If you have looked at the car sales charts over the past two years, you would have noticed a striking change: the once-dominant joint-venture internal combustion engine vehicles are being replaced by a string of unfamiliar domestic NEV names. In April this year, the domestic retail penetration rate of passenger NEVs surpassed the 60% mark for the first time. Against the backdrop that over 6 out of every 10 new cars sold are now electrified, the shift from ICE vehicles to NEVs is likely becoming the broader industry trend. But behind the excitement, ordinary people are more confused: with prices falling again and again, is it that technology has lost its value, or is competition just too fierce? With all the talk of "smart driving" and "800V", which features are truly practical and which are gimmicks? To answer these questions, you don't need to understand complex battery chemistry formulas, nor do you need to study financial reports. We just need to refocus on three fundamental industry logics. Once these three points are clarified, the broad trend will become clear. Logic 1: Why Cars Must Be Electrified Many people attribute the widespread adoption of NEVs to "policy subsidies" or "license plate advantages". These did indeed provide an early boost to the industry, but now, the more fundamental reason is a dual drive from energy security and experience upgrades. From a national perspective, China's dependence on foreign oil has long exceeded 70%, while electricity comes from diverse sources (coal, hydropower, wind, solar, nuclear). Replacing imported oil with self-sufficient electricity is a strategic choice for a mature industrial power. Therefore, electrification is not a passing fad but a set direction spanning decades. In terms of user experience, electric drive delivers a level of smoothness, quietness, and instant response that internal combustion engine vehicles in the same price range struggle to match. This experiential gap, rooted in the drivetrain, means that many people find it hard to go back to driving an ICE vehicle once they have driven an NEV. So, electrification is no longer a question of "whether or not", but rather "how fast versus how slow". Logic 2: Why Are Cars Getting Cheaper? People often ask: "Do these price cuts mean quality is being compromised?" But in reality, the decline in prices is essentially a natural outcome of the industry chain's maturity. The main reasons include the following: Raw material price normalization: Spot lithium carbonate prices fell from a peak of nearly 600,000 yuan per mt in 2022 to around 150,000 yuan per mt currently, directly contributing to lower battery costs; Process innovation: The popularization of integrated die-casting has reduced auto body manufacturing time by over 50%; Economies of scale: Annual sales of passenger NEVs in China have already reached the 10-million-unit level, significantly diluting the high R&D costs. Just like LCD TVs, which fell from tens of thousands to thousands, not because quality worsened but because the industry mastered large-scale manufacturing. A pragmatic judgment is that the era of buying a good car at a bargain price has indeed begun. From the current industry situation, producers are locked in fierce competition, and for consumers who are about to buy a new car, whether to seize the opportunity to "take advantage" of NEVs should depend on their own driving radius. Logic 3: Why All the Talk About "Intelligence"? Electrification first answers the question of "where does the power come from", but intelligence redefines the "user experience". This is the most fundamental difference between NEVs and internal combustion engine vehicles. The core value of traditional ICE vehicles—engine, transmission, chassis—is set at the factory (except for hardware modifications) with little room for subsequent changes. Today's smart NEVs, however, are shifting their core value toward software and data iteration . After purchase, the car can be upgraded over the network to optimize driving range logic, improve driver assistance, and even change the entire in-car interface—something unimaginable before. As for driver assistance, the situation in 2026 is already quite clear. The penetration rate of Level 2 driver assistance in NEVs exceeds 50%, and the installation rate for Level 2+ has risen to nearly 30%. Driver assistance has become a standard feature in NEVs. In specific scenarios: Highway NOA is already very mature. In the 100,000-150,000 yuan price range, there are over 70 models equipped with highway pilot assist, and some mainstream brands have completed multiple rounds of OTA upgrades. After setting a destination on the highway, the system can autonomously change lanes, overtake, and navigate on/off ramps, and this experience is now quite stable. Urban NOA has also been rapidly rolling out over the past two years. A few years ago, it was only available on models priced above 300,000 yuan, but now, some NEV model in the 140,000-yuan range can run urban NOA. One brand has even equipped an 110,000-yuan model with urban NOA. To be honest, though urban NOA is rapidly popularizing, the actual number of users isn't as high as one might think. Data shows that the activation rate for urban NOA is less than 30%—many people have the feature in their cars but rarely use it daily. On one hand, urban road conditions are indeed complex, and the system occasionally still hesitates or requires human takeover; on the other hand, it shows that there is still some way to go from "having this feature" to "truly integrating it into everyday driving scenarios." Here's a car-buying tip: test how responsive the infotainment system is, whether it can handle multiple tasks simultaneously, how accurate the navigation is, and how well the voice recognition understands natural speech. These fundamental experiences that you'll use every day are the key factors in determining whether the car is "worth it" for you. Summary Looking back at these three logics: Automotive electrification is driven by energy structure and physical experience, making it an irresistible trend. Price declines are a natural outcome of industry maturity, so we should treat them rationally. Intelligence is the major direction of value shift, but we need to distinguish between what already delivers qualitative improvements to the driving and riding experience now and what still needs time to mature. Technology is still advancing, and the market is still changing. But by returning to your true needs—how convenient is charging, how many kilometers do you commute daily, what is your car purchase budget—the answer is often clearer than you think. SMM New Energy Research, Lithium Battery End-User Analyst, Fu Linqi 021-51558494

[SMM Analysis: Samsung SDI’s “Contrarian Big Bet” — 25 Trillion Won Staked on Next-Generation Batteries Could Rewrite Global Energy Landscape] Samsung SDI disclosed a regulatory filing on July 3, announcing an investment of approximately 16 trillion won (about 88 billion yuan) into its Ulsan plant by 2040, to build large-scale production sites for all-solid-state batteries, LFP batteries for ESS, and sodium-ion batteries. A day earlier (July 2), the company had announced an investment of 9 trillion won into its Cheonan plant, for setting up a mother production line for next-generation battery technology verification and R&D facilities. Combined, the two investments total 25 trillion won, spanning a period of 14 years and lasting until 2040.

