JPMorgan issued a research report on China's basic materials sector on March 4, suggesting that coal and aluminum stocks are poised to outperform the market in the near term and recommending investors to accumulate high-quality mining companies on dips. The bank indicated that if aluminum supply faces disruptions, Aluminum Corporation of China (02600) and China Hongqiao (01378) would be primary beneficiaries. It maintained its positive outlook on gold and copper stocks, consistently viewing high-quality miners as valuable investments during market pullbacks.
On March 3, China's metal sector experienced a sell-off driven by safe-haven sentiment amid escalating US-Israel tensions with Iran, with only the coal sub-sector bucking the trend to outperform. JPMorgan believes the coal sector's strong performance will persist, supported by expectations of rising coal prices and low investor positioning. Yankuang Energy Group shows higher beta sensitivity to coal prices and possesses potential catalysts from asset disposals.
In the coal sector, geopolitical premiums are driving short-term gains. On March 3, A-shares of coal companies rose 2%-9%, while Hong Kong-listed stocks were relatively stable, edging down just 1%. Escalating tensions in the Middle East have pushed up crude oil and natural gas prices, spurring fuel substitution demand and consequently supporting coal demand, benefiting the sector. However, the bank notes that the sustainability of this strength hinges on potential supply disruption risks in the Strait of Hormuz; if geopolitical tensions ease, profit-taking could emerge, limiting further gains.
Within the aluminum sector, sentiment-driven declines overlooked supply risks. Aluminum stocks fell 2%-4% on March 3 amid the broader market sell-off, but JPMorgan argues the market is underestimating aluminum supply disruption risks. The Middle East produces 6.8 million tons of aluminum annually, with a net export surplus of about 5 million tons, accounting for 7% of global output. JPMorgan's global commodities team estimates that a substantial supply disruption in the region could rapidly push aluminum prices to $4,000 per ton, making it the base metal with the strongest upside asymmetry. Rising energy costs, which constitute one-third of smelting expenses, along with increased shipping costs, would further drive aluminum prices higher.
Regarding copper, inventory builds are currently suppressing prices, but structural demand remains robust. Copper stocks fell 4%-9% on March 3, primarily due to investor risk-off sentiment rather than changes in fundamentals. The core bullish thesis for copper remains market supply imbalance: despite global visible copper inventories reaching 1.2 million tons, the highest since 2018, JPMorgan's global commodities team still forecasts a global copper supply deficit of 130,000 tons by 2026. If both the US and China initiate inventory restocking, global copper inventories ex-US would face significant pressure. The US has already imported an excess of 800,000 tons of copper for 2025, while China would need to import 2.7 million tons to achieve 2.5% demand growth, yet recent actual imports have only reached 2.2 million tons.
The lithium sector is under clear short-term pressure. Lithium carbonate prices fell 12% on March 3 to 151,000 yuan per ton, with lithium stocks declining 6%-11% in tandem. The sector's weakness stems from multiple factors: Middle East tensions raising concerns over delays in large-scale energy storage project deployments, a month-on-month decline in February new energy vehicle sales, and market expectations for a gradual resumption of lithium concentrate exports from Zimbabwe following negotiations between the local government and Chinese mining companies. JPMorgan expects lithium carbonate prices to fluctuate around 150,000 yuan per ton and maintains a Neutral rating on both Tianqi Lithium (09696) and Ganfeng Lithium (01772).
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