In H1 2026, China's enamelled wire industry overall exhibited a phased pattern of 'post-holiday rebound and surge, followed by a steady pullback in Q2,' with its operational characteristics heavily focused on structural differentiation.

I. Full Review of Copper Billet Industry in H1 2026 (I) Policy Side: Strict Control of Reverse Invoicing, Long-Term Restriction on Recycled Raw Material Circulation In H1, fiscal and tax supervision became the core underlying constraint weighing on the copper billet industry. The reverse invoicing policy for recycled resources entered a phase of normalized, high-pressure implementation; natural-person individual sellers had an annual invoicing quota of 5 million yuan, which significantly narrowed circulation channels for domestic unticketed scrap brass. Grassroots recyclers showed low willingness to sell, leading to a persistent shortage of compliant domestic sources of secondary brass. During the policy transition period, corporate compliance costs rose notably. Small and medium-sized processing plants, lacking channels for stable raw materials with invoices, were forced to proactively cut production and undertake maintenance to avoid risks. Large top-tier players leveraged their international trade qualifications and stable import sources to buffer the raw material gap, accelerating the concentration of industry capacity toward compliant large-scale enterprises. The No. 770 policy on secondary copper tax rebates continued to tighten, completely compressing the grey circulation space in the industry. The contradiction of raw materials "having the goods but no invoices available, with invoiced goods at high prices" pervaded the entire H1 cycle. (II) Raw Materials and Imports/Exports: Domestic Secondary Supply Contracted, Premiums on Imported Secondary Brass Rose 1. Domestic Raw Material Bottleneck Intensified The compliant circulation volume of domestic scrap brass fell sharply YoY, weakening the cost advantages of secondary brass over copper cathode. Most brass billet plants faced difficulties in raw material procurement and high credit costs, and with the natural-person quota ceiling constraint, supply could hardly return to the level seen in previous years. Meanwhile, speculation in the brass scrap market further drove up prices, and copper-zinc separation operations raised overall raw material costs. 2. Imported Cargo Became a Mainstream Supplement, but Costs Continued to Rise Domestic enterprises turned to bulk purchasing of imported secondary brass with invoices. In H1, imports of secondary brass maintained YoY growth, however, overseas scrap copper export policy uncertainties and rising international copper prices pushed up procurement premiums. Available overseas scrap brass supply tightened, and import procurement coefficients continued to climb, further raising raw material costs for brass billet. Data Source: SMM From January to May, cumulative imports of brass billet in China were approximately 11,400 mt, down 1.23% YoY, but the cumulative import value reached $105.7079 million, up 23.42% YoY, highlighting a pattern of shrinking volume and rising prices. In terms of import sources, in May, South Korea remained the largest source country (accounting for approximately 40%), with Japan second (at approximately 16%), showing initial signs of regional diversification. (III) Costs and Prices: Copper Prices Swung Wildly at Highs, Industry RC Continued to Decline In H1 2026, copper cathode prices showed a pattern of "retreating after a rapid rise and consolidating at highs." Prices hit an annual peak in January and fell to a periodic low in March. In Q2, the price center stabilized above 100,000 yuan/mt, with the annual average price rising sharply YoY, directly lifting raw material costs for copper billet. As of end-June, the average spot price of Hpb59-1 brass billet in the Zhejiang region had climbed to a historical high of 70,650 yuan/mt. Price transmission had significant blockages: traditional downstream brass demand was sluggish, with end-users possessing strong bargaining power, so raw material price increases could not be smoothly transferred downstream. The industry exhibited a typical pressured pattern of "rising prices with weak volume." From April to May, the overall profitability pressure on the industry climbed to its worst level in the past two to three years. High-precision copper billet used in new energy and AI applications saw stronger RC resilience due to technical barriers and stable rigid demand, making it the only sub-category with relatively stable profits in H1. Coupled with rising logistics, tax, and capital occupation costs, most small and medium-sized brass billet enterprises remained in a state of meager profit or even losses over the long term. (IV) Supply and Demand: Demand Severely Polarized, Operating Rates Stayed Low 1. Supply Side: Operating Rate Weakened Month by Month, Enterprise Polarization Significant The overall copper billet operating rate drifted lower in H1, continuously falling back from 50.86% in January to 46.09% in June, with declines seen both YoY and MoM. The gap in capacity polarization continued to widen: large enterprises with stable raw material channels saw a 52.6% operating rate in June; medium-sized enterprises, squeezed by both raw materials and orders, operated at only 38.76%; small processing plants, facing raw material shortages and order scarcity, saw operating rates fall to 23.44%, intensifying industry polarization. Raw material constraints were the core supply-side constraint; coupled with losses forcing enterprises to control production, the overall industry capacity utilization rate remained in a historically low range in H1. 