JPM-China Basic Materials Lithium news flow stealing the show...-20251219

The MSCI China Materials Index continued to outperform the broader MSCIChina Index, rallying 9% from its November trough compared to a modest 0.2%recovery for the overall market. Commodity price dynamics have been mixedsince November: lithium rallied the most, followed by gold and copper, whilealuminum and coal experienced price pullbacks after peaking but remain atrelatively resilient levels; steel, however, continues to face price pressure. As wemove into 2026, we expect market focus to shift towards demand verification,though supply-side disruptions remain a key upside risk, and attention will be onwhether the start of the 15th Five-Year Plan brings further stimulus and policyaction around “anti-involution.” We continue to favour high-quality metals names,including copper producers such as Zijin and CMOC, and aluminum names suchas Chalco. Investors’ interest in lithium has picked up again post Yichunsuspending 27 mining permits and CATL mine’s first environmental impactassetment announcement.

More supply side news flow on lithium: Yichun Municipal Bureau of NaturalResources recently announced the proposed cancelation of 27 mining rights,including lithium-bearing porcelain clay mines such as Shiziling. We believethe impact on China’s supply will be minimal, as these licenses had alreadyexpired and were not factored into our supply/demand estimates. Thisdevelopment, however, underscores the increasing regulatory uncertainty formining rights in Jiangxi. On 19 Dec, the first CATL environmental impactassessment was announced. With a typical processing time of 3-6 months, theremight be a risk of a restart delay vs our original expectation in the next 1-2months. We remain constructive on lithium prices and expect prices to runharder than Rmb120k if the market gets tighter in 1Q26 (link to our lithiumprice update note).