SMM July 2 News: Fed Chairman Kevin Warsh stated on Wednesday that US inflation upside risks have clearly cooled over the past four weeks, easing market concerns about aggressive rate hikes; he also indicated that no further forward guidance would be released on subsequent interest rate policy, refusing to disclose whether the US Fed needs to consider a rate hike at its next meeting; the US dollar weakened, and precious metals rebounded. As of around 16:09 on July 2, COMEX gold dropped 0.11% to $4,077.9/ounce; SHFE gold main contract rose 1.53% to 890.66 yuan/g; COMEX silver dropped 1.1% to $59.845/ounce; SHFE silver main contract rose 1.91% to 14,650 yuan/kg; silver T+D rose 2.95% to 14,551 yuan/kg. In the precious metals stock market, as of the close on July 2, the precious metals sector rose 4.21%, with individual stocks: Zhaojin Gold and Chifeng Gold hit their daily limit up, while Shanjin International, Xiaocheng Technology, Zhongjin Gold, and Western Gold led the gains. News [Warsh: Inflation Eases Over Past Four Weeks, AI Is Reshaping Economy, Forward Guidance Loses Necessity] On July 1, at the ECB's annual central bank forum in Sintra, Portugal, Warsh again clearly stated that the US Fed would not provide forward guidance on the future interest rate path , hoping that policymakers can engage in thorough discussions based on the latest data at each meeting, rather than previewing the policy direction to the market in advance. He said that US inflation risks had eased over the past four weeks, and the supply expansion brought by AI could profoundly change how the economy operates, with the US at the center of this transformation, but whether AI ultimately leads to inflation or deflation should be judged by the central bank based on data. Warsh said the US Fed is “charting a new path” and will no longer hint at the direction of interest rates in advance as it did in the past. He said: “We will hold our next meeting in four weeks, and I hope we can have a real family-style debate then.” He reiterated that forward guidance is not the right policy in the current economic situation, and the US Fed will continue to base its decisions on the latest economic data in the future, rather than committing to a policy path in advance. This means that the US Fed will rely more on real-time economic data rather than sending policy signals to the market in advance. Spot Market Silver In the spot market: On July 2, the reference average factory price of SMM 1# silver in the morning was 14,558 yuan/kg, up 3.35% from the previous trading day. In the spot market, overall offers remained firm early in the month, but transaction follow-through was slightly weak, and consumption performance fell short of expectations. As silver prices rebounded slightly, downstream wait-and-see sentiment intensified. In Shanghai, morning offers were mainly at TD+5 to +15 yuan/kg. Some smelters quoted on the high side, but actual buying interest was weak, with most deals clustered around TD+10 yuan/kg. In other regions, low-priced cargoes had basically been cleared, while offers in Shenzhen were mostly around TD+5-10 yuan/kg. Today, the market quoted premiums for the SHFE most-traded contract 2608 at a discount of 30 to 20 yuan/kg. Overall, a slight cooling in rate-hike expectations provided some support for precious metals prices. At the start of the month, the spot direction remained unclear. Maintenance at copper plants last month caused a slight disruption on the supply side, and offers generally maintained a slight premium structure. Views From Various Parties Regarding the outlook for precious metals, some institutions’ views are as follows: On July 1, the World Gold Council released the “2026 Mid-Year Outlook for the Global Gold Market.” Looking ahead to H2, gold’s valuation framework indicated that gold will continue to serve as a barometer of the global macro economy, with three main possible scenarios. From current levels, gold prices were broadly in line with market consensus: the market expected the US Fed to raise rates at least once in 2026, most likely in October; the Bank of England, the Bank of Japan, and the European Central Bank were all set to tighten policy; and US Q2 inflation was expected to peak, near $3.9. If there were no major changes in the above environment, gold prices may trade around $4,100/oz within the year, with a fluctuation range of about ±5. If geopolitical or economic conditions deteriorate, or if interest-rate expectations shift, gold is expected to regain its upward momentum; however, only sufficiently strong signals of a global economic slowdown would be likely to drive a breakout to the upside. On the downside, a stronger US dollar, rate hikes exceeding expectations, and a rebound in market risk appetite were the main headwinds for gold prices; if gold prices remain below $4,000/oz, it may trigger further selling. However, based on historical performance, if gold prices fall by more than 10% from current levels, it may trigger “buy-the-dip” demand from long-term investors in multiple regions. State Street Investment Management said that, as the opportunity cost of holding gold and heightened volatility weighed on investor sentiment, bullish gold trades had been weak, and spot gold prices repeatedly tested the $4,000/oz support level. State Street believed that, although gold prices may be more volatile than in 2024-2025, the gold bull-cycle still has upside room, and the US Fed’s hawkish policy shift was expected not to change gold’s post-pandemic structural trend. State Street noted, “Since the US-Iran conflict, China’s