2. Demand Side: Traditional Sectors Weakened Deeply, Emerging Sectors Strengthened Independently Traditional brass demand (air conditioning, plumbing, valves, general hardware) remained persistently weak in H1. The downturn in the post-property cycle, combined with an early off-season for home appliances, saw downstream users purchasing as needed without concentrated restocking. Meanwhile, the substitution penetration rate of stainless steel in air conditioning parts continued to rise, continuously diverting rigid demand from brass, and brass billet orders shrank month by month. Data Source: SMM Structural demand support was concentrated in the copper billet segment: the three electric systems (power battery, drive motor, and electronic control system) of NEVs, large-power charging piles, energy storage PCS, AI server GPU cooling, and precision pins for optical modules continuously released stable rigid demand. Orders for high-purity oxygen-free copper billet were full, partially offsetting the overall decline in industry demand. However, with copper billet capacity accounting for a limited share, this was not enough to boost the brass segment's recovery. II. Market Outlook for Copper Billet Industry in H2 2026 In Q3, the industry is expected to be under pressure and hit bottom. The traditional off-season, coupled with high temperatures suppressing end-user procurement and the ongoing impact of stainless steel substitution, is expected to weigh on brass demand. SMM expects the overall copper billet operating rate to continue falling to 43.65% in July, hitting an annual low. Policy-side reverse invoicing supervision is unlikely to ease, capping the compliant supply of domestic scrap brass. Combined with continuously tightening controls on overseas scrap copper exports, the pattern of high premiums on imported secondary brass is expected to persist. The raw material bottleneck is set to run through the off-season. Brass billet is anticipated to be dragged down by the triple headwinds of the off-season, substitution, and low RCs, with profitability under sustained pressure in Q3. Only the continued commissioning of NEV and AI computing infrastructure projects is likely to bring rigid demand orders for copper billet, forming the sole demand support. In Q4, prosperity is expected to recover on a QoQ basis. As home appliances and plumbing enter their traditional stockpiling peak season, brass billet orders are expected to rebound MoM. Combined with year-end push for annual targets in PV, energy storage, and NEVs, demand for copper billet is expected to further strengthen, with industry operating rates and transactions both recovering. However, copper cathode prices are highly likely to continue consolidating at highs, with the raw material cost center stay high, putting cost pressure on processing enterprises throughout the year. In the medium and long term, the traditional brass demand center is expected to decline year by year, while AI computing, new energy, and energy storage constitute the core growth drivers of the copper billet industry. Small and medium-sized outdated capacity is expected to continuously exit the market, while top-tier players are simultaneously laying out high-end copper billet capacity. The three major thresholds of raw materials, orders, and compliance continue to widen the gap between enterprises, making the industry's transformation towards scale, compliance, and high-end manufacturing an irreversible trend. In summary: In H1 2026, the core contradictions in the copper billet industry were supply shortages caused by tightening recycled raw material policies, weakening traditional end-use demand, and the squeezing of processing profits by high copper prices. The industry relied on new energy and AI copper billet for structural support, maintaining a generally weak operating environment. In H2, the market is expected to show a pattern of initial weakness followed by later strength: in Q3, the triple negative resonance of the off-season, raw materials, and substitution is expected to keep operating rates and profitability under sustained pressure; in Q4, the combination of the traditional end-user peak season and continuously increasing volumes from emerging sectors is expected to repair industry prosperity on a QoQ basis. In the medium and long term, the reverse invoicing policy is reshaping the secondary copper circulation system, accelerating market clearing. High-precision copper billet for new energy and AI computing infrastructure is expected to become the core future growth line for the copper billet industry.

