JPMorgan sees strong Q1 earnings leverage in gold, copper and aluminum, and upgrades Jiangxi Copper to Overweight

Overview

This is a JPMorgan Q1 2026 earnings preview and rating adjustment report on China's basic materials sector. It covers gold, copper, aluminum, lithium, coal and steel, assessing sector opportunities by combining macro commodity prices, company production guidance, cost changes, sulfuric acid supply-demand impacts and valuation levels. The core conclusion is that gold still offers the best risk-reward, copper and aluminum have strong earnings leverage, lithium fundamentals have improved but valuation already reflects much of the recovery, coal is constrained by weaker seasonal demand, and steel margins remain weak.

Core views

The report believes that Q1 2026 earnings growth is most clearly visible in gold, copper and aluminum. Shanghai gold and Shanghai copper average prices are up about 15% and 13%, respectively, from 4Q25, driving earnings growth for companies such as Zijin Mining, SD Gold and CMOC; aluminum is up about 12% versus 4Q25 while alumina costs have eased, benefiting Chalco and Hongqiao. The key change in Jiangxi Copper is the sharp rise in sulfuric acid prices, which has become the critical margin source offsetting weak TC/RC and therefore supported the upgrade to Overweight. In contrast, lithium prices have risen sharply from troughs but equity valuations already reflect substantial recovery expectations; coal faces limited upside due to weaker spring demand, and steel remains burdened by low margins and export uncertainty.

Analysis framework

The report uses a top-down and bottom-up mix: it first compares commodity prices, inventories, supply-demand and cost trends across gold, copper, aluminum, lithium, coal and steel sub-industries, then maps these to company-level output, unit costs, margins, valuation and ratings. Company valuation uses DCF, SOTP, NPV and forward 12-month target P/E, as well as A/H premium methods, and draws conclusions around target prices, rating changes, earnings forecast revisions and key risks.

Methodology notes

• Valuation methodsDCF

  Discounted cash flow valuation

  DCF is used for target prices of companies such as Zijin Mining, CMOC and Jiangxi Copper, with key assumptions including WACC and terminal growth rate, for example Jiangxi Copper-A target price of Rmb64 is based on 8% WACC and 2.5% terminal growth.

• Valuation methodsSOTP

  Sum-of-the-parts valuation

  Gold peers such as Zijin Gold International and Shandong Gold apply SOTP, combining NPV and trailing 12-month target P/E in a weighted manner to reflect mine asset value and market valuation multiples.

• Industry comparisonCommodity price and cost sensitivity

  Commodity price and cost sensitivity analysis

  The report uses price changes in gold, copper, aluminum, lithium and sulfuric acid together with unit cost changes to judge earnings leverage across companies. For example, each $100/t increase in sulfuric acid price is estimated to lift Jiangxi Copper earnings by about 4% in theory.

• Market structureA/H premium mapping

  A/H share target-price mapping

  Some H-share target prices are referenced from A-share target prices and converted using the average three-month A/H premium, such as Zijin Mining-H, Shandong Gold-H and CMOC-H.

Asset mapping & comparison

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

• Gold

  Top allocation direction

  Strengths

  Gold is at elevated levels and M&A/production updates could bring repricing, with Zijin Mining and Zijin Gold positioned as key preferred names.

  Weaknesses

  Rising unit costs, declining ore grades, execution risk in overseas projects, and M&A completion uncertainty.

  Comparison

  Compared with other basic materials sub-industries, gold is considered to offer the best risk-reward.

  Risks

  Gold price volatility, M&A delays or failure, geopolitical and operating risks at overseas mines.

• Copper

  Positive allocation direction

  Strengths

  Copper prices remain resilient, production growth from companies such as Zijin/CMOC, and Jiangxi Copper is supported by higher sulfuric acid prices.

  Weaknesses

  TC/RC remains weak, while copper mine costs are pressured by wages, fuel, royalties and lower ore grades.

  Comparison

  Along with gold, copper is a favored upstream resource direction in the report, but company-level sulfuric acid exposure varies substantially.

  Risks

  Copper prices below expectations, rising costs, DRC acid supply disruptions, and downward revisions to Kamoa-Kakula production guidance.

• Aluminum

  Positive allocation direction

  Strengths

  The global aluminum deficit is expected to reach about 1.9Mt in 2026, and aluminum prices are rising while alumina and power costs are weakening, allowing margin expansion.

  Weaknesses

  Production growth remains relatively stable, while higher carbon anode costs may partially offset cost improvements.

  Comparison

  Listed alongside copper as a priority direction after gold, driven by both price and cost.

  Risks

  Declining aluminum prices, cost rebound, and normalization of global supply shocks.

• Lithium

  Neutral to cautious

  Strengths

  Lithium carbonate is around Rmb150k/t, up roughly 69% from 4Q25, and EV/ESS demand together with supply disruptions may tighten the balance.

  Weaknesses

  Stock valuations already reflect substantial recovery expectations, leaving limited margin of safety, and higher spodumene costs would lift COGS.

