China commodities: Goldman Sachs sees copper supply tightening but expects China coal supply easing to pressure 2027 prices

Overview

This field-research report examines the near-term outlook for China’s major commodity markets after 23 meetings and site visits. Goldman Sachs finds the strongest positive signal in copper supply, while coal faces an increasingly bearish supply response; demand conditions across construction, EVs and some industrial chains remain weak.

Core views

Goldman Sachs’ central commodity conclusion is split: copper supply conditions have become more supportive, while China’s coal market is likely to move from safety-driven tightness toward greater supply in late 2026 and potentially an oversupply situation in 1H27. The team based its conclusions on meetings with processors, smelters, miners, traders, dealers, manufacturers, power-sector participants, industry associations and policy specialists across Beijing, Jiangxi, Jiangsu and Shanghai. For copper, the report identifies a structural disruption in China’s domestic scrap market. China supplies about 2.8mnt of copper annually through scrap, equivalent to 14% of domestic demand, but the flow was disrupted from 2Q26 by tighter reverse-invoicing inspections and the end of local-government subsidies. Goldman Sachs estimates roughly 500kt of annual copper-in-scrap supply could remain stranded for an extended period. A consultant expects scrap-processing volumes to fall 400-500kt in 2026E, although conditions may stabilize in 2027E as invoiced-scrap compliance improves. The report argues that the bottleneck is not easily resolved: compliance can imply tax equivalent to 40% of the copper price, small operators face potential retroactive tax exposure, and the Rmb5mn annual invoicing quota limits each individual collector to roughly 45t of collection volume and less than Rmb10k of annual profit. Goldman Sachs expects a multi-year shift away from fragmented collection toward larger, diversified recycling platforms. The scrap disruption compounds pressure on copper smelters. Under spot treatment charges of roughly negative US$225/t to negative US$94/t, one smelter indicated losses exceeding Rmb10k/t, partly offset by around Rmb3k/t of sulfuric-acid credit income. Contract treatment charges of US$146/t remain profitable with sulfuric-acid credits, but falling spot charges raise the risk of lower 2027 contract terms and deeper smelter curtailments. Refined-copper output already declined 2-4% year on year in July-August 2026, equivalent to an annualized decline of 290-570kt, and Goldman Sachs expects domestic refined-copper production to decline in 4Q26E and 2027E. Demand signals were mixed but supportive overall: a major cable maker’s orderbook rose 10% year on year in 9M26 even as copper consumption fell 9%, with strength in datacenters, shipbuilding, wind power and exports offsetting weak grid, infrastructure and property-linked cable demand. A trader also cited an annualized 0.2mnt production cut in the DRC and expected tighter global supply; the report therefore reiterates Buy ratings on Chinese copper equities including Zijin and CMOC. The coal conclusion is the reverse. Coal output fell after the May Shanxi accident and tougher safety controls, leaving monthly production about 11% below earlier-year levels and QHD5500 thermal-coal prices above Rmb1,000/t. However, Goldman Sachs’ discussions indicate that supply-security policy is being implemented faster than expected. The report estimates potential output additions exceeding 500mnt, or 11% of the market, through higher Shanxi SOE utilization, restarts and mines completing construction; another 8% of supply flexibility could be available if needed. Coal capacity in joint trial commissioning could add 280mnt in 1H27E, while recertification could add 120mnt of reserve capacity. Shanxi SOEs, representing