retail gold imports have surged, and local premiums have risen in tandem, reflecting tightening fundamentals in China’s gold supply-demand balance.”State Street expects that over the next six to nine months gold prices could rise to the $4,750 to $5,500 per ounce range, with strong support in the $3,750 to $4,000 per ounce area. However, compared with the macro environment from January to February, the probability of gold prices reaching $5,500 to $6,250 per ounce is relatively small. (Zhitong Finance) State Street Investment Management strategists noted in a report that gold prices could reach $5,000 per ounce by early 2027, as the gold bull cycle remains persistent. They believe that as U.S. government debt rises, gold's role as a currency hedge is expected to be supported, while actual demand for gold remains strong. Global gold fund holdings (as a share of global mutual fund and exchange-traded fund assets) currently remain below State Street's target allocation of 3% to 10% for most portfolios. Moreover, they added that a hawkish pivot by the Fed should not alter gold’s structural post-pandemic trend. State Street expects base bullion prices to rise to $4,750 to $5,500 per ounce in the next six to nine months. (Jinshi Data APP) Analysts at Saxo Bank said, "The market has not yet attracted enough buying interest to establish that level as a support level." They also pointed out, "Even though energy prices have pulled back recently, investors still expect the Fed may further tighten monetary policy to combat an inflation rebound, and as a result, gold prices fell 14% in Q2, marking the worst quarterly performance since 2013." (Jinshi Data APP) CICC's latest research report pointed out that gold may have already overpriced rate hike expectations. Fed rate hikes are still not the base case, and the gold market may have overly priced in rate hike expectations, leaving room for a pullback this year. CICC's macro team believes that employment and consumption pressures, along with the expanding financing needs of the U.S. AI economy, may make it difficult for the Fed to materially turn hawkish, and monetary policy may be "hawkish in words but dovish in action." Based on the implied interest rate expectations model from gold prices, it is estimated that the current gold price around $4,000 per ounce has fully priced in three to four rate hikes, exceeding the rate hike expectations priced in by the interest rate futures market. Looking ahead, after the decline in oil prices is further reflected in U.S. short-term inflation data, the gold market's pricing of rate hike expectations may be corrected, and futures market short-term funds may have opportunities to cover short positions. (Jinshi Data APP) Li Xunlei, Deputy Director of the China Chief Economist Forum, pointed out that gold's long-term trend exhibits long bear markets and short bull markets. Since 1971, 30 years have been bear markets and 25 years have been bull markets, but each bull market has seen gains of over fivefold. A bull market typically lasts around 10 years. This gold bull run has now lasted nearly 10 years, with prices tripling during that time, so caution is warranted at this stage. (Jin10 Data App) Deutsche Bank analyst Michael Hsueh said the bank has cut its Q3 gold price forecast by over 20% to $4,300/oz and lowered its Q4 forecast by 17% to $4,800/oz. "Potential investors who would normally provide support are notably absent," he said, pointing to weak demand for exchange-traded funds and reduced buying appetite in some countries. (Jin10 Data App) Macquarie said profit-taking weighed on silver prices last month, and price action is once again driven by macro factors amid rising expectations for US Fed interest rate hikes. Similar to gold, silver prices are expected to move sideways for the rest of the year, then gradually decline into 2027, with inflationary pressures and the likelihood of further US Fed rate hikes limiting upside room. The higher inflation and bond yields, the greater the downward pressure. Silver, in particular, has been more susceptible to a pullback after outperforming gold, driven by bullish sentiment fueled by supply tightens, low inventory, and strong demand. Historically, silver pullbacks tend to be rapid. Macquarie expects silver to trade at $70/oz in Q4 this year and pull back to $65/oz by the end of 2027. (Jin10 Data APP) Recommended reads:

Hoa Phat’s 2025 results marked a major step-up driven by the ramp-up of Dung Quat 2, pushing crude steel output above 11 million tons and lifting earnings through higher volumes and cost dilution despite weak global steel prices. Growth was supported by stronger HRC and downstream sales, a rising export mix, and continued domestic dominance. The year also signals a strategic shift toward higher-value products and future capacity expansion into rail and special steels.

At 4:15 PM on June 8, 2026, a ladle explosion at the SMS-1 steelmaking shop of Visakhapatnam Steel Plant (VSP) — operated by Rashtriya Ispat Nigam Limited (RINL) — unleashed molten metal at over 1,500°C onto the working platform below Caster-2. According to a preliminary report by India's Chief Inspector of Factories, the cause was a sudden release of gas entrapped within the liquid steel, which ruptured the ladle seal before the sliding gate was opened, triggering a catastrophic spill.

After pushing to fresh highs in early May, Chinese Nickel Pig Iron prices have begun retreating as every pillar that supported the late-April surge — refined nickel, stainless margins, and scrap economics — starts to weaken simultaneously.

