Summary of China Basic Materials Monitor - July 2025 Industry Overview - The report focuses on the **China Basic Materials** industry, highlighting the current state of demand and supply dynamics as of July 2025. Key Points Demand Trends - **End-user orderbooks** showed a mild month-over-month (MoM) increase but remained at low levels, indicating weak overall demand [1] - **Infrastructure construction** has weakened significantly, with a noticeable deceleration in new project starts due to ongoing funding constraints and stringent payment requirements [1] - **Metal demand** has softened, with signs of inventory buildup in the supply chain, influenced by seasonal softness and a sequential correction in domestic solar demand [1] - Current Chinese demand is reported to be **7-11% lower year-over-year (YoY)** for cement and construction steel, and **1-10% lower** for copper, flat steel, and aluminum [1] Supply Dynamics - The determination on supply adjustments remains mixed, with: - **Steel production cuts** beginning but with heterogeneous targets discussed [1] - Local government commitments on capacity elimination in cement being absent [1] - Marginal coal miners showing reluctance to cut production amid poor pricing [1] - Surprises in the oversupplied lithium market due to mining license approval inspections [1] - Recent weeks have seen improvements in margins/pricing for steel, coal, and lithium, while cement, aluminum, and copper prices have weakened [1] Producer Feedback - A proprietary survey indicated that **31% of respondents** in downstream sectors and **30%** in basic materials reported a MoM pickup in July, while **25%** and **24%** indicated a lower MoM trend, respectively [2] Additional Insights - The report emphasizes the **importance of funding** in infrastructure projects, which is currently constrained, affecting new project initiations [1] - The **mixed signals** in supply adjustments suggest a complex market environment where producers are navigating between demand pressures and pricing strategies [1] Conclusion - The China Basic Materials industry is experiencing a challenging environment characterized by weakening demand, mixed supply responses, and significant pressures on pricing and margins across various materials. The insights from producer feedback and high-frequency data provide a nuanced understanding of the current market dynamics, indicating potential risks and opportunities for investors in this sector.

Investment Rating - The report maintains a positive outlook on cement, copper, and incrementally positive on steel and aluminium, while holding a negative view on coal and lithium [1][9]. Core Insights - Earnings estimates for China commodities have been refreshed, reflecting mark-to-market price changes for 1H25, with target price changes ranging from -13% to +12% [1][9]. - The report highlights a positive outlook for hog pricing/margin in 2H25E due to improved supply discipline [1][9]. Summary by Sector Steel - Earnings forecasts for Baosteel and Angang have been revised up by 1-4% for 2025E, while the loss-making forecast for Maanshan has been cut by 11% [10]. - Maintain Buy on Baosteel with a new target price of Rmb8.8/sh [10]. Coal - The thermal coal market is expected to remain balanced in 2025E, with a decline in demand driven by renewable energy expansion [11]. - Earnings forecasts for Shenhua, Chinacoal, and Yankuang have been cut by 2-11% for 2025E and 10-27% for 2026-27E [12]. Cement - Unit gross profit forecasts for cement have been revised down by Rmb2-6/t for 2025E, but a positive view is maintained for 2H25E due to supply discipline [13]. - Earnings estimates for CNBM, WCC, BBMG-H/A, Conch-H/A, and CRBMT have been cut by 6% to 18% for 2025E [14]. Aluminum - Earnings estimates for Hongqiao have been revised up by 5-27% for 2025-27E, reflecting higher industry spread forecasts [17]. - Maintain Neutral on Hongqiao with a target price of HK$12.5/sh [17]. Copper - The benchmark copper price forecast has been revised to an average of US$4.20/lb in 2025E and US$4.61/lb in 2026E [18]. - Earnings estimates for CMOC-H/A, JXC-H/A, and MMG have been cut by 1-18% for 2025-26E [18]. Lithium - Earnings estimates for Ganfeng, Tianqi, and Yongxing have been cut by 3-4% for 2025E due to lower lithium prices [20]. - Yongxing's 2027E earnings have been cut by 37% based on flat lithium price forecasts [20]. Paper - Earnings forecasts for ND Paper have been revised up by 3-4%, while Sunpaper's earnings have been cut by 3% [22].

Investment Rating - The report provides a "Buy" rating for several companies in the basic materials sector, including Angang-H, Baosteel, Conch-A, and Zijin-A, indicating a positive outlook for these stocks with potential upside ranging from 22% to 51% [10]. Core Insights - The feedback from producers as of mid-May suggests that end-user order books were flat month-over-month (MoM), which is softer than past seasonal trends. Infrastructure recovery has paused, reflected in weak cement shipments and a lack of funding for new projects [1][2]. - Current Chinese demand for cement and construction steel is reported to be 12-14% lower year-over-year (YoY), while demand for copper has increased by 9% YoY. The demand for flat steel and aluminum is 1-3% lower YoY [1]. - The report highlights that while the supply chain is partially replacing US-bound shipments with production from other countries, the reduction in Chinese metal demand is less severe than initially feared [1]. Summary by Sections Downstream Demand Snapshots - The downstream order book trend was mostly stable MoM in May, with 25% of respondents indicating a pickup in the downstream sectors and 31% indicating a lower trend [2][3]. Steel Production - Steel production cuts are in preparation, and rush orders for exports are re-emerging. The report suggests that steel-making raw materials could potentially drop to sub US$80-90 per ton if production cuts are implemented [9]. Cement Market - The cement market has experienced a sudden deterioration, with current demand showing significant declines [9]. Aluminium and Copper - The report notes a disruption in Guinea bauxite supply affecting alumina, while copper demand remains more resilient than expected [9]. Coal Market - The coal market is characterized by very weak demand and pricing, indicating challenges for companies in this sector [9]. Lithium Market - The lithium market is facing a rising surplus, which may impact pricing and demand dynamics [9]. Paper Packaging - Improving shipment trends are noted in the paper packaging sector, driven by upcoming online shopping festivals and lower US-China tariffs [9].

