China Basic Materials Weekly: Aluminum Margins Recover, Lithium Prices Pull Back, Steel and Building Materials Demand Remains Weak

Overview

This report is Bank of America's weekly overview of China's basic materials sector, covering base metals, precious metals, lithium, steel, cement, glass, paper, and solar glass. The report focuses on commodity prices, inventories, processing fees, steel mill profits, and building materials demand, concluding that tight supply is supporting copper prices and aluminum margins, while weak end demand continues to weigh on steel, cement, glass, and solar glass performance.

Core views

The core views include: first, copper concentrate supply remains tight, with spot TC/RC staying deeply negative, indicating ongoing raw material constraints; second, aluminum prices rose WoW and smelting margins improved significantly, making it one of the stronger segments this week; third, lithium prices continued to decline despite lower port lithium ore inventories; fourth, steel prices pulled back amid soft demand, but falling iron ore prices helped sequentially repair rebar and hot-rolled coil margins; fifth, cement, glass, paper, and solar glass were generally weak, with demand, inventory, and margin pressures still requiring close monitoring.

Analysis framework

The report uses a weekly high-frequency tracking approach, combining indicators such as spot prices, futures prices, social inventories, exchange inventories, port inventories, processing fees, shipment rates, inventory days, and cash margins to assess marginal supply-demand changes across China's basic materials sub-sectors.

Methodology notes

• High-frequency price and inventory trackingWeekly comparison of commodity prices, social inventories, and exchange inventories

  Assess the tightness of metal supply and demand through LME, COMEX, SHFE, domestic spot, and social inventory data.

  For copper, the report simultaneously tracks LME copper prices, China's spot copper prices, Shanghai and Guangdong inventories, SHFE/LME/COMEX inventories, and TC/RC to determine whether copper concentrate and spot supply are tight.

• Margin trackingSteel mill cash margin and aluminum smelting margin estimation

  Estimate steel mill and aluminum smelting profitability by combining changes in finished product prices and raw material costs.

  The report shows aluminum smelting margins improving to RMB 8,086/t and tracks rebar and hot-rolled coil cash margins to assess cost-side cushioning when prices fall.

• Building materials demand monitoringCement shipment rates, inventory ratios, glass inventory days, and solar glass capacity

  Identify peak and off-peak seasons and demand strength in building materials through shipment, inventory, and capacity indicators.

  Lower cement shipment rates, elevated glass inventory days, and rising solar glass inventory days all point to still-weak end demand or supply-demand balance.

Asset mapping & comparison

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

• Copper

  Tight supply supports pricing and bargaining signals across the value chain

  Strengths

  Copper concentrate supply is tight, TC/RC remains negative, and some exchange inventories have declined.

  Weaknesses

  Downstream buyers turned more cautious after the price rebound, and overall trading was subdued.

  Comparison

  LME copper prices rose while China's spot copper prices fell, showing a divergence between offshore/onshore markets and local demand conditions.

  Risks

  If imports increase or downstream demand continues to weaken, the support from spot tightness may diminish.

• Aluminum

  A relatively strong sub-sector with improving margins

  Strengths

  LME aluminum prices rose, and aluminum smelting margins improved to RMB 8,086/t.

  Weaknesses

  Changjiang spot aluminum prices still edged down WoW, with domestic spot performance lagging LME.

  Comparison

  Compared with lithium, steel, and glass, aluminum shows a more positive margin signal.

  Risks

  Changes in costs such as power and alumina, as well as fluctuations in end demand, may affect margin sustainability.

• Lithium

  Downward price pressure remains

  Strengths

  Port lithium ore inventories fell 9.3% WoW, showing some inventory drawdown.

  Weaknesses

  Lithium carbonate prices fell 7.3% WoW, indicating weak price momentum.

  Comparison

  In contrast to improving aluminum margins, the lithium segment remains in a downward adjustment phase.

  Risks

  If demand for new energy materials misses expectations or supply is released faster than expected, prices may remain under pressure.

• Steel

  Soft demand but marginal margin recovery

  Strengths

  Falling iron ore prices helped improve steel mill cash margins sequentially, while inventories continued to decline.

  Weaknesses

  Rebar and hot-rolled coil prices fell, and apparent consumption declined to 8.8 mnt.

  Comparison

  Stricter capacity replacement requirements at the policy level may constrain supply over the long term, but prices remain dragged by demand in the short term.

  Risks

  Insufficient demand from real estate, infrastructure, and manufacturing may continue to pressure steel prices and shipments.

• Cement

  Price defense coexists with weakening demand

  Strengths

  The national average price rose slightly, and rising cost pressure and supply control expectations strengthened producers' willingness to stabilize prices.

  Weaknesses

  Shipment rates fell to 38.3%, inventory ratios rose to 66.2%, and rainy weather weakened end demand.

  Comparison

  Compared with metals, cement is more affected by local construction demand and seasonal weakness.