[2026 Copper Plate/Sheet and Strip Semiannual Review and Outlook: H1 Operating Rate Hits a Five-Year High for the Same Period, Emerging Sectors Underpin Industry Resilience] In H1 2026, after experiencing wild swings in copper prices at the start of the year and the seasonal shutdown during the Chinese New Year, China's copper plate/sheet and strip industry entered a rapid recovery path from March onward, presenting an overall...

[SMM Analysis: Multiple Demand Drivers Continue to Boost Copper Foil Operating Rates in June] According to SMM, the operating rate of China's copper foil enterprises in June 2026 was 91.48%, up 1.17 percentage points MoM and up 16.7 percentage points YoY......

[SMM Analysis: Off-season Slows End-User Finished Product Pick-up Pace, Limited Upside Room for July Wire and Cable Operating Rate] According to SMM, the June operating rate of the copper wire and cable industry was 72.22%, down 0.11 percentage points MoM and 0.19 percentage points YoY, with large enterprises at 77.62%, medium-sized enterprises at 50.4%, and small enterprises at 47.54%...

According to the latest SMM data, the comprehensive operating rate of China's copper billet enterprises continued its downward trend in June, with a significant polarization pattern between large and small mills. The tightening supply of recycled brass raw materials and the traditional end-use demand entering a deep off-season formed a dual drag, while only orders for copper billets from the new energy and AI supporting sectors provided structural support. Finished product inventories at enterprises accumulated slightly. Based on feedback from sample enterprises, market expectations for the industry in July were generally pessimistic, with the triple headwinds of off-season pressure, raw material bottlenecks, and material substitution resonating. The operating rate is expected to decline further. June industry operating data released, capacity polarization gap continues to widen : According to SMM statistics, the comprehensive operating rate of China's copper billet enterprises was 46.09% in June, down 3.18 percentage points MoM and pulling back slightly by 0.06 percentage point YoY, with overall production staying low. By enterprise scale, large leading enterprises leveraged stable raw material channels, ample capital reserves, and long-term quality client resources to show relatively stronger production resilience, with an operating rate of 52.6% in June; medium-sized enterprises were squeezed by both raw material and order pressures, restricting capacity release, with an operating rate of only 38.76%; small processing plants faced the most prominent pressure, with the operating rate falling to 23.44%, further intensifying the industry’s polarization. Supply-side bottlenecks remain unresolved, with losses continuing to squeeze processing margins : Raw material shortages remain the core pain point constraining copper billet production. Currently, reverse invoicing controls for recycled resources have been continuously tightened, significantly shrinking the circulation of compliant scrap brass in China. The willingness to sell at the recycling end is low, narrowing the procurement channels for domestic secondary copper at processing plants; enterprises have instead increased their purchases of imported recycled brass, but overseas quotations have continued to rise, keeping import procurement costs high. On the one hand, tight supply and purchasing premiums are driving up raw material costs; on the other, weak traditional end-user orders make it difficult to pass on processing charges , leaving most brass billet processing plants stuck in a “raw materials hard to buy, processing unprofitable” dilemma, with industry profit margins being continuously squeezed. Some small and medium-sized enterprises, facing losses from raw material costs, have proactively scaled back production schedules and controlled output to avoid risks, further dragging down the overall operating rate. Demand-side off-season characteristics are prominent, with demand from old and new tracks showing a stark contrast : The seasonal weakening of demand has had a clear impact on the industry. June is the traditional off-season for downstream brass consumption in air conditioning, plumbing, valves, and ordinary hardware. Downstream end-user enterprises purchased as needed, with no concentrated stockpiling. The scale of new orders continued to shrink, and the overall trading atmosphere for brass billets turned sluggish. Demand structure shows significant divergence : Traditional brass category orders continue to weaken, but high-purity copper billet demand provides a strong offset. Three electric systems for NEVs, large-power charging piles, PCS, as well as AI servers, GPU cooling modules, optical module precision pins and other parts continue to release stable rigid demand, driving copper billet enterprise orders to remain steady, becoming the only demand resilience sector in the industry. However, sluggish procurement from traditional end-users drags down the overall shipment pace, copper billet enterprises' finished product inventories continue to accumulate, and inventory pressure gradually emerges , with the stockpiling turnover cycle in plants lengthening and production enthusiasm further dampened. July market outlook: Multiple bearish factors resonate, and the operating rate is expected to decline again , based on frontline survey feedback from national sample copper billet enterprises, market expectations for July industry operation are generally pessimistic; improvement momentum is insufficient in the short term, and multiple negative factors will continue to ferment: raw material bottlenecks have no relief space in the short term, off-season pressure continues to intensify, and structural support is unlikely to boost the overall market. On both the supply and demand sides, SMM expects the comprehensive operating rate of domestic copper billet to fall by 2.44 percentage points MoM to 43.65% in July, down 1.17 percentage points YoY , and the industry's low-level operation is expected to persist. In the short term, the copper billet industry still needs to wait for the recovery of the traditional peak consumption season and a substantial easing in the supply of recycled raw materials before seeing a simultaneous recovery in operating rates and profitability.

