China Basic Materials: Metal fundamentals are more resilient than share price expectations, and miners' earnings are likely to be supported

Overview

This report assesses the business conditions of the basic materials sector based on China's June NBS and customs data. The core conclusion is that against a backdrop of still-cautious domestic demand and weakening real estate and fixed asset investment, metal supply-demand fundamentals remain resilient and may support miners' earnings; however, differentiation within the sector is clear, with copper, gold, aluminum, and some lithium names preferred, while coal, steel, and the real-estate-related demand chain remain weak.

Core views

The report argues that market expectations for China materials stocks are too low, while supply-demand and profit signals for some metals are healthier. Copper supply remains tight; aluminum is supported by strong exports, declining inventories, and slower-than-expected ramp-up of new capacity in Indonesia; lithium prices have largely priced in the production restart permit for CATL's Jianxiawo mine and may fluctuate around RMB150k/t in the short term. In contrast, coal prices may remain soft due to hydropower substitution, recovering supply, and rising imports; steel is squeezed by insufficient demand, export pressure, and rising raw material costs, with earnings improvement requiring policy follow-through, domestic demand recovery, and cost relief.

Analysis framework

The report combines June NBS data on real estate, fixed asset investment, and industrial output, customs import-export data, social inventories, spot prices, futures prices, profit alerts, and global valuation comparisons to conduct a cross-sector comparison of China's basic materials sub-industries and map the results to covered companies and preference rankings.

Methodology notes

• Industry cycle trackingSupply-Demand-Inventory-Price-Profit Framework

  Assess sub-sector conditions through output, exports, inventories, prices, and profit alerts.

  The report analyzes aluminum, coal, steel, and lithium within a framework of output, imports and exports, inventory destocking, price trends, cost pressure, and earnings alerts to identify which links can support corporate profitability and which remain under pressure.

• Macro demand verificationReal Estate and Fixed Asset Investment Chain Tracking

  Use new starts, completions, real estate investment, manufacturing FAI, and infrastructure FAI to verify downstream demand strength.

  Real estate new starts, completions, and investment continue to decline, while manufacturing and infrastructure FAI have also weakened, indicating that the domestic demand backdrop remains cautious; therefore, the report prefers metal sectors with strong supply constraints or clear support from external demand and inventories.

Asset mapping & comparison

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

• Zijin Mining

  Top pick in copper and gold

  Strengths

  Benefits from tight copper supply, gold exposure, and improved 1H26 profit alerts.

  Weaknesses

  Gold companies may face higher-than-expected cost pressure in 2Q26.

  Comparison

  The report lists it as the top pick across both copper and gold, with a higher priority than most peers.

  Risks

  Metal price declines, greater-than-expected cost pressure, project execution issues, or policy changes.

• Chalco

  Preferred aluminum name

  Strengths

  Benefits from strong Chinese aluminum exports, declining inventories, slower-than-expected ramp-up of new capacity in Indonesia, and a valuation discount versus global peers.

  Weaknesses

  3Q is the downstream demand off-season, which may slow the pace of destocking.

  Comparison

  There is room for valuation re-rating relative to global aluminum peers.

  Risks

  Aluminum price declines, a worse-than-expected demand off-season, and faster-than-expected overseas capacity expansion.

• Hongqiao

  Preferred aluminum name

  Strengths

  Constructive aluminum fundamentals, with export and inventory data supporting earnings expectations, while the valuation discount provides room for re-rating.

  Weaknesses

  Prices may fluctuate within a range in 3Q in the short term.

  Comparison

  Along with Chalco, it is one of the report's preferred aluminum names.

  Risks

  Weak downstream demand, slower inventory destocking, and changes in policy and overseas capacity.

• Ganfeng Lithium

  More favored lithium name

  Strengths

  Battery exposure provides greater earnings visibility, and lithium prices have support around RMB150k/t.

  Weaknesses

  Lithium prices are driven by supply news and are highly volatile.

  Comparison

  The report prefers Ganfeng over other lithium names for its earnings visibility.

  Risks

  The pace of CATL Jianxiawo mine production restart, Zimbabwe concentrate arrivals, elevated auto inventories, and weak seasonal EV demand.

• Coal sector

  Weaker sub-sector

  Strengths

  Some Shanxi coking coal capacity remains suspended, creating some regional supply constraints.

  Weaknesses

  Thermal coal demand is weaker than expected, hydropower substitution is increasing, imports are rising, and prices have retreated from the June peak.