  Risks

  The rainy season, off-season conditions, and high inventories may limit the sustainability of price increases.

• Glass and solar glass

  Supply-demand pressure and profit decline are relatively evident

  Strengths

  Export orders provided some support for float glass, and some solar glass capacity declined.

  Weaknesses

  Float glass prices fell slightly, inventory days remained high, and solar glass GPM declined significantly WoW.

  Comparison

  Margin pressure in solar glass is more pronounced than in conventional float glass.

  Risks

  If pressure from new supply persists or end-market installation demand misses expectations, inventory and margin pressure may continue.

• Paper

  Slight price improvement but limited margin recovery

  Strengths

  Containerboard and corrugated paper prices rose, and the imbalance between demand and supply narrowed somewhat.

  Weaknesses

  Nine Dragons margin tracking was only RMB 116/t, so profitability still needs to be monitored.

  Comparison

  Paper price performance was better than glass, but margin elasticity remained weak.

  Risks

  Waste paper costs, packaging demand, and changes in export channels will affect profitability.

Key data

• LME copper priceUSD 13,615/t, +0.8% WoWAs of May 22; China's spot copper price fell 1% WoW to RMB 104,700/t.
• Copper spot TC/RC-USD 106.3/tBelow -USD 100/t for the second consecutive week, reflecting continued tightness in copper concentrate supply.
• LME aluminum priceUSD 3,720/t, +2.5% WoWChangjiang spot aluminum prices edged down 0.1% WoW to RMB 24,350/t.
• Aluminum smelting marginRMB 8,086/tThe report says aluminum smelting margins improved.
• COMEX gold spot priceUSD 4,509/oz, -0.7% WoWPrecious metal prices pulled back slightly.
• Lithium carbonate priceRMB 178,000/t, -7.3% WoWLithium prices continued to decline; port lithium ore inventories fell 9.3% to 233kt.
• Rebar priceRMB 3,368/t, -1.4% WoWAs of May 22; domestic steel prices in major cities retreated.
• Hot-rolled coil priceRMB 3,420/t, -1.8% WoWSteel demand remained soft, while iron ore prices fell 5.1% WoW to USD 106.4/t.
• Apparent steel consumption8.8 mnt, -3.4% WoWFinished steel inventories fell 1.2% WoW, but consumption weakened in tandem.
• National average cement priceRMB 314/t, +0.1% WoWShipment rates fell 5.6 percentage points to 38.3%, while inventory ratios rose to 66.2%.
• Average float glass priceRMB 1,148.2/t, -0.23% WoWSupply pressure increased, and Xinyi float glass GPM fell 0.3 percentage points to 11.5%.
• Paper priceRMB 3,674/t, +0.6% WoWAs of May 20; Nine Dragons margin tracking stood at RMB 116/t.
• Solar glass marginFlat Glass GPM and Xinyi Solar GPM fell 11.7% and 23.5% WoW, respectively2.0mm solar glass prices declined, and inventory days expanded to 53.25 days.

Impact & implications

In terms of investment implications, the report is more supportive of focusing on aluminum- and copper-related assets that benefit from cost advantages, tight supply, or margin improvement; lithium, steel, building materials, and solar glass still need validation from demand recovery, inventory destocking, or supply contraction. As this report is high-frequency industry tracking rather than in-depth single-stock research, its conclusions are more suitable as a reference for industry conditions and price signals.

Risks

• End demand in China's basic materials sector remains weak, especially for steel, cement, glass, and solar glass, where demand is still affected by the off-season, rainfall, or inventory pressure.
• Commodity prices are highly volatile, and prices of copper, aluminum, gold, lithium, tungsten, and rare earths may be affected by macro factors, exchange rates, and supply changes.
• If tight copper concentrate supply eases, support for TC/RC and copper prices may weaken.
• Steel capacity replacement policies are positive for supply discipline in the long run, but high short-term output and falling demand may continue to pressure steel prices.
• This is a weekly industry tracking report and does not provide single-stock ratings, earnings forecasts, or target prices, so it cannot directly replace single-stock investment judgment.
• BofA Securities discloses that it may have business relationships with issuers covered by its research, and investors should be aware of potential conflicts of interest.

What to watch

• Whether copper concentrate TC/RC remains below -USD 100/t, as well as changes in China's spot copper inventories and exchange inventories.
• Whether aluminum smelting margins of RMB 8,086/t can be sustained, and whether Changjiang spot aluminum prices improve in line with LME aluminum prices.
• Whether the decline in lithium carbonate prices slows, and whether port lithium ore destocking continues.
• Whether rebar and hot-rolled coil prices, apparent steel consumption, and finished steel inventories show signs of demand recovery.
• Changes in cement shipment rates, inventory ratios, and construction demand after the rainy season.
• Whether float glass and solar glass inventory days, capacity changes, and GPM can stabilize.
• Subsequent changes in paper prices, waste paper costs, and Nine Dragons margin tracking indicators.