国内基础材料产业链实地调研核心要点

China (PRC) | Metals & Mining China basic materials trip key takeaways Wewrapped up our China basic materials trip recently.Propertyrelated demand continues to be sluggish and not turning around, butmanufacturing and exports show resilience. Supply constraint is intact inaluminum/ copper, while lithium restarts/ expansions are advancing afterdisruption risks being priced, and discipline in steel is a long-term fight.Prefer aluminum/ copper > lithium > steel in China. Aluminum: incremental improvement in domestic market. LME price increased by 26% byend of May YTD, while China spot was only up by 8%. The relatively high social inventory, whichsuggests soft domestic demand, has been an overhang. Key reasons: First, it takes time fordownstream to digest this year’s price level, with limited appetite for in-house inventory build.Besides, China tax authorities strengthened inspections on trade invoices, which makes some'hidden' inventory usually at traders’ hands become visible social inventory. Moreover, withresilient aluminum price, the market has seen some producers increase actual output, eg byenhancing electrical current, which technically is not restricted by regulators now. Such “over-production” is usually by low-single-digit %, and significant overproduction is not expected asit harms the pots’ useful life. Looking ahead, given the price arbitrage, the market is watching for growing aluminum productexport to drive a meaningful destock. Major fabrication producers saw significant order growthand Apr was 20-30% higher vs previous years. The increase is expected to sustain in May/Jun, and aluminum product export is likely to reach 650kt+ per month (vs record high of 680kt)according to Aladdiny. Post our trip, smelter utilization in some provinces experienced marginaldecline, which is reportedly due to inspections on overproduction esp those non-compliant,eg starting new potlines via capacity swap before fully closing the old ones. Thus, with strongexpectation on export and incremental output contraction/ supply ceiling intact, aluminummarket is expected to remain constructive, making the upcoming slow season different thistime. Copper: a well-loved commodity. Sulfur supply risk arising from the Middle East war is notaffecting the big miners in terms of availability so far, since high copper margin enables themto pay for supply. While some small SX-EW copper producers in DRC face challenges, feedbackfrom traders suggests the volume impact can be quite limited and thus no major concern inthe next 3-4 months. The long-term theme is unchanged. Solid demand outlook driven by grid/renewable energy, AI etc is the consensus, but is yet to be reflected in the price, and the strengthin price since late last year has been mainly driven by supply disruptions. The well-discussedissues on the supply side do not seem to be improving, i.e. aging mines only add to resourcescarcity and production recovery from major disruptions takes time. Looking from a higherlevel, the fact that more countries emphasize on critical minerals and supply security can leadto at least a partial segmentation of the global market (e.g. stockpiling in the US). Thus, someexpect its strategic importance to also play a part in pricing in the future. Lithium: near term SD holds, but medium term view is mixed. Companies we visited areconfident in 2026 lithium demand, and the expectation is usually at least 60% YoY ESS growth,but the visibility in 2027 esp 2H27 is low. The uncertainties mainly include 1) front-loaded ESSdemand in 2026, & 2) potentially narrowed peak-valley arbitrage of power tariff after a surge inESS projects, which can affect IRR from the revenue perspective. (continued overleaf on lithium supply/ price, steel, and property) Shuhang Jiang * | Equity Analyst852 3767 1137 | shuhang.jiang@jefferies.com On the supply side, the recovery of Zimbabwe export is confirmed, and the relevant companiesare positive to keep whole year volume unaffected and reiterated the “quota” can be renewed,while others still talk about policy risks. Companies are active in restarting previously suspendedmines and commissioning new/ expansion projects, adding medium term supply even under theassumption of a long-lasting disruption in Jiangxi. On lithium price outlook, given the hike YTD, the price tolerance has increased over the pastmonths. Most of the companies we visited believe lithium price is now supported at RMB150k/tand acceptable to downstream. The market needs to test RMB200k/t level on the upside, and thekey concerns are implications on ESS IRR (cost perspective) and mine restarts/ capex additions.Sodium battery is also discussed. It is becoming a reality, but volume is limited in the near term. Itscost parity vs lithium battery is the key, and the rough range is RMB120-150k/t long-term lithiumprice. All in all, since supply recovery takes a few months, we do not see a deterioration in the nearterm despite recent correction, but medium term