European Metals & Mining: On the Road in China: Taking the temperature of downstream demand...new economy hot, old economy cooling

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European Metals & Mining: On the Road in China: Taking the temperature of downstream demand...new economy hot, old economy cooling

income growth, and significant inventory overhang of lower-quality housing stock. Developers

we met are pivoting their businesses to commercial (malls and offices) and property

management to facilitate deleveraging.

Auto – flatlining domestic market drives shift to exports: Domestic auto sales have been

weak YTD due to the halving of subsidies at the end of 2025 – subsidies are expected to be fully

withdrawn in time. Premium demand remains strong, in line with K-shaped economy trends.

Exports are being maximised in the face of domestic weakness, with new markets driving triple-

digit growth in NEV exports in recent months, and pricing is 2-3x China domestic in the EU so

very profitable. China auto sales are expected to decline MSD in 2026 and be flat to slightly up in

2027 by the OEMs we met. Over the longer term, China is seen as a replacement market on a

400m unit installed base.

Commodity conclusions

• Copper – grid, EV and DC to support China demand: Grid represents 39% of China copper

demand, which has the potential to grow at HSD for the rest of the decade. Appliances (18%

of demand, second-biggest driver) should continue to benefit from strong exports, despite

the property downturn, with ~50% of output exported. Machinery demand remains strong

(1.5x GDP), while auto (12% of demand) should see total volumes -4% in 2026. Solid apparent

demand in China and globally YTD, combined with trade flows shifting to maximise US

copper imports and limited supply growth, is creating tightness in the global copper market,

evidenced by falling inventories particularly outside the US. We think copper remains