Iron ore’s rally is clashing with sluggish Chinese steel demand, leaving mills squeezed even as the nation’s construction season traditionally picks up at this time of year. https://t.co/xyvQ7rgMkx ...

Core Insights - ArcelorMittal has demonstrated commendable performance in 2025, but faces challenges due to limited operational momentum and financial vulnerability [2] - The company reported a revenue decrease of approximately 2% year-over-year in Q2 2025, despite a sequential increase from Q1 due to rising steel prices [3] - Future momentum appears uncertain due to revised steel demand forecasts and cyclical characteristics of the business [5] Financial Performance - Q2 2025 revenue was $15.9 billion, with EBITDA at $1.86 billion, slightly above analyst expectations [3] - Operating cash flow improved to approximately $1.4 billion in Q2, but free cash flow for the first half of 2025 remained negative at around $0.8 billion [4] - Net income rose to $1.79 billion, supported by exceptional gains, with adjusted net income around $1.0 billion [3] Growth and Profitability - Revenue has declined at an average annual rate of -10.6% over the last three years, with a recent quarterly revenue drop of -2% year-over-year [7] - Operating income for the past year was $1.9 billion, with a margin of 3.1%, significantly lower than the S&P 500 averages [8] Financial Stability - The company has a high debt-to-equity ratio of 52.7%, above the S&P 500 average of 20.3% [9] - Cash constitutes 5.4% of total assets, compared to 7.1% for the S&P 500 [9] Resilience During Economic Downturns - ArcelorMittal's stock has underperformed compared to the S&P 500 during economic downturns, with significant declines during the 2022 inflation shock and the 2020 Covid pandemic [10] Valuation - The company is trading at a price-to-earnings ratio of 10.5, lower than the S&P 500's 24.4, but has a higher multiple of 28.8x when considering free cash flows [6]

Summary of Key Takeaways from the Anti-Involution Trip in China Industry Overview - The report focuses on the **China Materials** sector, specifically analyzing the impacts of the **anti-involution** initiative on the **steel**, **lithium**, and **coal** industries [1][2][10]. Core Insights Anti-Involution Initiative - The anti-involution program aims to stabilize industry profits and curb deflation, with production levels being determined by the National Development and Reform Commission (NDRC) based on demand assumptions [2][3]. - The initiative is expected to lead to a recovery in industry profitability, although it will likely remain range-bound due to varying factors such as state ownership and current profitability levels [2]. Steel Industry - A production cut order has been issued by Beijing, but it has not yet reached Tangshan steel mills. Some mills believe production cuts are unnecessary due to positive margins, while others anticipate cuts in Q4 [3]. - Regions like Shandong, Jiangsu, and Liaoning are actively cutting production due to their lower GDP exposure to steel, while Tangshan mills have agreed to control production to maintain positive margins [3]. Lithium Industry - Demand for lithium is stronger than expected, driven by robust energy storage system (ESS) and electric vehicle (EV) demand [4]. - Potential supply cuts from lepidolite mines in Yichun could impact production, with a >50% chance of shutdowns lasting three to six months during license conversion, affecting approximately 150,000 tons per annum of lithium carbonate equivalent (LCE) [4]. Coal Industry - Coal production has decreased by 5% since overproduction inspections in July, with a slight decline in supply expected towards year-end [10]. - Total coal demand is projected to rise by 1-2% year-on-year in 2025, with thermal prices expected to fluctuate between RMB 640-700 per ton, indicating limited downside [10]. - Approximately 20% of coking coal mines are currently loss-making, and potential volume increases from Mongolia are limited by port inventory capacity and rising costs [10]. Additional Important Points - The pace of recovery in profitability across different segments will vary based on the mix of state ownership and market conditions [2]. - The report emphasizes the importance of monitoring production adjustments and demand trends in these sectors to identify potential investment opportunities and risks [2][4][10].