Recent Performance of Key Iron Ore Price Spreads Since 2024, large-scale iron ore projects in and outside China have been continuously commissioned, leading to a notable increase in iron ore supply. However, the sharp decline in downstream steel demand caused the iron ore supply-demand gap to widen continuously. The iron ore supply-demand pattern shifted from tight to loose, which also led to a year-on-year decline in average iron ore prices. Nevertheless, influenced by multiple factors such as iron ore supply and demand, port inventory, and steel mill profits, the frequency of price spread fluctuations among iron ore varieties increased. SMM reviewed the recent trends of key price spreads, as detailed below: ◼ Internal Differentiation Among Medium-Grade Resources, with Price Spreads Widening Significantly Affected by long-term contract negotiations, the trade liquidity of mainstream medium-grade ore deteriorated significantly. The lack of trade liquidity in certain varieties was directly transmitted to variety price spreads, with price spread fluctuations of mainstream medium-grade ore such as MNPJ intensifying notably. Among them, the price spread between PB fines and Jimblebar fines was the most sensitive: In early September 2025, the price spread between the two was 20 yuan/mt. As news of the ban on Jimblebar fines port cargo pick-up was released, its spot price came under pressure and dropped sharply, with the price spread quickly widening to around 50 yuan/mt. In addition, affected by the reduction in tradable varieties of mainstream Australian medium-grade ore, the variety price spreads between PB fines and Newman fines, as well as MAC fines, also showed a notable narrowing trend. Source: SMM ◼ High-Grade Premium Highlighted, Price Difference Between High and Medium-Grade Ore Widening Rapidly From Q4 2025 to date, price spread fluctuations among high, medium, and low-grade ore were equally intense. After entering 2026, structural contradictions in the iron ore market became further pronounced. Affected by declining raw ore quality from northern Brazilian mining areas, IOCJ fines supply experienced a trend of contraction. Coupled with the cost-effectiveness recovery brought by earlier price weakness and the release of concentrated restocking demand from steel mills ahead of Chinese New Year, IOCJ fines prices received strong support. Meanwhile, mainstream medium-grade ore remained tight in available resources due to trade flow disruptions. Against the backdrop of a shift between high and low-grade resources, the price difference between high and medium-grade ore widened again. Reviewing the period from November 2025 to March 2026, north China entered the heating season, and environmental protection-driven production restrictions became more frequent. As Chinese New Year and the Two Sessions approached, production restrictions were further tightened, with blast furnaces at steel mills in multiple areas of Hebei shut down, leading to a notable decline in hot metal production. Notably, during this period, steel mill profits remained generally stable, and some enterprises, in pursuit of higher output, tended to increase the blast furnace blending ratio of high and medium-grade ore while correspondingly reducing procurement of low-grade ore. Driven by this structural demand shift, the price difference between medium and low-grade ore widened. Source: SMM ◼ Lump-Fines Price Spread Experienced a "V"-Shaped Trend, Declining First Then Rising Since sintering processes generate relatively high pollution emissions, environmental protection-driven production restrictions typically prioritized restricting sintering and shaft furnace production. In north China and north-east China, during heating seasons or major events, if production restriction periods are prolonged, steel mills often increase the proportion of lump ore in their mix to alleviate tight supply of sinter and pellet, thereby driving lump ore prices to rise rapidly. However, over the past three years, the impact of seasonal factors on lump ore demand has gradually weakened, mainly for three reasons: first, steel mills have successively completed ultra-low emission retrofits for flue gas, reducing overall pollution intensity; second, sintering machines in Hebei and other regions have surplus capacity, and environmental protection-driven production restrictions have mostly been limited to within one week, significantly reducing the actual impact on production; third, steel mill profits have been under pressure, reducing the pursuit of hot metal production, and the proportion of high-grade ore usage has adjusted downward accordingly. Under the combined influence of the above factors, since H2 2024, lump ore premiums have continued to decline, hitting a new low by the end of 2025. Meanwhile, the price spread between PB lump and PB fines also narrowed significantly, contracting from 195 yuan/mt to 63 yuan/mt, a decline of over 50%. Against this backdrop, the cost-effectiveness of lump ore gradually became more prominent. Combined with the extended environmental protection-driven production restriction period in northern China in November 2025, the proportion of lump ore usage began to increase. However, as lump ore premiums had remained low for an extended period, product returns were poor, and major mines correspondingly reduced lump ore production. Driven by both supply contraction and demand growth, lump ore premiums rebounded, and the lump-fines price spread widened accordingly. As of mid-March 2026, lump ore premiums have risen to a periodic high, up nearly 280% from early January. The lump-fines price spread has also gradually widened to above 100 yuan/mt. Source: SMM Key Driving Logic of Product Price Spreads Mix Adjustment Led by Steel Mill Profits (Core Driver) ◼ 1 Profit Expansion Phase: High Hot Metal Production Drives Demand for High-Grade Ore When steel mill profits widened and per-mt crude steel returns were higher, steel mills pursued pig iron production and tended to raise the grade of furnace feed. When selecting iron ore, they preferred to purchase high-grade or medium-grade ore. As shown, in H1 2025, profits of common billet at China's steel mills rebounded notably. Common billet profits reached a peak of nearly 350 yuan/mt. At this point, to boost production, steel mills moderately increased the proportion of high-grade IOCJ fines, as well as high-grade lump and pellet usage. Demand growth over a certain period stimulated high-grade ore price increases, and it was clearly evident that the price spread between high-grade and medium-grade ore began to widen. Source: SMM ◼ 2 Profit Contraction Phase: Cost Reduction and Efficiency Improvement Boost Low-Grade Ore Procurement After steel mill profits contracted, to reduce costs and improve efficiency, steel mills significantly increased their focus on cost-effectiveness across iron ore products, tending to prioritize products with higher cost-effectiveness. Within the mid-grade ore range, steel mills preferred varieties with a larger price spread relative to PB fines. Meanwhile, weakening profits meant that higher pig iron or crude steel production led to greater loss pressure. Therefore, steel