China Basic Materials Weekly: Falling Copper Inventories Support Resilience, While Aluminum, Gold, and Steel Are Weak

Overview

This report is Bank of America's weekly overview of China's basic materials sector, covering copper, aluminum, gold, steel, cement, glass, paper, solar glass, and some minor metals. The report believes macro factors were mixed this week: easing geopolitical risks and sticky U.S. inflation together drove a pullback in copper prices and heightened volatility; fundamentally, copper remained resilient due to declining inventories, but demand was still price-sensitive, with purchases mainly made on an as-needed basis. Aluminum, gold, and steel prices all weakened, cement and glass demand stayed soft, and paper prices and margins recovered somewhat.

Core views

The core view is that there is clear divergence within basic materials. The rapid decline in copper inventories is the most notable positive signal, with Shanghai bonded warehouse and social inventories down 28.1% and 15.2%, respectively, while exchange inventories of SHFE and LME copper also fell 23.6% and 3.3%, respectively. However, sticky inflation at the macro level and price-sensitive demand limit further upside in copper prices. Aluminum prices and profits both declined, while spot COMEX gold fell 1.5%. In steel, the earlier gains driven by policy support and improved sentiment failed to persist; coking coal price increases were largely priced in, profits were squeezed, and weak demand data led steel prices to pull back. In construction materials, cement and glass demand remained weak, with price increases constrained by end demand; in paper, the narrowing supply-demand gap led to marginal improvements in prices and profits.

Analysis framework

The report uses a weekly tracking framework of prices, inventories, production, operating rates, margins, and demand indicators, combining LME, Changjiang spot, SHFE, LME, COMEX, Mysteel, and industry price and inventory data to assess short-term supply-demand strength and profit changes across China's basic materials sub-sectors.

Methodology notes

• Weekly Commodity Fundamentals TrackingLinked Analysis of Prices, Inventories, and Margins

  Assess short-term supply-demand conditions through changes in spot and futures prices, social inventories, exchange inventories, treatment charges, and cash profits.

  Declining copper inventories and deeply negative TC/RC point to tight supply or pressure on smelters, while falling aluminum and steel profits reflect cost and demand pressure; cement, glass, and paper are assessed through prices, shipment rates, inventory days, and gross margins.

• Cross-Industry ComparisonDivergence in Basic Materials Sub-sector Conditions

  Compare price, demand, and profit changes across copper, aluminum, gold, steel, cement, glass, paper, and solar glass within the same weekly window.

  This method highlights copper's inventory resilience, demand pressure in steel and construction materials, and profit recovery driven by improving supply-demand conditions in paper, helping identify relative strength and weakness within basic materials.

Asset mapping & comparison

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

• Copper

  Core tracked commodity, representing the resilience of nonferrous fundamentals.

  Strengths

  Shanghai and exchange inventories fell significantly, deeply negative TC/RC indicates tight supply, and domestic spot prices still rose slightly.

  Weaknesses

  LME copper price fell WoW, demand remains price-sensitive, and purchases are mainly on an as-needed basis.

  Comparison

  Compared with aluminum, steel, and construction materials, copper has a stronger inventory signal, but macro volatility limits price performance.

  Risks

  Sticky U.S. inflation, shifts in macro risk appetite, demand price sensitivity, and unsustainable inventory declines.

• Aluminum

  A weaker segment within nonferrous metals.

  Strengths

  Spot and profit data remain trackable, with relatively high industry chain transparency.

  Weaknesses

  Both LME aluminum and Changjiang spot prices fell, and profit declined to RMB 7,593/t.

  Comparison

  Weaker than copper, lacking support similar to copper's rapid inventory decline.

  Risks

  Weakening demand, changes on the cost side, and rising inventories may continue to pressure profits.

• Gold

  Tracked precious metals pricing item.

  Strengths

  Still has macro safe-haven characteristics, but the report did not emphasize new positive catalysts this week.

  Weaknesses

  Spot COMEX gold fell 1.5% WoW to USD 4,156/oz.

  Comparison

  Underperformed copper this week and was more affected by macro factors and risk appetite.

  Risks

  Inflation, interest rate expectations, USD movements, and easing geopolitical risks may affect gold prices.

• Steel

  A ferrous metals asset mapped to China's demand cycle.

  Strengths

  Policy support and improved sentiment once boosted ferrous products early in the week, and finished steel output edged higher.

  Weaknesses

  May data was weaker than expected, end demand remained cautious, inventories rose slightly, consumption softened, and cash profits turned further negative.

  Comparison

  Compared with copper, steel is more affected by weak domestic demand and margin compression.

  Risks

  Property and infrastructure demand falling short of expectations, persistently negative profits, and insufficient pre-holiday restocking.

• Cement

  A high-frequency indicator of construction materials demand and construction activity.

  Strengths

  Producers in some regions attempted price hikes to ease operating pressure, and the national shipment rate rose slightly.

  Weaknesses

  The national average price fell slightly, with demand dragged down by seasonal factors such as exams and intermittent rainfall, while price hikes are constrained by weak end demand.

  Comparison

  Compared with paper, cement lacks clear signs of profit recovery.

  Risks

  Rainy season, slower construction, elevated inventory ratios, and continued weak end demand.