Summary of Key Points from the Conference Call Industry Overview - **Industry Focus**: The conference call primarily discusses the economic situation in China, particularly focusing on the concept of "Anti-involution" and its implications across various sectors [2][5][9]. Core Insights and Arguments - **Economic Scenarios**: - **Worst Case**: The economy may revert to deflation after temporary price increases due to weak final demand [3]. - **Less Optimal Scenario**: Rapid reflation could occur, but misallocation of resources may lead to renewed competition and price pressures [3]. - **Base Case**: Deflation is expected to continue into 2026, with gradual reflation [3]. - **Ideal Scenario**: A more robust and sustainable reflation could emerge as economic rebalancing accelerates [3]. - **Structural Reforms**: - Emphasis on the need for comprehensive reforms in the fiscal system, realignment of macro targets, and revamping performance evaluations to address systemic overcapacity issues [5][6][7]. - **Key Catalyst**: The upcoming 4th Plenary Session in October is highlighted as a critical event that may clarify structural reforms outlined in the 15th Five-Year Plan [8]. Sector Implications - **Priority Sectors**: - The sectors identified with the highest urgency for reform include Electric Vehicle (EV) batteries, airlines, and cement, with varying degrees of profitability and operational efficiency challenges [10][12]. - **Utilization Rates and Challenges**: - Various sectors have different utilization rates, with coal at 80%, steel at 85%, and cement at 45%. Challenges include overcapacity, regulatory hurdles, and market dynamics [12]. - **Market Concentration**: - The market concentration varies significantly across sectors, with SOEs holding substantial market shares in industries like airlines (80%) and cement (70%) [10][12]. Additional Important Insights - **Trade Dynamics**: - There is a noted slowdown in container ship movements from China to the US, indicating a potential payback from previous export front-loading [13]. - **Consumer Goods Sales**: - Sales growth in the auto and home appliance sectors has declined due to strict management of trade-in subsidies [15]. - **Property Market**: - Secondary housing sales showed improvement in August, attributed to incremental easing of property policies in tier-1 cities [18][21]. - **Construction Activity**: - There has been a renewed decline in cement shipments and subdued rebar demand, indicating sluggish construction activities [25][26]. This summary encapsulates the critical insights and implications discussed during the conference call, providing a comprehensive overview of the current economic landscape and sector-specific challenges in China.

1. Report Industry Investment Ratings No specific industry investment ratings are provided in the report. 2. Core Viewpoints - The far - worse - than - expected US August non - farm payroll data makes a September interest rate cut almost certain, but the subsequent interest rate cut debate is more complex. The shift from full - time to part - time jobs indicates economic weakness [8][22]. - For the overall market, although the regulatory authorities have taken actions to cool down, the core drivers of the upward trend have not changed substantially, so the market is unlikely to have a trend - like callback. It is expected to show a volatile and slightly stronger trend later [11]. 3. Summary by Related Catalogs 3.1 US Economy and Interest Rate Expectations - US August non - farm employment increased by 22,000, far lower than the expected 75,000, and the unemployment rate was 4.3%, a nearly four - year high. The June employment data was revised down to negative growth, the first since 2020. The market expects a September interest rate cut, and there are debates about the magnitude and subsequent cuts [7][8][22]. 3.2 Sector - specific Analysis 3.2.1 Index Futures - The upward logic is gradually shifting to earnings. It is recommended to pay attention with a high attention index [9]. 3.2.2 Glass - Short - term rebound is difficult to continue, and it is more likely to have a weak and volatile market. The core pressure comes from the weak real estate background and the high premium of the futures main contract over the spot. It is a volatile market in the medium - term, and caution is needed at low levels [12]. 3.2.3 Natural Rubber - With macro and fundamental support, the market's bullish sentiment is rising. Overseas raw material prices are high, domestic inventory is slightly decreasing, and the price is expected to remain strong. Attention should be paid to arrival and inventory reduction [14]. 3.2.4 Copper - There is no trend - like opportunity, and the price will maintain a volatile trend. The supply of raw materials is tight, and the production of electrolytic copper is expected to be under pressure. The trading strategy is to buy at low prices [15][27]. 3.2.5 Other Commodities - Each commodity has different trends. For example, gold shows an upward trend due to the non - farm data; zinc, tin, etc. are in a range - bound state; aluminum needs to pay attention to the de - stocking inflection point; etc. Specific trends can be found in the corresponding commodity analysis parts [18][21][27].