mills controlled pig iron production rationally from the perspective of economic efficiency. However, given the high comprehensive costs of shutting down or reducing blast furnace loads, steel mills tended to maintain normal blast furnace operations while lowering furnace charge grade and increasing the use of low-grade ore. Under these circumstances, assuming other conditions remained unchanged, the price spread between mid- and low-grade ore tended to narrow. Taking the market around October 2025 as an example, billet profits continued to decline, and the mid-to-low-grade ore price spread narrowed accordingly. Data source: SMM Dual Transmission Paths of Seasonal Effects ◼ Seasonal factors influenced iron ore variety demand through dual paths of "end-use demand fluctuations" and "heating season environmental protection-driven production restrictions" ◼ 1. Seasonal fluctuations in end-use demand: impact on steel mill production and raw material procurement pace The shift between off-season and peak season in end-use demand created cyclical impacts on iron ore variety demand. Off-seasons were mainly concentrated in summer (June–August) and winter (November–February): high temperatures and heavy rainfall in summer suppressed construction, while hydropower replacing thermal power in south China lowered electric furnace production costs and squeezed blast furnace hot metal production; in winter, construction sites in north China shut down and steel demand contracted. During off-seasons, steel mills increased blast furnace maintenance and lowered furnace charge grade to control production, with demand for high-grade iron ore weakening accordingly. During peak seasons (spring March–May, autumn September–October), downstream construction activity was released intensively, steel mills actively ramped up production, and furnace charge grade rose in tandem, strengthening demand for high-grade fines, lump ore, and pellet, supporting their premium performance. In summary, seasonal fluctuations in end-use demand drove cyclical changes in iron ore variety demand by influencing steel mill production and furnace charge grade selection. Transmission logic: end-use demand fluctuations → steel mill production adjustments → changes in total iron ore procurement volume → corresponding shifts in variety demand structure Data source: SMM Data source: SMM ◼ 2. Environmental protection-driven production restrictions during the northern heating season: direct disruption to furnace charge structure and variety premiums Heating season environmental protection-driven production restrictions primarily targeted steel mills in north China, spanning November to April of the following year . During this period, if air quality failed to meet standards, local environmental protection authorities would initiate production restriction measures, prioritizing restrictions on sintering machines and shaft furnaces, leading to tighter supply of sinter and pellet. To maintain blast furnace operations, steel mills were forced to increase the proportion of lump ore in their charge mix, driving a seasonal strengthening of lump ore demand, which in turn supported lump ore premiums and a rise in the lump-fines price spread. Transmission logic: environmental protection policy → sinter machine production restrictions → forced adjustment of furnace charge structure → stronger demand for lump ore and pellet ore → premium fluctuations Data source: SMM Coke prices affected the iron ore product mix through dual channels of fuel costs and profit margins ◼ 1 High coke prices suppressed lump ore demand As raw material directly charged into furnaces, lump ore consumed more coke than sinter and pellet ore, so steel mills typically controlled the lump ore charging ratio at around 10%. During periods when coke prices fluctuated at highs, steel mills tended to reduce lump ore proportions to control fuel costs. Before H1 2024, coke prices fluctuated at highs, and the lump ore usage ratio continued to decline, falling to a low of 9.8%. However, as coke prices underwent nearly a year of decline and entered a low range, combined with relatively low lump ore premiums and the push from environmental protection-driven production restriction policies, the lump ore charging ratio gradually rebounded, once exceeding 11%. Data source: SMM ◼ 2 Demand for high-silicon fines suppressed The higher the silicon content in iron ore, the greater the blast furnace slag volume and the higher the coke ratio. Therefore, low-silicon smelting is a key direction for blast furnace process optimization and a critical lever for cost reduction and efficiency improvement. Among current iron ore products on the market, mainstream mid-grade ore Si content mostly ranges from 4-6%. Brazilian high-silicon BRBF has relatively high Si content at 10-12%. Therefore, Australian ore is mostly used as the primary material, while Brazilian ore and non-mainstream ore serve as auxiliary materials. When coke prices were at highs, the cost disadvantage of high-silicon resources became prominent, and steel mills tended to reduce Brazilian high-silicon BRBF, Indian fines, and South African fines, shifting to mid-to-high-grade fines with lower silicon content (such as PB fines and IOCJ fines). Going forward, the iron ore oversupply pattern will become more prominent, while under overcapacity pressure in China's steel sector, steel mill profits will remain poor. Therefore, cost reduction and efficiency improvement will be a long-term direction, driving stronger demand for low-silicon, low-aluminum products. Consequently, mainstream mid-grade ore will remain the product with the best market circulation. Data source: SMM ◼ 3 Rising share of mid-to-low-grade fines under low profits High coke and ore prices squeezed steel mill profits, and steel mills no longer pursued hot metal production maximization, instead increasing mid-to-low-grade fines usage and lowering charging grade to control costs. Based on historical data, such situations occurred in Q3 2024 and Q2 2025. Auxiliary Variables: Inventory, Substitution, and Preferences ◼ 1 Product substitution effect: mid-grade inter-substitution and "high-low blending" substitution In the product mix of steel mill sinter, "high-low blending" and "mid-grade blending" are commonly mentioned concepts, with the core principle being to select the optimal products based on the cost-effectiveness of different iron ore varieties. Under normal circumstances, steel mills use MNPJ (i.e., mainstream medium-grade ore types such as Mac fines, Newman fines, PB fines, and Jimblebar fines) as primary materials, or adopt a high-low grade combination of " IOCJ fines + super special fines " as primary materials, and adjust auxiliary material ratios based on the acidity and alkalinity of the primary materials. Using mainstream medium-grade ore types as primary materials is the more common practice. When mainstream medium-grade ore types are periodically less cost-effective — for example, when the combined cost of "IOCJ fines + super special fines" is lower than that of medium-grade PB fines — some steel mills periodically switch to high-low grade combinations as primary materials to reduce costs. As