  Comparison

  Fundamentals have improved, but the priority is lower than gold, copper and aluminum.

  Risks

  Price decline, mine ramp-up normalization, cost increases, valuation compression.

• Coal

  Neutral to weak

  Strengths

  Some companies have improved operating efficiency and broadly stable costs.

  Weaknesses

  Seasonally weaker spring demand, uncertain restocking pace, and limited upside.

  Comparison

  Lower priority than lithium, but higher than steel.

  Risks

  Further demand softening, price declines, and drag from chemical operations.

• Steel

  Most cautious direction

  Strengths

  Lower raw material costs provide some cushion.

  Weaknesses

  Weak pricing, margins still low or negative, and Angang remains loss-making.

  Comparison

  Ranks last in the report’s sector ordering.

  Risks

  Export affected by Middle East conflicts, weak progress in reducing internal competition, and raw material costs higher than expected.

• Jiangxi Copper

  Core upgraded name

  Strengths

  Higher sulfuric acid prices materially improve smelting economics, SolGold acquisition provides long-term upstream copper mine upside, and 2026–2027 earnings forecasts are raised by 34%–60%.

  Weaknesses

  TC/RC environment remains unfavorable; long-term contract coverage means spot sulfuric acid price upside is not fully captured immediately.

  Comparison

  Among copper smelters, its net sulfuric acid producer profile makes it a bigger beneficiary in the current sulfuric acid constrained environment.

  Risks

  Sulfuric acid prices decline, TC/RC continues to deteriorate, SolGold contribution is delayed, copper prices below expectations.

Key data

• MSCI China Materials rebound17%The sector rebounded after the late-February selloff and outperformed MSCI China by 12 percentage points.
• Industry preference rankingGold > Copper/Aluminum > Lithium > Coal > SteelReflects the report's ranking of risk-reward and earnings leverage.
• Q1 2026 commodity price changesShanghai gold up 15% vs 4Q25; Shanghai copper up 13% vs 4Q25; Shanghai aluminum up 12% vs 4Q25Price increases are the main driver of earnings growth for gold, copper and aluminum.
• Selected Q1 earnings outlookCMOC +136% YoY; SD Gold +132%; Zijin Mining +97%; Jiangxi Copper +31%; Chalco +54%The report expects the largest year-on-year gains from gold, copper and aluminum-related companies.
• Sulfuric acid priceabout Rmb2,000/tAbout doubled from around Rmb1,000/t at end-2025, serving as a major catalyst for the Jiangxi Copper upgrade.
• Jiangxi Copper-A rating and target priceOverweight; Rmb64Previously Neutral with a prior target price of Rmb50.
• Jiangxi Copper-H rating and target priceOverweight; HK$51Previously Neutral with a prior target price of HK$41.
• Expected global aluminum supply gapabout 1.9Mt in 2026The report sees the global aluminum deficit supporting aluminum prices and expansion in aluminum company margins.
• Share of constrained sulfur supplyabout 55% of global sulfur supply is constrainedClosure of the Strait of Hormuz and potential Chinese export bans jointly create a supply bottleneck.

Impact & implications

The investment implication is that within the sector, one should focus on differentiated earnings leverage and risk-reward. Gold companies are supported by high prices and M&A catalysts, while copper smelting and mining companies are driven by copper prices, production and sulfuric acid byproducts, and aluminum firms benefit from both rising prices and lower costs; but lithium stocks are already relatively expensive, coal upside is constrained by weak seasonal demand, and steel still lacks evidence of margin recovery. The Jiangxi Copper upgrade is one of the clearest stock-level actions, reflecting sulfuric acid price increases improving smelting economics at the margin.

Risks

• Commodity price volatility, especially gold, copper, aluminum, lithium and coal prices coming in weaker than expected.
• If sulfuric acid supply disruptions persist beyond Q3, they may turn from a pricing issue into an availability issue, affecting costs for DRC SX-EW copper mines and lithium companies.
• Gold and copper miners face rising unit costs, declining ore grades, and increasing royalties and labor costs.
• Integration, completion and returns from M&A deals such as Allied Gold, Chifeng or SolGold are uncertain.
• Although lithium supply is disrupted, sector valuations are already high; if price recovery is weaker than expected, stocks may face valuation contraction.
• Spring coal demand is weak and steel margins are depressed, with steel profits also affected by export risk from geopolitical conflict.

What to watch

• Progress of gold M&A, including completion and production-plan updates for Zijin Mining/Chifeng and Zijin Gold/Allied Gold.
• Changes in base metals inventories, especially whether copper inventories continue to decline and whether aluminum social inventories remain elevated.
• Q2 2026 lithium supply changes, including CATL Jianxiawo mine restart probability, Zimbabwe spodumene export policy and Jiangxi mine permit constraints.
• Spring coal demand and restocking pace.
• Trends in steel exports and margin recovery, especially the effect of Middle East conflict on export flows.
• Whether sulfuric acid prices, Strait of Hormuz disruptions and Chinese export bans persist or escalate.