According to SMM, the operating rate of copper cathode rod enterprises in June was 68.71%, up 1.16 percentage points MoM, 2.11 percentage points higher than expected, and up 1.42 percentage points YoY . Among them, the operating rate of large enterprises was 80.34%, medium-sized enterprises 50.14%, and small enterprises 64.16%. In June, the operating rate of copper cathode rod enterprises was 68.71%, down 1.16 percentage points MoM, and up 1.42 percentage points YoY. (The operating rate in June last year was 67.29%.) Overall, in June, the operating rate of secondary copper rod enterprises remained sluggish, so some market demand naturally shifted to copper cathode rods, driving resilience in new orders for copper cathode rods and strongly supporting production; meanwhile, copper prices fluctuated notably during the month. When prices pulled back significantly, downstream enterprises concentrated on pricing and stockpiling, releasing raw material procurement demand, which further boosted copper cathode rod production and pushed up operating rates. By downstream sector, the pullback in copper prices at month-end drove a notable increase in new orders for wire and cable and enamelled wire, but due to constraints from existing production schedules, overall operating rates pulled back slightly. In June, days of raw material inventories for copper cathode rod enterprises were 1.94 days, and days of finished product inventories were 3.44 days. This month, affected by wild swings in copper prices, rod enterprises were generally cautious in raw material procurement, mostly purchasing as needed, and only restocking slightly when copper prices pulled back. Days of raw material inventories decreased by 0.12 days MoM. At the same time, downstream wire and cable and enamelled wire producers accelerated their cargo pick-up pace, speeding up finished product destocking, which drove days of finished product inventories down by 0.14 days MoM. The operating rate of copper cathode rod enterprises in July is expected to be 66.16%. Looking ahead to July, the operating rate of copper cathode rods is expected to decline by 2.55 percentage points MoM to 66.16%, and by 0.35 percentage points YoY. Currently, enterprises’ earlier orders on hand are gradually entering the final stage, and downstream players are taking a wait-and-see attitude towards future copper price trends. New orders are expected to be weak, weighing on production loads. Markets outside China are also entering the traditional consumption off-season, weakening external demand support. Although the proportion of foreign trade copper rod consumption is not high overall, it will still pressure the industry’s overall operating level downward.

Spot A100-80G supply is tight, with a smart computing service provider reporting no current stock. Two quotes have emerged in the market: 32 units near-spot in east China (2-week delivery, InfiniBand networking, 3-year contract) quoted at 38,000 per month per unit; 32 units spot in Jiangsu (3-year closed-end contract, strong counterparties, one month deposit and one month rent) quoted at 31,500 per month per unit. The price spread between the two quotes is significant, and SMM analysis suggests they may be the same batch of goods circulated through multiple intermediaries. On the client side, an intended one-year closed-end bid is only 30,000 per month per unit, showing a clear gap with supply-side quotes. The service provider indicated that its focus has shifted toward tokens and models, and it currently has no demand for hardware leasing.

