Energy storage demand continues to support lithium battery demand; Greater China materials sector maintains an Attractive view

Overview

This is a Morgan Stanley Greater China materials sector weekly monitor covering sectors such as base metals, battery metals, gold, steel, cement, coal, and glass. The core message is that energy storage demand continues to support lithium battery demand, with planned lithium battery output for July reaching a record high and energy storage accounting for more than 40% of demand; meanwhile, lithium salt prices declined month over month, showing that a divergence between supply-demand fundamentals and pricing still exists.

Core views

The report's Asia Pacific industry view on the Greater China materials sector is Attractive. On the demand side, the most prominent support comes from energy storage, which contributes more than 40% of lithium battery demand; on the supply and policy side, developments include China's draft long-term energy supply contracts, the resumption of production at coal mines in Qinyuan County, the Democratic Republic of the Congo requiring tax authorities to avoid aggressive enforcement against mining companies, and Indonesia rejecting a comprehensive increase in the national nickel production quota. On pricing, base metals were relatively stable, battery metal prices were under pressure, gold retreated, and steel, cement, coal, and glass mostly saw modest fluctuations.

Analysis framework

The report uses a weekly industry monitoring framework, tracking commodity prices, inventory changes, policy events, supply disruptions, and the ratings table for covered companies to assess the materials sector's short-term momentum and medium-term relative performance. The analytical focus is not on the financial forecasts of a single company, but on observing supply-demand changes across the value chain through weekly price and inventory signals.

Methodology notes

• Industry Momentum TrackingWeekly Monitor

  Weekly monitoring of prices, inventories, and policy events

  By updating key commodity prices, inventories, and policy changes every week, it identifies marginal changes in supply and demand in the materials sector.

• Industry ViewIndustry View

  Attractive / In-Line / Cautious

  Morgan Stanley uses Industry View to express the expected performance of an industry coverage basket relative to the relevant benchmark over the next 12-18 months; the view on the Greater China materials sector in this report is Attractive.

• Equity Rating SystemMorgan Stanley Relative Rating System

  Overweight / Equal-weight / Not-Rated / Underweight

  Morgan Stanley uses a relative rating system to assess a stock's risk-adjusted performance relative to the average total return of the industry coverage basket over the next 12-18 months.

Asset mapping & comparison

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

• Lithium battery and energy storage value chain

  Energy storage demand is an important source of support for lithium battery demand

  Strengths

  Planned lithium battery output for July reached a record high, with energy storage accounting for more than 40% of demand.

  Weaknesses

  Lithium hydroxide and lithium carbonate prices both posted weekly declines of 4.7%-5.6%.

  Comparison

  Demand is strong, but battery metal prices are weaker than the demand narrative suggests.

  Risks

  If lithium salt prices continue to fall, profitability for related upstream players may come under pressure.

• Base metals

  Copper and aluminum prices and inventories reflect short-term supply-demand conditions

  Strengths

  Shanghai copper inventory fell 34.9% month over month, and Shanghai aluminum inventory fell 1.1% month over month.

  Weaknesses

  Shanghai copper prices were flat, and price elasticity is not yet obvious.

  Comparison

  Compared with battery metals, base metal prices were more stable.

  Risks

  Macro demand, inventory replenishment, and policy changes may alter price trends.

• Coal

  Energy supply contracts and coal mine production resumptions affect coal supply-demand expectations

  Strengths

  QHD5500 coal prices edged up month over month to Rmb722/t.

  Weaknesses

  Inventories were broadly flat month over month, and the magnitude of the price increase was limited.

  Comparison

  Coal price volatility was lower than that of battery metals.

  Risks

  Coal mine production resumptions, contract mechanisms, and policy adjustments may affect prices.

• Steel and building materials

  Steel, cement, and glass reflect demand related to real estate and infrastructure

  Strengths

  Shanghai HRC, CRC, and cement prices rose slightly, while traders' inventories of long and flat steel products declined.

  Weaknesses

  Shanghai rebar prices fell 0.8% month over month, and float glass prices fell 0.2% month over month.

  Comparison

  The sector as a whole was characterized mainly by modest fluctuations, lacking a strong trend.

  Risks

  Weak end demand, inventory changes, and capacity adjustments may weigh on prices.

Key data

• Planned lithium battery output for JulyRecord highEnergy storage accounted for more than 40% of demand.
• Industrial-grade lithium hydroxide priceDown 5.6% month over monthDomestic price.
• Battery-grade lithium hydroxide priceDown 5.1% month over monthDomestic price.
• Industrial-grade lithium carbonate priceDown 4.9% month over monthDomestic price.
• Battery-grade lithium carbonate priceDown 4.7% month over monthDomestic price.
• Shanghai copper inventoryDown 34.9% month over monthShanghai copper prices were broadly flat.
• Shanghai aluminum price and inventoryPrice up 0.4% month over month; inventory down 1.1% month over monthChange versus one week earlier.
• Gold priceUS$3,977/oz; down 3.6% month over monthWeekly price change.
• QHD5500 coal priceRmb722/t; up 0.1% month over monthAs of July 17; inventory at 6.8mnt, broadly flat month over month.
• Cement priceRmb310/t; up 0.1% month over monthAs of July 17.
• Average fiberglass 2400tex priceRmb4,067/t; flatFloat glass prices fell 0.2% month over month, and the price of 3.2mm tempered photovoltaic glass was Rmb15.0/m².

Impact & implications

The rising share of energy storage demand implies that the lithium battery value chain still has structural demand support, but the simultaneous decline in lithium salt prices indicates that supply, inventory, or bargaining-power pressure is still constraining price elasticity. Falling inventories of base metals provide some support to copper and aluminum prices; coal, steel, cement, and glass prices saw relatively small movements, reflecting more of a short-cycle supply-demand balance and policy disruptions. The Attractive sector view suggests that the materials sector may offer attractive relative performance versus the benchmark over the next 12-18 months, but investment judgments still need to incorporate price trends in each subsector, policy changes, and differences in company ratings.

Risks

• Continued declines in lithium salt prices may weaken upstream battery metal profitability.
• Indonesia's nickel production quota policy may affect nickel supply expectations and price volatility.
• Changes in mining enforcement policy in the Democratic Republic of the Congo may affect the operating environment for mining companies.
• The materials sector is highly influenced by macro demand, real estate and infrastructure cycles, inventory changes, and commodity price volatility.
• Morgan Stanley discloses shareholdings, investment banking relationships, or other service relationships with multiple covered companies, and investors should consider potential conflicts of interest.

What to watch

• Whether the share of energy storage in lithium battery demand can continue to remain high.
• Whether lithium hydroxide and lithium carbonate prices stabilize, and the impact of price declines on upstream company margins.
• The implementation details of China's draft long-term energy supply contracts and their impact on coal pricing mechanisms.
• Changes in Indonesia's nickel production quota policy and mining regulatory enforcement in the Democratic Republic of the Congo.
• Whether declining copper and aluminum inventories translate into clearer upward price momentum.
• Whether prices and inventories of steel, cement, glass, and other building materials show trend improvement.