  Comparison

  Compared with copper, aluminum, gold, and lithium, coal has weaker short-term fundamentals.

  Risks

  Rising supply, improved availability of Indonesian imports, and a warm winter reducing restocking willingness.

• Steel sector

  Weaker sub-sector

  Strengths

  June finished steel exports rose 7% YoY, and crude steel output increased MoM.

  Weaknesses

  Overseas procurement is slowing, Southeast Asian prices are falling, coking coal and iron ore costs are rising, and the share of profitable steel mills has declined.

  Comparison

  Compared with metals and mining, steel earnings recovery is more dependent on policy support, domestic demand, and cost relief.

  Risks

  Greater export pressure, insufficient domestic demand recovery, and continued increases in raw material costs.

Key data

• MSCI China Materials Index monthly performance-14% MTDHSCEI was +1.4% MTD over the same period, reflecting weak equity expectations for materials stocks.
• June real estate new starts YoY-26% YoY1H26 was -23% YoY, and Karl Chan expects full-year new starts to decline 22%.
• June real estate completions YoY-25% YoY1H26 completions fell 24%, and the full-year forecast was lowered to a 20% decline.
• China aluminum output in June4.0mt，+4.7% YoY1H26 output was 23mt, up 3.8% YoY.
• China aluminum exports in June711kt，+45% YoY1H26 exports were 3.4mt, up 16.3% YoY.
• China aluminum social inventory1.08mtFell from the end-April peak of 1.47mt to the second week of July, with the inventory backdrop still favorable.
• Raw coal output in June381mt，-10% YoY1H26 output was 2,365mt, down 2% YoY; June imports were 42.8mt, up 29% YoY.
• Qinhuangdao 5500kcal thermal coal price约RMB800/tAbout RMB60/t below the June peak, affected by hydropower substitution and weaker-than-expected demand.
• Crude steel output in June84mt，约持平YoY，+3% MoM1H26 cumulative output was 500mt, down 3% YoY.
• Share of profitable steel mills40%Fell from 56% in mid-June to the second week of July, affected by rising coking coal and iron ore costs.
• Lithium price range约RMB150k/t至RMB190k+/tLithium carbonate prices fell from RMB190k+/t in mid-May to about RMB160k/t in mid-June, and moved closer to RMB150k/t after the permit for CATL's Jianxiawo mine.
• NEV output+29.4% YoYChina's NEV output rose YoY in June, a marked improvement from +0.9% in 5M26.

Impact & implications

The investment implication is that the materials sector should not be treated with a single cyclical logic; investors should distinguish between metals supported by supply constraints and inventories, and categories dragged down by real estate, energy substitution, and cost pressure. If the rate narrative becomes less hawkish and the market continues to revise down demand expectations, copper, gold, aluminum, and some lithium names with more resilient fundamentals may see valuation recovery; however, coal and steel lack clear short-term catalysts for earnings improvement.

Risks

• China's real estate new starts, completions, and investment continue to decline, dragging down demand for metals and building materials.
• Weakening manufacturing and infrastructure FAI may undermine the resilience of industrial metals demand.
• Aluminum enters the downstream demand off-season in 3Q, and inventory destocking may slow.
• Rising coal supply, hydropower substitution, and a potential warm winter may pressure prices.
• Steel exports face slower overseas procurement and regional price-cut pressure, while rising raw material costs continue to squeeze profits.
• Lithium prices are affected by CATL Jianxiawo mine production restart, Zimbabwe concentrate arrivals, and expectations for hidden inventories, and short-term volatility may intensify.
• Cost pressure for gold-related companies in 2Q26 may be higher than expected.

What to watch

• Subsequent NBS data on real estate new starts, completions, real estate investment, manufacturing FAI, and infrastructure FAI.
• Changes in China's aluminum social inventories, SHFE and LME aluminum prices, and the LME-SHFE spread.
• Progress in power infrastructure for Indonesian aluminum projects and policy constraints on Chinese companies' overseas capacity expansion.
• The actual pace of coal production resumption after the Shanxi coal accident, thermal coal imports, and hydropower output.
• The share of profitable steel mills, coking coal and iron ore prices, Southeast Asian steel prices, and the pace of overseas procurement.
• The restart date and output contribution of CATL's Jianxiawo mine, Zimbabwe concentrate arrivals, lithium salt inventories, and seasonal NEV production schedules.
• Delivery of 1H26 profit alerts and 2Q26 cost pressure for copper, gold, aluminum, and lithium companies.