Market Overview - The A-share market is experiencing typical index fluctuations and structural differentiation, with the Shanghai Composite Index up 0.27% and the Shenzhen Component Index up 0.24%, while the ChiNext Index slightly decreased by 0.17% [1] - The market's flat index performance contrasts sharply with the significant volatility in industry sectors, indicating a shift towards niche opportunities and a multi-faceted market dynamic [1] Fund Flow Dynamics - The trading volume in both markets increased to 1.91 trillion yuan, showing strong willingness for new capital inflow, characterized by a "buy low, sell high" behavior [1] - Funds are flowing out of sectors with short-term gains, such as telecommunications (-1.79%) and electronics, and rapidly entering new hotspots like defense and military (+2.77%) and power equipment (+2.56%) [1] Key Focus Areas - The high-end manufacturing sectors, particularly defense and photovoltaic industries, are the main focus of the market, driven by multiple converging factors [1] - The strength of the military industry is underpinned by long-term expectations for accelerated development in high-end equipment and aerospace during the 14th Five-Year Plan, with commercial space initiatives providing tangible catalysts [2] Technological Narratives - The expansion of technological narratives is creating new valuation spaces, particularly in the photovoltaic sector, where concepts like "space photovoltaics" are capturing market imagination [2] - Discussions around advanced photovoltaic technologies required for space environments are effectively outlining potential new growth curves for the industry [2] Global Macro Trends - The rise in the non-ferrous metals sector reflects a long-term demand logic driven by new energy vehicles and storage, alongside a bet on global inflation resilience and rising resource prices [3] - The recent highs in lithium carbonate futures and strengthening international gold prices provide short-term price support for this sector [3] Future Market Outlook - The keyword "structural" will be crucial for understanding market trends in the near future, with a macro backdrop of adequate monetary policy and ample market liquidity suggesting limited systemic risk [3] - However, the increasing speed of sector rotation may complicate investment strategies, making it essential to focus on core sectors with strong industrial trends while being aware of potential short-term adjustments in leading technology growth sectors [4] Investment Strategy - Investors are advised to adopt a strategy of "focusing on main lines while maintaining balanced allocations," keeping a close watch on sectors like defense, AI chip localization, and new energy technology innovations [4] - In periods of volatility in growth sectors, low-valuation and high-dividend sectors such as banking and coal may present defensive value [4]

Summary of China Basic Materials Monitor - January 2026 Industry Overview - The report focuses on the **China Basic Materials** industry, highlighting the impact of high commodity prices on demand and supply dynamics across various sectors. Key Points Demand Trends - End-user orderbooks are mostly in line with past seasonal trends as of mid-January, with **solar and machinery** sectors showing weakness while **battery** demand remains strong [1] - The surge in metal prices has led to notable changes in downstream demand across sectors such as **consumer electronics**, **hardware manufacturing**, **copper cables**, and **aluminum** in industrial and construction areas, resulting in weaker or delayed orderbooks and rising metal inventories [1] - High-frequency data indicates that in the first two weeks of January, Chinese demand is down **1-9% year-over-year (YoY)** for cement and construction steel, and **3-10% YoY** for aluminum and copper, while flat steel demand is up **3% YoY** [1] Supply Dynamics - Supply conditions remain heterogeneous, with consistent feedback on **cement capacity** cleaning up and ongoing capacity discipline in **coal**, but lackluster control in **steel production** [1] - Margin and pricing for **steel**, **copper**, **aluminum**, and **lithium** have improved, while **cement** and **coal** prices have remained stable [1] Sector-Specific Insights - **Cement**: Demand is lower, with a **1-9% YoY** decline noted [1] - **Aluminum and Copper**: Demand has deteriorated significantly amid high prices, with a **3-10% YoY** decline reported [1] - **Steel**: Margins have improved, but production control remains weak [1] - **Battery Materials**: Strong demand persists, leading to price hikes in solar modules, AC, LFP cathodes, and battery cells [1] Producer Feedback - A proprietary survey indicates a mixed month-over-month (MoM) trend in forward orderbooks, with **19%** of respondents reporting a pickup in January for downstream sectors and **6%** for basic materials [2] Additional Observations - The report notes that in regions with strong demand or better supply structures, price hikes have begun in specific materials, indicating a potential shift in market dynamics [1] - The overall sentiment reflects caution due to high commodity prices suppressing demand, particularly in sectors sensitive to price fluctuations [1] Conclusion - The China Basic Materials industry is currently experiencing a complex interplay of high commodity prices affecting demand and supply across various sectors. While some areas like battery materials show resilience, others like aluminum and copper are facing significant demand challenges. The mixed feedback from producers suggests a cautious outlook moving forward, with potential opportunities in regions with strong demand dynamics.