Summary of Key Points from the Conference Call Industry Overview - The focus of the conference call was on the materials sector in China, specifically steel, coal, copper, and macroeconomic conditions [1] Core Insights - **Impact of Anti-Involution**: The anti-involution policy is expected to have a nuanced impact on the macro level, with larger companies likely to benefit from broader supply consolidation. This consolidation may lead to lower investment and job losses, affecting demand [2] - **Supply Consolidation Journey**: A multi-year supply consolidation is anticipated, with a gradual shift towards consumption. Policymakers are expected to implement the anti-involution campaign at a calibrated pace, particularly in downstream industries [3] - **Steel Production Control**: The National Development and Reform Commission (NDRC) has set production control measures for the steel industry, aiming for flat year-over-year production. In the first seven months of 2025, China's crude steel apparent consumption decreased by 5.9%, while production fell by 3.1% year-over-year [4] - **Market Stabilization Measures**: Overproduction inspections are more about stabilizing the market rather than strict enforcement. The National Energy Administration may intervene if coal prices deviate significantly [5] Company-Specific Insights China Shenhua Energy (1088.HK/601088.SS) - **Production Cost Management**: Shenhua expects the annual unit coal production cost increase to be below the previously guided 6%. The company is implementing measures to optimize production processes and reduce costs [10] - **Asset Injection Update**: Shenhua is undergoing due diligence for a net asset injection close to RMB 100 billion, which includes 13 projects [11] - **Dividend Policy**: The company has increased its dividend payout to 79% in 1H25, up from 73% at the end of 2024, addressing market concerns about maintaining dividends amid large acquisitions [12] - **New Mining Projects**: Construction has begun at Xinjie mines 1 and 2, with production expected to start in 2029 [13] MMG Ltd (1208.HK) - **Nickel Mine Acquisition**: MMG's acquisition of a nickel mine from Anglo American is aimed at long-term profit contributions, with potential for producing battery-grade nickel. The mine is currently cash flow positive despite lower prices [15] - **Production Guidance**: The production guidance for Las Bambas remains unchanged at 400kt, with management cautious about potential disruptions due to the upcoming presidential election in Peru [17] Additional Important Points - **Customer Base Stability**: MMG's customer base is diversified, with 25% in the US, 25% in the EU, and 50% in Asia. The EU market shows a preference for green nickel, which commands a price premium [16] - **Future Growth Opportunities**: MMG is exploring opportunities for further growth, including potential acquisitions of smaller mines near Las Bambas [18] This summary encapsulates the key insights and developments discussed during the conference call, providing a comprehensive overview of the current state and future outlook of the materials sector in China.

Summary of Conference Call Notes Industry Overview - **Industry Focus**: The conference call primarily focused on the **steel industry** in **Tangshan, China** as part of an "anti-involution trip" conducted by Morgan Stanley [1][7]. Key Points and Arguments Demand and Supply Dynamics - **Demand Growth**: Year-to-date (YTD) steel demand is reported to be growing at **low single digits**, contrary to the previous industry consensus which anticipated a **1.5% year-over-year decline**. However, real domestic demand is likely experiencing **small negative growth** [2][7]. - **Export Strength**: There is a notable strength in **direct, indirect, and finished goods exports**, which is contributing positively to the overall demand despite domestic challenges [2][7]. Production Cuts and Supply Reform - **Production Cuts**: A production cut order has been issued by Beijing but has not yet been enforced in Tangshan. Some mills believe that due to positive margins, there is no immediate need for cuts, while others anticipate cuts may be necessary in **Q4** [3][7]. - **Historical Context**: The situation is reminiscent of the **2015/16 supply reform** when Tangshan mills were initially skeptical about production cuts [3][7]. - **Regional Variations**: Regions like **Shandong, Jiangsu, and Liaoning** are actively cutting production due to worse supply-demand conditions, while Tangshan mills are agreeing to control production to maintain positive margins [3][7]. Inventory and Market Conditions - **High Inventory Levels**: Steel inventory in Tangshan remains high, primarily due to a significant portion being locked in the futures market. This inventory may be released when market prices become favorable [4][7]. Iron Ore Outlook - **Positive Iron Ore View**: Steel mills express confidence in near-term iron ore prices, projecting a range of **US$90-95 per ton** for 2026. This optimism is supported by high molten iron production and limited supply from **Simandou** [5][7]. Aluminum Capacity Expansion - **New Aluminum Capacity in Angola**: A new aluminum capacity of **120kt** is expected to commence operations by the end of **2025**, with full ramp-up anticipated in **Q1 2026**. The power supply contract secured at a lower tariff significantly reduces production costs compared to domestic markets [6][7]. Additional Important Insights - **Market Sentiment**: The overall sentiment in the steel industry appears cautiously optimistic, with a focus on managing production levels to sustain profitability amidst fluctuating demand and inventory challenges [2][3][4]. - **Investment Opportunities**: The insights gathered from the call suggest potential investment opportunities in companies that are well-positioned to navigate the current market dynamics, particularly those involved in iron ore and aluminum production [5][6]. This summary encapsulates the critical insights from the conference call, highlighting the current state and outlook of the steel and aluminum industries in China.