shown in the chart, during March to April of 2024 and 2025, the cost-effectiveness advantage of high-low grade combinations was significantly superior to that of medium-grade ore, and therefore some steel mills in regions such as Hebei and Shanxi predominantly chose high-low grade combinations as primary materials during these periods. Data source: SMM ◼ 2. Inventory Structure Drives Price Spreads among Varieties: Inventory Changes and Price Transmission Logic Inventory is the most intuitive reflection of short-term supply-demand imbalances in the iron ore market. When supply is loose or demand weakens, port inventory continues to rise, and inventory levels generally exhibit a negative correlation with prices. Once inventory accumulates to a certain level, it tends to exert significant downward pressure on prices. Over the past two years, the inventory and price trends of Ukrainian concentrate (hereinafter "Ukrainian concentrate") have well validated this pattern. In November 2023, Ukrainian concentrate shipments gradually resumed, but as steel mills still had concerns about the stability of its supply, actual usage did not increase significantly, leading to continued port inventory accumulation. By May 2024, SMM ten-port inventory data by variety showed that Ukrainian concentrate inventory exceeded 3 million mt , exerting significant downward pressure on prices, with Ukrainian concentrate prices falling from 1,200 yuan/mt at the beginning of the year to 900 yuan/mt. Meanwhile, the price spread between Ukrainian concentrate and PB fines also narrowed from 160 yuan/mt to 80 yuan/mt, and its cost-effectiveness advantage gradually emerged, driving a notable increase in steel mill demand. Entering early 2026, affected by a decline in Ukrainian concentrate supply, port inventory retreated from highs to around 1.1 million mt, and tightening supply supported a notable rebound in Ukrainian concentrate prices, with the price spread versus PB fines also widening from 80 yuan/mt to around 100 yuan/mt . Data source: SMM Variety Cost-Effectiveness Assessment Model and Selection Strategy ◼ 1. Horizontal Comparison: Micro-Indicator Assessment among Same-Grade Varieties. In recent years, global mainstream iron ore supply entered a resource transition period, with notable structural adjustment characteristics. On one hand, some aging mines faced resource depletion , with declining mining grades; on the other hand, new mines were still in the capacity ramp-up stage , and the transition between old and new resources still required time. As a result, quality indicators of multiple mainstream varieties were broadly downgraded. Among them, medium-grade ore indicators represented by PB fines and Newman fines weakened; due to declining raw ore quality in Brazil's northern system, not only did IOCJ fines production contract, but the proportion of high-silicon special IOCJ fines output also rose, with silicon content increase being particularly notable beyond the decline in iron grade. Against this backdrop, steel mills tended to assess the most cost-effective varieties by calculating comprehensive price spreads. From the perspective of minor indicator adjustment values, the smaller the adjusted price spread relative to the MMI 61% index, the better the variety met steel mill demand. Based on Q1 averages, Jimblebar fines offered the best cost-effectiveness, followed by PB fines, Mac fines, Newman fines, and BRBR. However, since Jimblebar fines could not be traded or delivered, PB fines remained the optimal choice among medium-grade ores. Data source: SMM ◼ 2. Vertical Comparison: Historical Percentile Timing of High, Medium, and Low-Grade Price Spreads Beyond the horizontal comparison of price spreads among varieties of similar grades, vertically examining price spread changes among high, medium, and low-grade ores was equally important. By analyzing historical percentiles of the price difference between high and medium-grade ore and the price difference between medium and low-grade ore, the relative valuation of each grade could be assessed to guide variety switching and timing. Price difference between high and medium-grade ore: when at historical highs, the high-grade premium was excessive, and switching to medium-grade was advisable under profit pressure; when at historical lows, high-grade cost-effectiveness stood out, and moderate allocation increases were appropriate. Beyond premiums, using IOCJ fines and PB fines as benchmarks and calculating based on their indicator costs, the neutral value of the price spread between the two was 100 yuan/mt. When the spread exceeded 100 yuan/mt, PB fines offered better cost-effectiveness; when below 100 yuan/mt, IOCJ fines were more cost-effective. Price difference between medium and low-grade ore: when at historical highs, low-grade advantages were evident, suitable for cost reduction during thin-margin periods; when at historical lows, medium-grade cost-effectiveness improved, allowing flexible adjustments. Using PB fines and SSF as benchmarks and calculating based on their indicator costs, the price spread between the two ranged from 100-120 yuan/mt, with a midpoint of 110 as the neutral value. When the spread exceeded 110 yuan/mt, super special fines offered better cost-effectiveness; when below 110 yuan/mt, PB fines were more cost-effective. Combining the historical percentiles of both, allocation windows for each grade could be captured based on profit cycles to achieve cost optimization. Data source: SMM ◼ 3 Morphology Comparison: Arbitrage Logic of Fines-Lump Price Spread and Lump Ore Premium. Taking the price spread between PB lump and PB fines as an example, influenced by steel mill profits and coke prices, the fines-lump price spread exhibited notable fluctuations. Historical data showed the price spread between PB lump and PB fines ranged approximately 80–500 yuan/mt. In H1 2021, driven by high steel mill profits and supply-demand mismatch, the fines-lump price spread once approached the historical high of nearly 500 yuan/mt. In recent years, as steel mill profits narrowed, the price spread contracted significantly. In 2025, the fines-lump price spread operated within a range of 70–220 yuan/mt, with an annual average of approximately 128 yuan/mt. In early 2026, the lump ore premium fell to $0.04/dmt, and the price spread narrowed to 65 yuan/mt. Given that China's overcapacity landscape has not fundamentally changed, steel mill profits are expected to remain basically flat with 2025, and the fines-lump price spread is likely to maintain the current range. Based on this assessment: When the lump-fines price spread exceeds 120 yuan/mt, PB fines offer better value; When the lump-fines price spread falls below 120 yuan/mt, PB lump offers better value. Steel mills can choose accordingly based on their own conditions. Data source: SMM ◼ 4 Substitution Comparison: Cost-Effectiveness Competition between Lump Ore and Pellet Generally, when steel mill profits are favourable, steel mills consider increasing the usage ratio of lump ore and pellet. Typically, the combined usage share of lump ore and pellet ranges between 20%–30%. In actual ore blending decisions, steel mills' price spread