about 70% of provincial coal capacity, are expected to carry much of the supply response, and selected mines could operate at up to 130% of approved capacity subject to approval. Imports also add to the supply response, with Mongolian met-coal imports expected to exceed 100mnt in 2026E versus 53mnt in 8M26A. As a result, Goldman Sachs expects tight coal markets to ease in 4Q26 and supply to potentially overshoot in 1H27. It cuts its 2027E benchmark QHD5500 thermal-coal forecast to Rmb750/t from Rmb850/t, while market participants expect thermal coal to correct to Rmb800-850/t and met-coal prices to fall more sharply. The lower coal-price assumptions drove earnings cuts and rating changes. Chinacoal’s 2027-28E earnings estimates were reduced by 8-19%, its 12-month targets were cut to HK$12.50 for H shares and Rmb16.00 for A shares, and both were downgraded to Neutral from Buy. Yankuang’s 2027-28E earnings estimates were cut 15-17%; its H-share target was lowered to HK$10.00 and the rating was downgraded to Sell from Neutral, while its A shares remain Sell with a Rmb14.00 target. Shenhua’s 2027-28E earnings estimates were reduced by 8-9%; targets were lowered to HK$42.00 and Rmb45.00, with Neutral ratings maintained. Broader Chinese demand feedback remained subdued. Construction-machinery dealers described activity as 10-20% below a year earlier, constrained by property weakness, slow non-key infrastructure execution and local-government financing difficulties. A property consultant expects both land sales and property starts to fall 30%, and industry participants expect property weakness to extend into 2027. EV demand did not show the usual seasonal 30-40% month-on-month pickup, particularly in higher-end segments, although new long-range and flash-charging models showed stronger orderbooks and exports were strong outside the US. ESS battery orders and utilization remained strong, with one producer fully planned into 1Q27, but aggressive capacity expansion, local-government project terms and power-sector oversupply may slow installation. Steel demand and CRC demand were weak, inventories elevated and margins depressed by met-coal and coke costs. For aluminum, Goldman Sachs sees only moderate near-term risk from an emerging El Nino. The key risk window for Yunnan hydropower is 1Q27E, conditional on water storage through September and October. Nuozhadu inflow was about 3,700 cubic meters per second versus roughly 7,000 in the comparable 2025 period, but water levels remained within a normal-year range. The report expects wind and solar additions to make power shortages more manageable than during prior drought episodes. It also says China’s 45mnt aluminum capacity cap appears intact, although output can run 5-10% above design capacity through higher current. New Indonesian aluminum capacity of 550kt was delayed from 4Q26E to 1Q27E amid ODI-policy and equipment-delivery delays, reducing estimated Indonesian output growth by 0.13mnt in 2026E and 0.43mnt in 2027E. Finally, the report finds that China’s new ODI rules, effective July 1, 2026 under State Council Order No. 837, are not intended to restrict outbound investment in general but may extend approval timelines and increase compliance requirements. MOFCOM procedures are expected to remain broadly unchanged, while NDRC reviews may take longer because of more comprehensive assessments. Copper, aluminum and uranium projects are viewed as relatively less disrupted; lithium conversion and rare-earth mining face export-control constraints, while overseas transfer of rare-earth separation and refining is prohibited. The rules remove the US$300mn threshold for sensitive countries or sectors, require pre-investment reporting for investments above US$100mn, introduce national-security reviews for strategic minerals and strengthen ongoing reporting and enforcement.

