Significant decline without change in support! JP Morgan: Coal and aluminum assets are expected to outperform the market in the short term. CHINAHONGQIAO (01378) is a beneficiary.

JPMorgan Chase released a research report on the Chinese basic materials industry on March 4, stating that coal and aluminum targets are expected to outperform the market in the short term, and recommending to invest in high-quality mining enterprises on dips. The bank pointed out that if there is a supply interruption in the aluminum industry, Aluminum Corporation Of China (02600) and CHINAHONGQIAO (01378) will be the core beneficiaries. The bank maintains a positive view on gold and copper targets, and continues to believe that high-quality mining enterprises have value in investing on dips. Affected by the risk aversion caused by the US-Iran war, the metal sector in China experienced selling on March 3, with only the coal sub-sector outperforming. The bank believes that supported by the expectation of rising coal prices and the low position of investors, the strong performance of the coal sector will continue. Yanzhou Coal Mining is more sensitive to coal prices, and there is also a catalytic factor of asset disposal. Coal: Geopolitical premium drives short-term rise On March 3, Chinese A-share coal stocks rose by 2%-9%, while Hong Kong stocks remained relatively stable, with a slight 1% decline. The escalation of the Middle East geopolitical situation raised crude oil and natural gas prices, triggering demand for fuel substitution, which supported coal demand and benefited the sector. However, the bank believes that whether the strong performance of the sector can continue depends on the risk of supply interruption in the Strait of Hormuz; if the geopolitical situation eases, profit-taking behavior in the market may occur, limiting the subsequent rise in the sector. Aluminum Industry: Emotional pullback overlooks supply risks Influenced by the overall market sell-off, aluminum stocks fell by 2%-4% on March 3, but the bank believes that the market is underestimating the risk of supply interruption in the aluminum industry. The annual aluminum production in the Middle East region is 6.8 million tons, with an annual net export surplus of about 5 million tons, accounting for 7% of global aluminum production. JPMorgan Chase's global commodities team calculated that if there is a substantial supply interruption in the region, the price of aluminum may quickly climb to $4,000 per ton, making it the strongest commodity with upward asymmetry among basic metals. The rise in energy costs, which account for one-third of smelting costs, and shipping costs will further push up the price of aluminum. Copper: Accumulation of inventory suppresses prices, structural demand remains strong On March 3, copper stocks fell by 4%-9%, the main reason for the decrease being investors' risk aversion, rather than changes in fundamentals. The core bullish logic for copper prices still lies in the market supply imbalance: although global visible copper inventories have reached 1.2 million tons, the highest level since 2018, JPMorgan Chase's global commodities team still predicts a supply shortage of 130,000 tons in the global copper market by 2026. If the US and China simultaneously start restocking, global copper inventories outside the US will face tremendous pressure. By 2025, the US has already imported an excess of 800,000 tons of copper, and if China achieves a demand growth of 2.5%, it will need to import 2.7 million tons of copper, while actual recent imports have only reached 2.2 million tons. Lithium: Short-term pressure is apparent On March 3, lithium carbonate prices fell by 12% to 151,000 yuan per ton, and lithium stocks also fell by 6%-11%. The weakness in the sector is due to multiple factors: heightened geopolitical tensions in the Middle East causing concerns about delays in large-scale energy storage projects, a month-on-month decline in new energy vehicle sales in February, and market expectations for the gradual resumption of lithium concentrate exports following negotiations between the Zimbabwean government and Chinese-funded mining enterprises. The bank expects lithium carbonate prices to fluctuate around 150,000 yuan per ton, maintaining a neutral rating on Tianqi Lithium Corporation (09696) and Ganfeng Lithium Group (01772).