analysis between lump ore and pellet falls into two categories: inland steel mills usually compare the price spread between domestic pellet and lump ore such as PB lump and Newman lump; while coastal port steel mills focus more on the price spread between imported pellet and corresponding lump ore. In recent years, with the increase in China's pellet capacity and the decline in imported pellet volumes, the weighting of price spread comparison between same-grade lump ore and domestic pellet has further increased. Historical data showed the price spread between 62% grade pellet in Qingdao and PB lump ore at Qingdao port ranged approximately 40–260 yuan/mt, with an annual average price spread of approximately 108 yuan/mt in 2025. Considering steel mills' actual cost accounting, the price spread equilibrium point between pellet and lump ore is generally set at 120 yuan/mt. When the pellet-lump price spread exceeds 120 yuan/mt, lump ore offers better value; When the pellet-lump price spread falls below 120 yuan/mt, pellet offers better value. Steel mills can choose accordingly based on their own raw material conditions, logistics structure, and production requirements. Data source: SMM Carbon Neutrality as a Two-Way Driver: Steel Industry Restructuring Shifts Iron Ore Demand ◼ The rapid advancement of industrialisation has significantly intensified the impact on the global climate, making the urgency of achieving carbon neutrality increasingly pressing. Particularly over the past five years, major economies represented by China and the EU have not only defined their respective emission reduction targets but also successively introduced legally binding regulations, marking a shift in global climate governance from consensus to action. Going forward, China's Ecological Environment Code and the EU's European Climate Law and "Fit for 55" package will become the two major institutional benchmarks for global climate governance. China's carbon market and the EU's CBAM, from the two dimensions of domestic carbon pricing and cross-border carbon adjustment respectively, form core policy tools for effectively controlling carbon emissions. Source: SMM ◼ Driven by both domestic and international legislation, the steel industry will undergo an evolution in emission reduction pathways: process transformation from long-process to short-process steelmaking; low-carbon transition driving non-blast furnace ironmaking development and carbon constraints driving furnace charge structure upgrades. These pathways will collectively reshape the demand structure of iron ore, manifested as strengthened preference for high-grade, low-impurity iron ore concentrates and premium mainstream ore types, while demand for traditional sintering fines tends to narrow. ◼ 1. Process restructuring: the shift from long-process to short-process steelmaking will drive increased demand for mainstream varieties and high-grade ore Under the global backdrop of "carbon neutrality" goals, the steel industry is regarded as one of the key areas for industrial emission reduction. The traditional long process (blast furnace-converter process), due to its reliance on coke and iron ore, is considered a major source of high carbon emissions and has become a key target for regulation and transformation. Many countries have begun shifting toward the more environmentally friendly short process (steel scrap-electric furnace process), but this transition has been relatively slow in China. On one hand, electric furnace steelmaking is largely limited to rebar production; on the other hand, steel scrap supply is constrained. Additionally, considering factors such as melting costs and losses in steel scrap smelting, pig iron costs should be higher than steel scrap prices by 100-150 yuan/mt for steel scrap to be more cost-effective; if the price spread is below this level, pig iron offers better value. In 2025, the price spread between hot metal costs and steel scrap fluctuated in a range of -100-210. Pig iron costs were mostly more favorable than steel scrap, so the share of blast furnace steelmaking in China stayed high. Source: SMM In China, apart from profitability, short-process electric furnaces are also constrained by high electricity prices, steel scrap price fluctuations, and cost disadvantages , resulting in slow capacity growth. Although the national carbon market is already operational, current carbon prices have not been effectively incorporated into trading, which is not enough to drive a large-scale shift from long-process to electric furnaces, and enterprises mostly adopt gradual adjustments . Source: SMM Based on current policy and market conditions, before China's steel industry is formally included in the national carbon market trading and during the early stage of the EU's CBAM policy implementation, the blast furnace-converter long process will remain the dominant mode of global steel production over the next five years. However, under the dual pressures of domestic steel capacity capping and rising carbon prices in the future, China's electric furnace short process is entering a historic development opportunity, with its share of steelmaking set to gradually increase. By 2030, the share of electric furnace steelmaking is expected to reach around 35%. In the long term, this trend will gradually suppress iron ore demand, causing it to weaken. Against the backdrop of oversupply, competition among iron ore varieties will intensify, and therefore high cost-effective varieties with low silicon and aluminum content will become the optimal choice for steel mills. Undoubtedly, mainstream medium and high-grade ore such as PB fines, Mac fines, Newman fines, IOCJ fines, BRBF, and Simandou fines all belong to relatively high-quality varieties. ◼ 2 Low-carbon transition driving non-blast furnace ironmaking development, demand for high-grade iron ore concentrates with Fe content above 65% expected to continue rising Currently, global DRI production accounts for only 10% of total global production. As low-carbon technologies such as hydrogen-based DRI accelerate in application, DRI production share is expected to rise to 13% by 2030. In comparison, China's non-blast furnace ironmaking share is even smaller, with mass production not yet achieved and only leading steel enterprises in the trial production stage. Under current carbon neutrality requirements, China's non-blast furnace ironmaking is facing significant development opportunities. According to incomplete statistics, announced non-blast furnace ironmaking capacity totaled approximately 18 million mt, of which only 2 million mt were under construction, with the remaining 16 million mt of projects still in early stages, carrying relatively high risk coefficients. Whether these projects materialize depends on multiple factors including funding, market conditions, decarbonization policies, and government support, resulting in significant uncertainty regarding future commissioning time. Future projects will primarily be gas-based; current major DRI equipment uses coke oven gas (COG), but in the medium and long-term will gradually shift to green hydrogen. Data source: World Steel Association Data source: SMM Currently, the