ab 16 December 2025 Global Research Mining Strategy China Demand: Signals slow in Nov-25 China's commodity demand indicators weaken in Nov-25 November's commodity demand metrics deteriorated further. Retail sales significantly underperformed expectations, marking the weakest result in three years, while the downturn in the property sector worsened. Sustained weakness from here may present downside risks to demand expectations and prices, especially given economic decision makers in China may delay policy un ...

Core Viewpoint - The data center boom is expected to significantly benefit commodities, with a particular focus on natural gas, base metals, precious metals, and crude oil as key areas of growth [1][5]. Commodities Overview - Commodities are seen as the most undervalued assets currently, with a bull market already underway, particularly in gold, which has increased by 54% year-to-date [2][4]. - The investment in AI is perceived as misdirected, with a need for more focus on the raw materials required for data centers, such as metals and gas [3][4]. Specific Commodities - **Natural Gas**: Essential for powering gas turbines in data centers [6]. - **Base Metals**: Includes steel and copper, which are critical for components like gas turbines and the energy grid [6]. - **Precious Metals**: Metals such as gold, silver, and palladium are utilized in data center components [6]. - **Crude Oil**: Provides power to data centers, with no major non-OPEC oil projects expected to start next year, potentially driving prices higher [6].

Core Insights - Oil prices increased on Monday due to optimism surrounding a potential US-China trade agreement, which positively influenced market sentiment [1] - Base metal prices also rose, driven by expectations of increased demand from China, the largest consumer of these metals [1] Group 1 - Oil prices rose as optimism over a US-China trade agreement boosted market sentiments [1] - Base metals prices climbed on expectations of more demand from China [1]

Summary of Key Points from the Conference Call Industry Overview - **Industry**: Mining and Commodities - **Focus**: China's economic indicators and their impact on commodity demand, particularly iron ore, base metals, coal, and battery raw materials Key Insights and Arguments 1. **China's Economic Resilience**: - September 2025 commodity demand indicators show a robust Chinese economy with strong industrial production growth of +6.5% year-on-year, exceeding consensus expectations of +5.0% [2][4] - Retail sales growth was in line with expectations at +3.0% year-on-year [4] 2. **Iron Ore Market Dynamics**: - Deterioration in China's property market signals, with construction starts and sales down -19% and -6% year-on-year respectively [3] - Crude steel output decreased by -5% year-on-year, indicating domestic demand weakness due to reduced construction activity [3] - Iron ore port stocks have fallen -9% year-on-year, which may support prices amid improving sentiment [3][7] 3. **Base Metals Performance**: - Industrial production growth was broad-based, particularly in the automotive sector, which saw a significant increase of +16.0% year-on-year [4] - The outlook for base metals remains balanced, with ongoing monitoring of trade developments [7] 4. **Coal Sector Insights**: - Coal production increased by +5% month-on-month, with imports rising by +7% month-on-month, driven by the easing of overcapacity [5] - The demand for seaborne coal is expected to rise, particularly for coking coal, following regulatory changes [5] 5. **Battery Raw Materials and EV Market**: - Electric vehicle (EV) output and sales remained strong, with a year-on-year increase of +21% and retail EV penetration reaching 57% [6] - Demand for battery raw materials is expected to remain robust, supported by supply scrutiny in China [6] Additional Important Points 1. **Potential Upside Risks**: - If the Chinese economy continues to show resilience, there could be upside risks to iron ore forecasts, particularly for companies like MIN/FMG and RIO/BHP [7] 2. **Challenges in the Coal Market**: - The short-term outlook for coal remains challenging, requiring additional closures and stronger demand to drive prices sustainably higher [7] 3. **Investment Risks**: - The mining sector is subject to volatility in commodity prices and currencies, as well as political, financial, and operational risks that could significantly impact performance [53] 4. **Real Estate Climate**: - The real estate climate index has shown a decline, reflecting ongoing challenges in the property sector, which is critical for construction-related commodities [3][16] 5. **Future Monitoring**: - The upcoming 4th Plenary Session (October 20-23) is crucial for reviewing and approving the 15th Five-Year Plan, which may influence future economic policies and commodity demand [2]

Core Insights - The article highlights that higher base-metal prices and significantly lower copper smelting charges have compensated for a decline in copper production [1] Group 1: Price Dynamics - Base-metal prices have increased, contributing positively to the financial performance of companies in the copper sector [1] - The reduction in copper smelting charges has also played a crucial role in offsetting production declines [1] Group 2: Production Impact - There has been a noted drop in copper production, which could impact overall supply and market dynamics [1]

Summary of Key Points from the Conference Call Industry Overview - **Industry**: Mining and Commodities - **Region**: China Core Insights 1. **China's Commodity Demand**: - Commodity demand indicators in China showed broad weakness in July, with industrial production growth missing expectations at +5.7% y/y compared to +6.8% prior, and retail sales significantly weaker at +3.7% y/y versus consensus of +4.6% [1][3] - The overall economic weakness raises the risk of stimulus measures, which could positively impact sentiment and commodity prices if implemented meaningfully [1][6] 2. **Iron Ore Market**: - The property market in China remains weak, with new starts and sales down -19% and -5% y/y respectively. The real estate climate index is deteriorating [2] - A recent policy announcement of Rmb300 billion for inventory purchases is a positive step, but more support is needed to stabilize iron ore prices, which are expected to remain in the US$90-100/t range [2] - Crude steel output decreased by -4% y/y in June, indicating domestic demand weakness, consistent with reduced construction activity [2] 3. **Base Metals**: - Industrial production growth has lost momentum, and retail sales are below expectations, suggesting that stimulus efforts are losing effectiveness [3] - Despite the bearish indicators, there is a constructive outlook if further stimulus is introduced [3] 4. **Coal Sector**: - Coal production in China fell by -4% y/y, while coke production increased by +1% y/y. The introduction of the 276-Working Day Rule may ease oversupply in the coal market [4] - Spot met coal prices have risen by +12% over the past month to approximately US$192/t [4] 5. **Battery Raw Materials and EV Market**: - Electric vehicle (EV) output and sales remain strong, with a +19% y/y increase in output. Exports of EVs have reached new highs [5] - Continued robust domestic EV sales and open trade relationships are expected to support demand for battery raw materials [5] Additional Insights 1. **Investment Outlook**: - UBS remains cautious about large-scale stimulus but acknowledges potential upside risks for commodity prices if meaningful stimulus occurs [6] - Companies most leveraged to potential upside scenarios include MIN and FMG, while RIO and BHP are seen as neutrals that would also benefit [6] 2. **Economic Indicators**: - Key economic indicators from China show a mixed picture, with manufacturing PMI at 49.2, indicating contraction, and retail sales growth slowing significantly [8] - The overall economic environment suggests a need for careful monitoring of trade developments and potential policy responses [6][8] 3. **Risks in the Mining Sector**: - The mining sector faces inherent risks, including volatility in commodity prices and currencies, as well as political, financial, and operational risks that could impact performance [51] This summary encapsulates the critical insights and data points from the conference call, providing a comprehensive overview of the current state of the mining industry and its outlook in China.