Market Overview - The A-share market is expected to enter a high-level oscillation state with pressure above and support below, likely confined to a narrow range between 4090 and 4130 points [1][3] - The core contradiction in the market is the intense tug-of-war between bulls and bears, influenced by a new policy that raises the financing margin ratio from 80% to 100%, effectively tightening leverage [3][4] Policy Impact - The new financing policy is expected to reduce the daily inflow of financing buy orders by approximately 50 to 80 billion yuan, impacting market sentiment significantly [3] - Concurrently, the central bank announced a structural interest rate cut for loans supporting agriculture and small businesses, injecting an additional 1.2 trillion yuan into the banking system to guide funds into the real economy [4] Market Dynamics - The market is experiencing a "dual climate" where foreign capital continues to buy aggressively, with net purchases exceeding 80 billion yuan in January, focusing on sectors like semiconductors and new energy [4][9] - Domestic capital appears hesitant, with significant outflows from previously popular sectors like artificial intelligence and commercial aerospace, indicating a shift towards defensive sectors such as banking and coal [4][11] Technical Analysis - Key technical levels include 4106 points as a short-term dividing line; if the index stabilizes above this level, bullish sentiment may persist [5] - The 4090 to 4100 point range serves as a critical support area, while 4120 to 4130 points represent significant resistance due to accumulated selling pressure [7][8] Investment Opportunities - The semiconductor industry is highlighted as a primary investment opportunity, with expected price increases in DRAM contracts and strong long-term demand driven by AI and domestic substitution [9] - High-dividend blue-chip stocks are also seen as attractive, particularly in the banking sector, which has a low price-to-book ratio and high dividend yields, making them a safe haven in uncertain markets [11] Risks to Avoid - Investors are advised to avoid high-flying stocks lacking earnings support, particularly in sectors reliant on speculative trading, such as certain AI applications and commercial aerospace stocks [11][12]

Core Insights - Peabody's CEO Jim Grech has been appointed Chair of the National Coal Council, emphasizing the importance of coal in U.S. energy security and affordability [1][2] - U.S. coal-fueled generation increased by an estimated 13% in 2025, driven by extended coal plant lifespans and rising electricity demand from AI and data centers [2] - The National Coal Council advises the Secretary of Energy on coal-related policies, highlighting coal's affordability, reliability, and its role in steelmaking and critical minerals [3][4] Company Overview - Peabody is the largest coal producer in the U.S., operating eight thermal coal mines and one metallurgical coal mine domestically, along with five metallurgical coal mines and two seaborne thermal coal mines in Australia [6] - The North Antelope Rochelle Mine in Wyoming is the largest surface coal mine in the Western Hemisphere, producing 12% of U.S. coal [6] - Jim Grech, with over 35 years of experience in the coal and natural resources industry, has been with Peabody since 2021 and holds various board memberships [5]

Group 1 - The article discusses an oilfield services company that is positioned to benefit from growth opportunities in Latin America [1] - It highlights a coal stock as another investment option, indicating a diverse approach to energy sector investments [1] Group 2 - The focus on Latin America suggests potential for increased demand in oilfield services due to regional economic developments [1] - The mention of coal stock indicates a strategy that includes traditional energy sources amidst the transition to renewable energy [1]

Core Insights - Ramaco Resources, Inc. has announced that its Chairman and CEO, Randall W. Atkins, has been appointed to the re-established National Coal Council (NCC) by U.S. Secretary of Energy Chris Wright, highlighting a renewed commitment to the coal industry and energy security in the U.S. [1][2] Company Overview - Ramaco Resources, Inc. operates and develops high-quality, low-cost metallurgical coal in southern West Virginia and southwestern Virginia, and is also a developing producer of coal, rare earth, and critical minerals in Wyoming [5]. - The company has four active metallurgical coal mining complexes in Central Appalachia and is in the initial stages of production at a rare earth and coal mine near Sheridan, Wyoming [5]. - In 2023, Ramaco announced the discovery of a major deposit of primary magnetic rare earths and critical minerals at its Wyoming mine [5]. - The company operates a carbon research and pilot facility related to the production of advanced carbon products and materials from coal, holding approximately 76 intellectual property patents and various licensing agreements [5]. Industry Context - The re-establishment of the NCC under President Trump and Secretary Wright signifies a strategic move to advance the coal industry and emphasizes the importance of coal as a resource in shaping national energy policy [2][3]. - The NCC will provide expert advice and recommendations on coal-related scientific, technical, and programmatic issues, focusing on innovation and responsible energy development [3].