Investment Rating - The report provides a mixed investment rating for various companies in the basic materials sector, with specific recommendations such as "Buy" for companies like Angang-H and Conch-H, while others like Maanshan-A and Chinacoal-H are rated as "Sell" [10]. Core Insights - The overall sentiment in the basic materials sector is that current demand is less concerning than previously anticipated, with a notable deceleration in local government special refinancing bond issuance impacting infrastructure recovery [1]. - Current Chinese demand for cement and construction steel is reported to be 12-14% lower year-on-year, while copper demand has increased by 9% [1]. - The downstream order book trend has remained mostly stable month-on-month, with 31% of respondents indicating a lower trend in May for basic materials [2][3]. Summary by Sections Downstream Demand Snapshots - Infrastructure recovery has paused due to a lack of funding for new projects, leading to weak cement shipments [1]. - The demand for construction materials is showing signs of weakness, particularly in cement and construction steel, while copper demand remains resilient [1]. Steel Production - Steel production cuts are in preparation, with a potential reduction in prices if these cuts are implemented [1]. - The report notes that rush orders following the reduction of US-China tariffs were limited, primarily driven by Southeast Asia [1]. Commodity Prices - The pricing for steel and cement has remained stable, while prices for aluminum and copper have improved, contrasting with the softening of coal and lithium prices [1]. Specific Company Insights - Angang-H is rated as "Buy" with a target price of CNY 2.40, indicating a potential upside of 45% [10]. - Conch-H is also rated as "Buy" with a target price of CNY 29.00, reflecting a 37% upside potential [10]. - Companies like Maanshan-A and Chinacoal-H are facing downward pressure, rated as "Sell" with target prices significantly lower than current prices [10].

Summary of the Conference Call on Metals and Mining Industry Industry Overview - The conference call focused on the outlook for the China commodity demand and its impacts on global supply/demand dynamics across various sectors including steel, iron ore, copper, aluminium, and energy markets [2][4]. Key Conclusions 1. **Iron Ore Market**: - Anticipation of a market surplus in H2 2025, with year-end price expectations ranging from $80-90 per ton [4][27]. - Steel mills are currently running at full capacity due to improved margins, with gross margins reported at RMB100-200 per ton [4][15]. - No steel mills reported receiving official notices for production cuts, and any potential cuts are expected to be modest and likely implemented in H2/Q4 [21][26]. 2. **Steel Demand**: - Total Chinese steel demand is expected to decline by 1% to 5% in 2025, primarily due to a negative outlook for the long steel-consuming construction sector [8][10]. - Flat steel demand remains strong, supported by sectors such as white goods, automotive, and shipbuilding [9][10]. - Concerns exist regarding the sustainability of flat steel demand due to potential tariffs and shifts in material usage in renewable energy projects [10][11]. 3. **Aluminium and Alumina**: - Sentiment on aluminium prices is bullish, driven by tight supply rather than demand, with expected prices between RMB19,000-23,000 per ton [41]. - Domestic alumina refining capacity is rapidly increasing, with a forecast of 20 million tons added this year, but demand growth is limited by the cap on aluminium smelting capacity [42][43]. - The alumina price is nearing the bottom at RMB2,800-3,000 per ton, with curtailments expected as the market turns oversupplied [41][43]. 4. **Copper Market**: - Long-term bullish sentiment for copper prices, but near-term outlook is muted due to uncertainties around US tariffs and global economic growth [58]. - Chinese copper consumption is expected to grow by approximately 3% in 2025, driven by sectors like white goods and state grid upgrades [59]. - The copper concentrate market is anticipated to remain tight, with low port inventories and competition for new copper mines abroad [60]. 5. **Coal Market**: - Both thermal and metallurgical coal markets are oversupplied, with expectations of further price declines in the domestic market [6]. Additional Insights - **Production Cuts**: Any production cuts in the steel sector are expected to be implemented through emissions policies, targeting high-emission plants [22][25]. - **Export Dynamics**: Chinese steel exports reached 111 million tons in 2024, with expectations of a decline to 90 million tons in 2025 due to tariffs [26]. - **Iron Ore Supply**: The industry association noted that domestic iron ore production could see a 30 million ton increase this year, although some mills forecast a decline [28]. - **Bauxite Supply**: Chinese bauxite imports are projected to increase to 175 million tons by 2025, but supply may not keep pace with alumina capacity additions [48]. This summary encapsulates the key points discussed during the conference call, providing insights into the current state and future outlook of the metals and mining industry, particularly in China.