earnings growth.

  Comparison

  A-shares target price RMB26, H-shares target price HK$25, both remaining Overweight.

  Risks

  Copper and cobalt prices below expectations, execution delays in cost-reduction, ore-grade decline, or technical issues leading to production below guidance.

• Jiangxi Copper A/H

  Copper stock with both smelting and upstream growth potential

  Strengths

  Improving mining contribution, high sulfuric acid by-product prices, increased copper and gold profitability, and SolGold acquisition enhancing long-term upstream prospects.

  Weaknesses

  A tighter copper concentrate market is further pressuring TC/RC, and spot TC has fallen from US$47.5/t at end-1Q26 to -US$107.5/t, creating a headwind for smelting operations.

  Comparison

  A-shares target price RMB55, H-shares target price HK$44, both remaining Overweight.

  Risks

  Derivative hedging losses with limited disclosure and copper price declines.

• Chalco and China Hongqiao

  Aluminium re-rating candidates

  Strengths

  Domestic aluminium shares carry a clear valuation discount versus global peers, and the report believes concerns about Indonesian aluminium supply may be overstated.

  Weaknesses

  The market remains concerned about China’s excess aluminium capacity and additional Indonesian supply.

  Comparison

  The report reiterates Overweight views on Chalco and China Hongqiao.

  Risks

  Aluminium price pullback, supply expansion exceeding expectations, rising costs.

• Ganfeng Lithium

  Improving lithium candidate

  Strengths

  Resilient battery-business profitability, upside in lithium prices, near-term replenishment season, and digestion of short-term negative catalysts.

  Weaknesses

  Lithium prices have pulled back from the April peak and supply-side volatility continues to affect sentiment.

  Comparison

  The report has upgraded Ganfeng Lithium to Overweight.

  Risks

  Lithium prices weaker than expected, replenishment weaker than expected, cost pressure, or project ramp-up strain.

• Coal and Steel

  Lower-priority segment within the sector

  Strengths

  Some coal names such as Yankuang benefit from spot pricing and coking-coal exposure, with expected year-on-year profit growth.

  Weaknesses

  Coal is pressured by mine-restart and strong hydroelectric dispatch; steel margins remain under pressure.

  Comparison

  Coal and steel are ranked lowest in the sector, with coal at Neutral and steel showing no near-term recovery signals.

  Risks

  Coal price decline, insufficient steel capacity-reduction policy support, demand weaker than expected.

Key data

• Sector preference rankingCopper > Gold > Aluminium > Lithium > Coal > SteelThe sector ranking for China basic materials explicitly provided in the report.
• MSCI China Materials MTD performance+2% MTDUp 2% versus MSCI China, indicating a rebound as sector focus returned to earnings.
• Expected 1H26 copper-related earnings growthMMG/CMOC/JXC/Zijin Mining up 120%/+94%/+92%/+79% year-on-year respectivelySupported by year-on-year increases in SHCJ copper prices and sulfuric acid prices.
• Year-on-year commodity price changesSHCJ copper +31%, sulfuric acid +163%, gold +52%Used by the report to explain the 1H26 earnings growth backdrop.
• Aluminium company earnings outlookChalco/Hongqiao earnings expected to rise 77%/51% year-on-yearSupported by aluminium pricing, cost, and valuation discount recovery logic.
• Zijin Mining A-sharesPrice RMB27.36; target price RMB46; Overweight maintainedTarget price cut from RMB50 due to lower gold assumptions, delayed Allied Gold consolidation, and higher lithium costs offsetting higher copper price assumptions.
• Zijin Mining H-sharesPrice HK$29.74; target price HK$50; Overweight maintainedTarget price reduced from HK$55.
• CMOC A-sharesPrice RMB17.53; target price RMB26; Overweight maintainedTarget price reduced from RMB28; copper, cobalt, and project expansion continue to support medium-term earnings.
• CMOC H-sharesPrice HK$15.10; target price HK$25; Overweight maintainedTarget price reduced from HK$28.
• Jiangxi Copper A-sharesPrice RMB39.85; target price RMB55; Overweight maintainedTarget price reduced from RMB64 as TC pressure offsets the raised copper price assumption.
• Jiangxi Copper H-sharesPrice HK$29.56; target price HK$44; Overweight maintainedTarget price reduced from HK$51.

Impact & implications

The investment implication of the report is that if rate worries ease and earnings are delivered, valuation recovery opportunities for selected copper, gold, aluminium, and lithium stocks are likely to be stronger than for coal and steel. Elevated copper prices, supportive gold valuation from improving rate expectations, narrowing valuation discounts of aluminium names versus global peers, and lithium downstream replenishment together form the main sources of relative outperformance within the sector. At the same time, the broad target-price cuts indicate that the earnings models remain sensitive to gold assumptions, M&A consolidation timing, rising costs, and TC/RC pressure.

Risks

• A rebound in rate expectations could weigh on valuations of gold and copper-related equities.
• Commodity prices for copper, gold, aluminium, lithium, and coal below expectations would hurt earnings realization.
• Continued deterioration in copper smelting TC/RC could further pressure smelting operations such as Jiangxi Copper.
• Overseas mine geopolitical risks, delayed M&A integration, or completion failures may affect Zijin Mining and other miners’ production and earnings.
• Higher unit costs, sulfuric acid and input-cost increases, or higher-than-expected early-stage lithium project ramp costs could compress margins.
• Without further steel capacity-curbing policy, steel margins may remain pressured.

What to watch

• 1H26 earnings guidance and actual disclosures, especially year-on-year earnings growth for copper, gold, aluminium, lithium, and selected coal companies.
• Changes in rate expectations and their impact on valuation of gold and copper equities.
• Price trajectories for copper, gold, aluminium, lithium salts, coal, and sulfuric acid.
• Changes in copper concentrate TC/RC, especially whether spot TC remains negative.
• The intensity of downstream EV battery replenishment season and sustainability of lithium price rebound.
• Changes in Indonesian aluminium supply, China aluminium capacity, and valuation gap versus global peers.
• Progress of Zijin Mining Allied Gold and Chifeng deals, CMOC project ramp-up, and Jiangxi Copper’s long-term upstream contribution from SolGold.