Summary of Key Points from the Conference Call Industry Overview - The focus is on the **Basic Materials** sector in China, with a preference order for 2026 being **copper/gold > aluminum > lithium > coal > steel** [2][4] - The **MSCI China Materials** index is expected to outperform the **MSCI China** index by **3%** in the first week of January 2026, driven by supply disruptions and mergers and acquisitions [2][4] Company-Specific Insights - **Zijin Mining** is highlighted as the top pick for 2026, with a positive profit alert projecting a **2025 net profit** of **RMB 51-52 billion**, representing a **59-62% YoY increase** [4][9] - **Jiangxi Copper (JXC)** has been upgraded to Neutral (N) due to a positive outlook on copper, despite a recent **40%+ share price surge** that has factored in the acquisition of SolGold [2][5] - **Baosteel** and **Angang Steel** have been downgraded to Neutral (N) and Underweight (UW) respectively, due to low steel margins and weaker-than-expected anti-involution efforts [2][5] Market Dynamics - Supply disruptions are expected to continue, with **South32** placing its **Mozal Aluminum smelter** on care and maintenance in March 2026, and a strike at **Capstone Copper's Mantoverde** mine expected to reduce copper supply by **77kt** [4][9] - The **Chinese base metal demand growth** is forecasted to slow to **2.5%** for copper and **1.5%** for aluminum YoY [4][9] Earnings Forecasts - **4Q25 earnings** for steel companies are projected to be the weakest, with **Angang** and **Baosteel** expected to see earnings declines of **86%** and **33%** respectively [4][11] - **Zijin** and **CMOC** are expected to report solid growth, with **CMOC** anticipated to announce a positive profit alert with a **53% YoY increase** [4][11] Stock Recommendations - **Bullish on copper** and **bearish on steel**; **Zijin** remains the top pick for its copper/gold exposure [5][11] - **Hongqiao** and **Chalco** are recommended as buyers on dips due to the positive correlation between aluminum and copper prices [5][11] Regulatory and Policy Impacts - The **Ministry of Commerce** reinstated steel export licensing from January 1, 2026, which may lead to increased near-term exports and keep global prices under pressure [9] - Regulatory uncertainties in lithium mining rights are highlighted, particularly with the cancellation of mining rights affecting **Tianqi** and **Ganfeng** [9] Commodity Price Forecasts - **Copper prices** are forecasted to reach **$12,000/ton** in 1Q26, while **aluminum prices** are expected to stabilize around **$3,000/ton** [12][14] - **Lithium prices** are projected to increase significantly, with battery-grade lithium expected to reach **$17,500/ton** by 2026 [14] Conclusion - The Basic Materials sector in China is poised for a challenging yet opportunistic year in 2026, with significant variations in performance across different commodities and companies. The focus on supply dynamics, regulatory impacts, and strategic acquisitions will be crucial for investors navigating this landscape.

Company Overview - Thungela Resources Limited is a standalone thermal coal company based in South Africa, having been spun out of Anglo-American in 2021, where it was the "dirty" coal division [1] Investment Strategy - The company focuses on identifying undervalued and promising stocks, emphasizing a balance between risk and reward. It believes that limited risks combined with decent to high upside potential can be achieved by understanding the assets owned [1]