• Glass and Solar Glass

  Tracked assets for construction materials and PV chain demand.

  Strengths

  Solar glass prices were basically flat, and inventory days fell 2.8% WoW to 51.4 days.

  Weaknesses

  Float glass prices declined, Xinyi float glass GPM fell to 7.7%, downstream orders were weak, and inventory days remained high.

  Comparison

  Weaker than paper, with more evident demand-side pressure.

  Risks

  Insufficient downstream orders, slow inventory destocking, sustained high capacity, and further decline in gross margins.

• Paper

  An observation item for packaging paper supply-demand and margin recovery.

  Strengths

  Paper prices rose 1.0% WoW, waste paper prices increased, and Nine Dragons profit tracking improved to RMB 102/t.

  Weaknesses

  The improvement mainly comes from a narrowing supply-demand gap, and its sustainability still needs verification.

  Comparison

  Compared with cement and glass, paper's short-term marginal improvement is clearer.

  Risks

  Unsustained demand recovery, rising waste paper prices squeezing profits, and renewed supply growth.

Key data

• LME Copper PriceUSD 13,527/t, down 0.9% WoWAs of Jun 19; China's spot copper price rose 0.5% WoW to RMB 105,270/t.
• Copper TC/RC–USD 120.7/tStill deeply negative, reflecting tightness in copper concentrate processing or pressure on the smelting side.
• Shanghai Copper InventoriesBonded warehouse down 28.1% WoW, social inventories down 15.2% WoWAs of Jun 21, a key indicator in the report supporting the resilience of copper fundamentals.
• Exchange Copper InventoriesSHFE 144kt, down 23.6% WoW; LME 352kt, down 3.3% WoW; COMEX 652kt, up 0.3% WoWAs of Jun 21, showing declines in China and LME inventories, but a slight increase in COMEX.
• LME Aluminum PriceUSD 3,400/t, down 3.8% WoWChangjiang spot aluminum price fell about 1.1% WoW to RMB 23,870/t, while profit fell to RMB 7,593/t.
• COMEX Spot GoldUSD 4,156/oz, down 1.5% WoWAs of Jun 19.
• Rebar and HRC PricesRebar RMB 3,282/t, down 0.8% WoW; HRC RMB 3,366/t, down 0.4% WoWAs of Jun 18, steel prices in major cities retreated.
• Steel Mill Cash ProfitRebar –RMB 334/t, HRC –RMB 360/tAs of Jun 12, down RMB 46/t and RMB 36/t WoW, respectively.
• Steel Output and UtilizationFinished steel weekly output 8.57mnt, up 0.5% WoW; blast furnace utilization 90.8%, up 0.5ppt WoWOutput edged up, but consumption softened to 8.45mnt, indicating demand remains cautious.
• National Average Cement PriceRMB 313/t, down 0.1% WoWAs of Jun 18, the national shipment rate rose to 40.1%, while inventory ratio held at 64.7%.
• Float GlassNational average price RMB 1,114/t, down 0.5% WoW; Xinyi float glass GPM fell to 7.7%Affected by weak downstream orders and the Dragon Boat Festival holiday; inventory was 69.37mn weight boxes, equal to 36.78 days.
• Paper Prices and ProfitContainerboard RMB 3,755/t, up 1.0% WoW; Nine Dragons profit tracking at RMB 102/tPaper prices improved as the supply-demand gap narrowed.

Impact & implications

In terms of investment implications, the basic materials sector is better viewed through the lens of sub-sector divergence rather than a single directional call in the short term. Declining copper inventories and deeply negative TC/RC still support its relative resilience, but prices are already constrained by macro volatility and demand price sensitivity. Steel, cement, and glass are affected by weak end demand, margin compression, and inventory pressure, limiting near-term upside. Paper is showing marginal improvement due to rising prices and margin recovery, but it remains necessary to watch whether the narrowing supply-demand gap is sustainable.

Risks

• Sticky U.S. inflation and changes in macro risk appetite could intensify commodity price volatility.
• China's end-demand recovery may be weaker than expected, especially affecting steel, cement, glass, and aluminum.
• Copper demand is price-sensitive; if as-needed procurement continues, the support from inventory declines for prices may weaken.
• Persistently negative cash profits at steel mills may affect production pace and industry sentiment.
• If cement and glass inventories and weak order pressure persist, price hike attempts may be difficult to implement.
• If paper margin recovery mainly relies on a short-term narrowing of the supply-demand gap, its sustainability remains uncertain.

What to watch

• Whether copper inventories in Shanghai, Guangdong, and exchanges continue to decline.
• Whether copper TC/RC remains deeply negative and its impact on smelter profits.
• Changes in LME copper, Changjiang copper prices, and domestic spot premiums/discounts.
• Changes in aluminum prices, aluminum profits, and aluminum ingot inventories.
• Steel consumption, output, blast furnace utilization, and steel mill cash profits under Mysteel's metrics.
• Cement shipment rates, inventory ratios, and implementation of price hikes across regions.
• Glass inventory days, float glass GPM, and solar glass inventory destocking.
• Whether paper prices, waste paper prices, and Nine Dragons profit tracking can continue to improve.