core requirements for DRI raw materials are "high grade, low impurities," with Fe grade ≥66% and SiO2+Al2O3 ≤3.5%. China's concentrates generally have relatively high silicon content, with some exceeding 10%. Therefore, only a few low-silicon concentrates can be used to produce direct reduced pellet feed. Ex-China high-grade concentrates offer a wider range of options. Data source: SMM As DRI production grows, demand for high-quality iron units is also increasing, leading to a structural rise in the share of high-grade iron ore and pure iron raw materials. As shown in the chart, varieties within the red box all have Fe content above 66%, with Si+Al content around 3.5%; these include some high-grade iron ore concentrates from China, Brazilian pellet feed concentrates, Peruvian concentrates, and emerging Simandou fines, all of which can serve as DRI raw materials. Data source: SMM ◼ 3. Carbon constraints drive furnace charge structure upgrades, with pellet replacing sinter becoming key to carbon reduction, and pellet-making concentrates with grades above 62% set to see significant growth. As China's steel industry pursues structural adjustment, optimization, and green, low-carbon, high-quality development, pellet ore as a premium raw material for blast furnaces has been increasingly favoured by the industry, driving the rapid development of the pellet sector. The energy consumption of the pellet production process is approximately 50% of that of the sinter production process. According to CISA's 2025 statistics, the average energy consumption of the sintering process among its member units was 48.5 kg/mt, while the average energy consumption of the pellet process was 25.23 kg/mt, indicating lower energy consumption in pellet production. Due to the different heat supply methods in pellet roasting compared to sintering, SO2, NOX, and CO2 emissions after combustion are much lower than those from the sintering process. In addition, pellet ore generates much less dust than sinter, making the pellet process more environmentally friendly. The emission comparison between the sintering process and the pellet process is shown in the chart below: Data source: SMM ◼ A high proportion of pellet ore in furnace charge is the direction and demand of current blast furnace charge structure development Compared with other countries in the world, China's blast furnace charge structure is dominated by sinter with a low pellet ratio , while blast furnaces in North America and Europe primarily use high proportions of pellets, with some blast furnaces reaching 100%. For example: SSAB's blast furnace in Sweden had a pellet ratio of 97.2%, Dofasco in Canada achieved 100% all-pellet smelting, and USS No. 14 blast furnace had a pellet ratio of 80%, etc. According to CISA's 2025 statistics, the average fuel ratio per unit of ironmaking at China's key steel enterprises was 523-525 kg/mt, approximately 70 kg higher than the average fuel ratio of European and American blast furnaces. The reason is that China's blast furnace charge is dominated by sinter, with sinter iron grade at around 54-57%, while pellet ore iron grade is above 62%. High sinter usage leads to high slag volume and high energy consumption in blast furnaces. Therefore, against the backdrop of carbon reduction, increasing the proportion of pellet ore usage is imperative. Data source: SMM ◼ Currently, there are three main types of pellet production equipment in China: shaft furnaces, chain grate-rotary kilns, and travelling grates . In recent years, pellet equipment with a single-unit capacity below 1.2 million mt/year (excluding ferroalloy and foundry pig iron pellets) has been classified as a restricted category; therefore, capacity replacement of pellet equipment continues, with new pellet projects predominantly using travelling grates, with single production line capacity mostly at 5 million mt. As a result, current pellet production is mainly based on rotary kilns and travelling grates. These two types of equipment have less stringent raw material requirements compared to shaft furnaces, allowing the blending of multiple ore types such as magnetite, hematite, and limonite. However, it must be concentrate, with a particle size requirement generally of -200 mesh, 70% or above. Commonly used varieties include: domestic concentrate, Ukrainian concentrate, Brazilian concentrate, Middle Eastern concentrate, Chilean concentrate, Australian concentrate, Sierra Leonean concentrate, etc. As the proportion of pellet usage increases in the future, demand for concentrate with grades of 62% and above will continue to expand. ◼ Overall, before 2030, as carbon neutrality policies and Europe's CBAM are still in the early stages of implementation, carbon emission costs have not yet become significantly prominent. Meanwhile, China's steel production is trending downward, while iron ore supply is accelerating, steel mill profits are under pressure, and cost reduction and efficiency improvement remain the industry's mainstream strategy. Therefore, procurement will continue to focus on low- and medium-grade iron ore, demand for non-mainstream ore varieties will remain robust, the price spread among high-, medium-, and low-grade ore will be difficult to widen, and premiums for lump ore and pellets will also stay at current low levels. ◼ After 2030, market requirements for green steel will gradually increase, the share of electric furnace steelmaking and non-blast furnace steelmaking will rise, and overall iron ore demand will decline notably. Although blast furnace capacity will decrease, operating rates may improve, driving down sinter demand while pellet demand increases significantly. This shift will lead to a sharp decline in fines demand and an expansion of market share for mainstream medium-grade ore; meanwhile, demand for high-quality concentrate will rise, pushing the price difference between high and medium-grade ore wider, and pellet premiums will also continue to climb. Additionally, although lump ore demand has some growth potential, the increase will be limited under carbon emission constraints, and lump ore premium elasticity will diminish accordingly.

[Mixed Macro News Signals, Aluminum Prices Are Expected to Mainly Fluctuate and Adjust] Overall, the situation in the Middle East remained a key concern. If aluminum smelters in the Middle East further cut production, it is expected to provide upward momentum for aluminum prices in and outside China. However, China’s social inventory continued to build up, with ample supply available, which is expected to put a ceiling on SHFE aluminum prices. In the short term, aluminum prices are expected to mainly fluctuate and adjust.

[SMM Tin Morning Briefing: The Most-Traded SHFE Tin Contract Opened Sharply Lower in the Night Session and Then Rebounded in Volatile Trading, While Trading in the Spot Market Remained Subdued]

“Gold’s status as a haven may now be tarnished in the eyes of some as the precious metal is falling in price even as war roils the Middle East and financial markets alike, and some may even be tempted to say that the third major bull run in the commodity since 1971 is now over,” says AJ Bell investment director Russ Mould.