Core Points - The Supreme Court's potential ruling on President Trump's tariffs could significantly impact economic forecasts and business planning, particularly if the tariffs are deemed unconstitutional [1][2] - Tariff uncertainty has led to a slowdown in hiring and capital spending across various sectors, with businesses hesitant to commit due to the unpredictable tariff landscape [3] - New tariffs can still be imposed under national security laws, which are not affected by the current ruling, potentially expanding tariffs on industries like semiconductors and pharmaceuticals [4] Economic Impact - If the challenged tariffs remain in place, consumer prices could rise by approximately 1%, leading to reduced spending, although this may not trigger a recession [5] - The global economy is undergoing structural changes as businesses adapt to tariff uncertainties, with a shift towards shorter supply chains and diversified sourcing strategies [6][7] - These adjustments may lead to a slight increase in production costs, impacting consumer prices but not significantly harming the overall economy [10] Business Strategies - Companies are increasingly sourcing materials locally or diversifying their supply chains to mitigate risks associated with tariffs [7][9] - The transition to more localized production and diversified sourcing will take time, but it is expected to gradually reshape global production dynamics [11] - The outcome of the Supreme Court decision will have varying effects on specific companies, necessitating close monitoring by affected business leaders [12]

Group 1 - Nucor Corporation declared a quarterly cash dividend of $0.55 per share, marking its 210th consecutive quarterly cash dividend [1] - The dividend is payable on November 10, 2025, to stockholders of record on September 30, 2025 [1] Group 2 - Nucor is a leading manufacturer of steel and steel products, with operations in the United States, Canada, and Mexico [2] - The company produces a wide range of products including carbon and alloy steel in various forms, as well as fabricated concrete reinforcing steel and metal building systems [2] - Nucor is recognized as North America's largest recycler, also engaging in the brokerage of ferrous and nonferrous metals [2]

Summary of Key Points from the Conference Call Industry Overview Basic Materials - China - **Copper and Gold Prices**: LME copper price increased by 1.1% WoW to US$9,822/t, while the China price rose by 0.6% WoW to RMB79,450/t, driven by expectations of a rate cut [1][33]. - **Aluminum Prices**: LME aluminum price decreased by 0.3% WoW to US$2,618/t, with the China price slightly increasing by 0.1% WoW to RMB20,730/t [1][44]. - **Gold Prices**: COMEX gold spot price rose by 1% WoW to US$3,407/oz [1][52]. - **Lithium Prices**: Average price of domestic battery-grade lithium carbonate fell by 5.1% WoW to RMB79.7k/t, while lithium hydroxide decreased by 0.8% WoW to RMB76.9k/t [1][56]. Steel Industry - **Steel Prices and Margins**: Rebar price decreased by 0.1% WoW to RMB3,266/t, while HRC price increased by 0.3% WoW to RMB3,466/t. Iron ore price rose by 3% WoW due to expectations of a lower Fed rate [2][64]. - **Cash Margins**: Spot rebar cash margin shrank by RMB55/t WoW to -RMB34/t, and HRC cash margin decreased by RMB28/t WoW to -RMB125/t [2][75]. - **Inventory and Consumption**: Finished steel products inventory increased by 1.9% WoW to 14.7 million tons, and apparent consumption rose by 0.6% WoW to 8.6 million tons [2][85]. Cement Industry - **Cement Prices**: Average national cement price increased by 0.35% WoW to RMB327/t, with a notable increase in Ningxia by RMB30/t [3][88]. - **Demand and Inventory**: Nationwide shipment ratio decreased by 0.6ppt WoW to 41.6%, while inventory ratio was at 60.5%, down 1.1ppt WoW [3][21]. Glass and Paper Industries - **Glass Prices**: National average float glass price decreased by 1.34% WoW to RMB1,189/t due to weak demand [3][99]. - **Paper Prices**: Paper price increased by 0.7% WoW to RMB3,481/t, supported by price hikes from paper mills [3][100]. Solar Materials - **Polysilicon Prices**: N-type polysilicon and granular silicon prices increased by RMB1/kg WoW to RMB51/kg and RMB47/kg, respectively [3][110]. - **Solar Glass Prices**: Prices for coated solar glass remained stable at RMB18.8/sqm and RMB11.0/sqm [3][122]. Additional Insights - **Inventory Trends**: Lithium carbonate inventory at smelters decreased by 11% to 52kt, while downstream inventory increased by 13% to 46kt, leading to a total sample lithium carbonate inventory increase of 3.6% MoM to 142kt [1][60]. - **Market Dynamics**: The steel industry is facing pressure from rising iron ore prices, while the cement market shows signs of recovery despite regional demand declines due to environmental inspections [2][88]. This summary encapsulates the key points from the conference call, highlighting the performance and trends across various sectors within the basic materials industry in China.