1. NEVs: Domestic Sales Growth Under Pressure, Exports Surge In H1 2026, global NEV sales reached approximately 10.25 million units, a cumulative 14% YoY increase; China’s NEV sales totaled about 7.4 million units, up 7% YoY cumulatively, with an average penetration rate of around 48%. While total volume kept growing, the mix of domestic sales and exports diverged markedly. In the Chinese market, domestic sales accounted for about 69% of the total, with cumulative volume falling 14% YoY and the monthly penetration rate peaking at 62%. China’s NEV market has entered a high-base mature stage. The rush to buy ahead of the expected subsidy reduction at the end of 2025 pulled forward some demand that would have occurred in early 2026. Pushing the penetration rate beyond 60% is now encountering considerable headwinds—the remaining internal combustion engine vehicle users are mostly those with limited charging access, rigid long-distance travel needs, or high price sensitivity, making their conversion significantly harder than that of early adopters. Domestic demand is in a transitional phase shifting from policy-driven to market-driven growth. Exports, on the other hand, accounted for about 31% of China’s NEV sales in H1 2026, a sharp jump from 15% in H1 2025, with cumulative volume surging nearly 120% YoY. Three drivers fueled this export surge. First, a low base effect magnified the YoY growth: exports in H1 2025 were artificially suppressed by the EU anti-subsidy probe, creating an unusually low base. Second, automakers rushed to export ahead of tariff implementation, opening a temporary export rush window. Third, Chinese NEVs’ product competitiveness in emerging markets such as Southeast Asia and Latin America continued to improve; coupled with rising fuel vehicle operating costs outside China due to shifting international dynamics, this stimulated the release of overseas NEV demand. From a technology perspective, BEV models accounted for about 66%, basically flat from a year earlier. Beneath this “frozen” share, two opposing forces are at play. On one hand, as NEVs penetrate into lower-tier cities, inadequate charging infrastructure makes plug-in hybrid and extended-range models, which can run on both electricity and fuel, still the most practical choice. On the other hand, the popularization of 4C fast charging technology and the expansion of ultra-fast charging networks are gradually addressing the range anxiety weakness of BEVs, building momentum for a rebound in their market share. I. Vehicle Battery Capacity, from January to May the average capacity reached 68.4 kWh, up 34% YoY. The growth drivers were concentrated in three aspects: first, consumption structure upgrades, with the trade-in policy steering demand from A00/A0 to B- and C-class models—larger models carry higher-capacity batteries, and this structural effect lifted the overall average; second, the battery capacity of plug-in hybrid and extended-range models continued to expand, with all-electric driving range rising from 50–80 km to 150–250 km and corresponding battery capacity roughly doubling from 8–18 kWh to 18–40 kWh, while extended-range models grew to over 50 kWh; third, the share of commercial vehicles increased, and the vehicle battery capacity of heavy trucks and logistics vehicles generally exceeded 200 kWh, exerting a notable leverage effect on the overall average. 2. Power Battery Installations: Growth Shift, Bottoming Out in Q2 In H1 2026, China's power battery installations are estimated at around 340 GWh, up 10% YoY. Q1 was dragged by soft domestic sales and subsidy phase-out, keeping growth sluggish; Q2 saw a month-on-month recovery, with May installations reaching 71.9 GWh, a new high for the year, signaling a gradual repair in end-use demand. In the global market, H1 installations are estimated at about 580 GWh, up roughly 15% YoY, with incremental volume outside China mainly coming from the acceleration of electrification in Europe and continued ramp-up in emerging markets such as Southeast Asia and Latin America. Notably, growth outside China has outpaced the Chinese market—Q1 installations outside China reached 117.4 GWh, up 17.4% YoY, and the combined market share of Chinese enterprises in markets outside China rose to 52%. A shift in growth driver—where the Chinese market downshifts and markets outside China take over—is becoming a new feature of the industry’s growth structure. 