Industry Overview - The Zacks Coal industry is experiencing significant challenges as coal usage in U.S. thermal power plants declines, with projections indicating a continued decrease in demand due to the rise of renewable energy sources [1][3] - The U.S. has an estimated 252 billion short tons of recoverable coal reserves, with 58% classified as underground mineable, expected to last for decades at current production levels [3] - Five U.S. states account for approximately 70% of annual coal production and 60% of coal extracted from surface mines, but the industry faces long-term challenges as coal demand declines [3] Trends Impacting the Industry - Environmental policies are negatively affecting coal usage, with the U.S. Sustainability Plan aiming for 100% carbon pollution-free electricity by 2030 and net-zero emissions by 2050 [4] - Natural gas has become more cost-efficient, and renewables are gaining traction, leading to a projected decline in coal's share of U.S. electricity generation to 16% by 2026 [5][6] - Coal production in the U.S. is expected to decrease to 520 million short tons in 2026 from 531 million short tons in 2024, driven by lower demand and higher renewable energy usage [6] Export and Production Outlook - U.S. coal export volumes are projected to increase by 1% in 2026, primarily due to an 8% rise in metallurgical coal shipments, supported by expansions and reopenings of mines [2][7] - Despite a decrease in overall coal production, companies like Warrior Met Coal, Peabody Energy, and Ramaco Resources are expected to benefit from their high-quality metallurgical coal production during this challenging phase [2] Industry Performance and Valuation - The Zacks Coal industry currently ranks 235, placing it in the bottom 4% of 244 Zacks industries, indicating weak near-term performance prospects [8][9] - The coal industry has outperformed the Zacks Oil and Gas sector and the S&P 500 composite over the past year, with a gain of 28.8% compared to 8.9% and 19.7% respectively [11] - The industry is trading at a trailing 12-month EV/EBITDA ratio of 9.58X, significantly lower than the Zacks S&P 500 composite's 18.8X [14] Company Highlights - **Warrior Met Coal, Inc.**: Produces premium quality metallurgical coal, with a projected earnings per share increase of 854.5% year-over-year for 2026 and a current dividend yield of 0.36% [16][17] - **Peabody Energy Corporation**: Engages in coal mining with flexibility to increase volumes, showing a projected earnings per share increase of 909.3% year-over-year for 2026 and a current dividend yield of 0.98% [21][22] - **Ramaco Resources, Inc.**: Focuses on high-quality metallurgical coal, with a projected earnings per share growth of 136.45% year-over-year for 2026 and a current dividend yield of 1.1% [25][26]

Summary of Key Points from the Conference Call Industry Overview - **Industry Focus**: Chinese Basic Materials - **2026 Outlook**: Expected stable year for Chinese commodity demand with growth rates ranging from -1.3% to +2.0% year-over-year, improving sequentially from 2H25A [1][24] Core Insights and Arguments - **Demand Growth**: - Chinese copper and aluminum demand projected to grow by 2.0% and 0.8% respectively in 2026E, a deceleration from 1H25A but approximately 3% better than 2H25A [21][27] - Demand for lithium is expected to remain strong due to energy storage systems (ESS) [21] - Cement and steel demand under pressure due to weakened infrastructure activities, though government financing may improve conditions [22] - **Supply Dynamics**: - Solid supply/demand balance for most commodities, but strong pricing in 2025 may lead to changes in supply outlook [2] - Supply discipline is challenged in aluminum, while lithium shows signs of accelerated supply response; copper supply is expected to remain tight [2][17] - Anti-involution policies in oversupplied segments may improve industry capacity utilization by 10% [3] - **Acquisitions and Strategic Shifts**: - Increased acquisitions and asset injections by large state-owned enterprises (SOEs) in coal, steel, and other sectors, reflecting strategic repositioning [4] Commodity-Specific Insights - **Cement**: Positive outlook with expected recovery in capacity utilization from 49% to 60% by end of 2026E due to capacity closures [17] - **Coal**: Stable pricing anticipated due to balanced demand and supply [18] - **Copper**: Continued strong pricing expected due to limited supply growth [17] - **Lithium**: Market expected to tighten in 1H26E before easing in 2H26E, with potential for a balanced market depending on supply responses [17] - **Steel**: Margins expected to remain depressed with slower capacity work [17] - **Gold**: Forecasted price to reach US$4,900/oz by Dec-2026, supported by central bank purchases [20] Important but Overlooked Content - **Investment Ratings**: - Positive ratings maintained for Zijin-H/A, CMOC-H/A, and Anhui Conch-H/A; cautious stance on Ganfeng-H/A and Tianqi-H/A [16] - Upgrades for most coal names to NEUTRAL from Sell, indicating a more constructive view on coal [16] - **Market Dynamics**: - The contribution from the property sector to steel and cement demand is now limited, accounting for only 7-8% [22] - Expectations of flat coal demand driven by stable coal-fired power generation [23] - **Key Assumptions for Demand Estimates**: - Infrastructure investment growth projected at 4% for 2026E, with traditional infrastructure expected to grow by 1% [26] This summary encapsulates the critical insights and projections regarding the Chinese basic materials industry, highlighting both opportunities and risks for investors.