Analysis framework

Goldman Sachs combined a weeklong field trip, 23 meetings and site visits with industry, company and policy discussions. It assessed commodity supply-demand balances through operating feedback, production capacity, treatment charges, imports, policy developments and downstream order trends, then translated revised coal-price assumptions into earnings, valuation and rating changes for covered coal companies.

Methodology notes

• Industry AnalysisSupply-demand framework

  Commodity supply-demand balance analysis

  The report links scrap availability, smelter economics, mine output, imports, end-user demand and policy actions to expected copper, coal and aluminum price direction.

• Valuation methodsPB valuation

  Historical P/B versus ROE correlation

  Coal-company price targets 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).

• China Coal Energy H (1898.HK) / A (601898.SS)

  Covered coal producer exposed to lower 2027 coal-price assumptions.

  Strengths

  The report expects 2027E dividend yields of 4.8% for H shares and 3.2% for A shares at a 37% payout assumption.

  Weaknesses

  2027-28E earnings estimates were cut by 8-19% and ratings were downgraded from Buy to Neutral.

  Comparison

  The report views valuation as fair relative to Chinacoal’s historical trading range.

  Risks

  Coal prices, renewable-energy substitution, oil prices, safety and environmental disruptions, and new-mine ramp-up.

• Yankuang Energy H (1171.HK) / A (600188.SS)

  Covered coal producer negatively exposed to expected coal-price correction.

  Strengths

  The report expects 2027E dividend yields of 5.3% for H shares and 2.7% for A shares at a 59% payout assumption.

  Weaknesses

  2027-28E earnings estimates were cut 15-17%; the report sees weak fundamentals relative to valuation.

  Comparison

  Yankuang-H’s revised target implies -14% downside versus 11% average upside for Goldman Sachs commodities coverage.

  Risks

  Higher coal prices, slower renewable substitution, higher oil prices, mine disruptions, faster project ramp-up and potential parent asset injections could improve earnings.

• China Shenhua Energy H (1088.HK) / A (601088.SS)

  Covered coal producer affected by lower coal-price assumptions.

  Strengths

  The report maintains Neutral ratings.

  Weaknesses

  2027-28E earnings estimates were reduced by 8-9% and targets were lowered.

  Comparison

  The H-share and A-share targets were revised to HK$42.00 and Rmb45.00, respectively.

  Risks

  Coal prices, renewable substitution, oil prices, safety and environmental inspections, and new-mine project execution.

• Zijin Mining / CMOC

  Chinese copper equities benefiting from the report’s more positive copper-price outlook.

  Strengths

  Goldman Sachs reiterates Buy ratings as domestic scrap disruption and smelter losses point to copper-supply downside.

  Comparison

  The report considers copper’s supply profile more favorable than aluminum’s.

  Risks

  Copper supply conditions and downstream demand may develop differently from field-trip feedback.

Key data

• Stranded domestic copper scrapc.500kt per annumEstimated extended disruption from invoicing bottlenecks.
• China domestic copper scrap supply2.8mnt annuallyEquivalent to 14% of Chinese copper demand.
• China refined-copper output-2% to -4% YoY in July-August 2026Equivalent to a 290-570kt annualized decline.
• 2027E QHD5500 thermal-coal forecastRmb750/tReduced from Rmb850/t.
• Potential incremental coal outputOver 500mnt, or 11% of the marketWith an additional 8% of potential output flexibility.
• Chinacoal 2027-28E earnings revision-8% to -19%Primarily reflects lower coal-price assumptions.
• Yankuang 2027-28E earnings revision-15% to -17%Primarily reflects lower coal-price assumptions.

Impact & implications

The report’s commodity outlook favors copper over coal: persistent scrap and smelter constraints could tighten copper supply despite mixed downstream demand, whereas policy-supported coal output growth is expected to reduce tightness and weigh on coal prices and coal-sector earnings. Aluminum faces manageable but monitorable hydropower and overseas-project timing risks.

Risks

• Copper scrap conditions may stabilize faster than expected as invoiced-scrap compliance rises.
• Coal prices could be higher or lower than forecast depending on supply-demand conditions and government price-control measures.
• Coal demand could differ from expectations if renewable-energy substitution changes pace.
• Safety and environmental inspections could alter coal production volumes and costs.
• El Nino-related hydropower conditions in Yunnan could affect aluminum production, particularly in 1Q27.
• Stricter ODI compliance and longer approvals could delay selected overseas resource projects.

What to watch

• The outcome of 2027 copper TC/RC negotiations and whether smelters deepen production cuts.
• The pace of domestic copper-scrap compliance and the scale of stranded supply.
• Shanxi SOE production increases, suspended-mine restarts and 1H27 new-mine ramp-up.
• QHD thermal-coal prices and Mongolian met-coal import growth.
• Construction, property, EV and ESS installation trends entering 2027.
• Yunnan water storage through October 2026 and hydropower conditions in 1Q27.
• NDRC approval timelines and enforcement under the new ODI regulation.