3. Power Battery Cell Production: Strengthened LFP Dominance and Analysis of the Gap Between Production and Installations In H1 2026, China's total power battery production was about 790 GWh, with cumulative YoY growth of 43%; global power battery cell production totaled about 860 GWh, with cumulative YoY growth of 31%. In the Chinese market, LFP power battery cell share rose to 76% from 66% in the same period of 2025, with production up 64% YoY; ternary power battery cell share was around 24%, basically flat YoY. LFP’s share rose from 66% to 76%, driven by three key factors. First, the electrification ramp-up of commercial vehicles provided the most direct incremental contribution. Commercial vehicles almost entirely adopted the LFP route; heavy trucks, logistics vehicles, and buses place far higher demands on cost and safety than on energy density. The structural growth in commercial vehicle installations directly boosted LFP’s overall share. Second, the penetration rate of LFP in the passenger car segment continued to rise on its own. Extended-range and plug-in hybrid models naturally favor the LFP route, while the maturation of 4C fast-charging LFP solutions effectively addressed the range anxiety shortcoming, further squeezing the market space for mid-end ternary batteries. Third, the explosion in energy storage demand created a siphoning effect on LFP production lines. LFP production lines can flexibly switch between EV and ESS, and the high growth in energy storage orders drove LFP line operating rates significantly higher than those of ternary lines. Strengthened economies of scale further lowered costs, forming a positive feedback loop. There was a notable growth gap between power battery cell production (790 GWh, +43%) and installations (approximately 340 GWh, +10%), but this did not stem from inflated demand. Rather, it resulted from the combined effect of the following factors: First, export diversion—about 30% of production flowed to markets outside China either as complete vehicle exports or direct battery cell exports, and was not included in domestic installation statistics. Second, timing mismatch—some battery cells whose production schedules were accelerated in Q2 were still in inventory or in transit and are expected to translate into installations in H2. In addition, after the destocking cycle in H2 2025, battery cell manufacturers’ finished product inventory cycle was compressed from 2 months to 1.3 months, and there was active restocking in H1 2026. Overall, the high production growth reflected the buoyancy of battery enterprises’ production activity, while the slower installation growth was more affected by export diversion and inventory cycle disruptions. The gap between the two does not represent a substantive deterioration in the supply-demand relationship. 4. Cost Changes In H1 2026, prices of key raw materials for power battery cells rose overall. Unlike the previous cycle of soaring lithium prices, top-tier players’ cost control methods during this price rise were more diverse. As lithium carbonate futures trading matured, battery and cathode material enterprises hedged to lock in procurement costs ahead of time, effectively offsetting spot price fluctuations. Some long-term contract orders adopted formula pricing, allowing for smoother price transmission. Coupled with the ongoing large-scale centralized procurement of auxiliary materials and technological cost reductions, the increase in cost per Wh for mainstream battery cell enterprises remained generally manageable. However, as the industry was still in a price war, involution kept the overall gross margin of the industry at a relatively low level. H2 Outlook Looking ahead to H2 2026, the power battery cell industry is expected to sustain the growth momentum seen in H1, as recovering domestic demand and strong export performance reinforce each other, with the full-year trajectory trending lower in H1 and higher in H2. Sales side, the auto market is likely to stabilize in Q3, followed by the traditional peak season in Q4. Alongside the gradual absorption of the pull-forward effect from 2025, the decline in domestic sales is expected to continue narrowing. On the export front, although tariff policy uncertainty persists, the product competitiveness of Chinese NEVs in markets outside China has become entrenched. Demand in emerging markets such as Southeast Asia, Latin America, and the Middle East continues to accelerate, and proactive restocking by overseas dealers points to a high probability that strong export growth will persist in H2. Installations side, although the growth rate has come down significantly from 2025 levels, absolute incremental volume remains substantial, supported by both rising vehicle battery capacity and the ramp-up of commercial vehicle volumes. H2 installations are projected to rebound markedly from H1, and the structure—passenger vehicles providing the base and commercial vehicles contributing incremental elasticity—will remain unchanged. Notably, the inventory buffer built up from production significantly outpacing installations in H1 will gradually flow into installations in H2, offering additional support to H2 data. Overall, the power battery cell industry in 2026 has left behind the era of systemic growth dividends and officially entered a phase of deep divergence. Sustained high export growth opens new growth avenues for Chinese battery enterprises, but the decisive factor in the second half of the competition will be whether they can truly seize the window of opportunity in overseas markets and secure a firm foothold in the global supply chain.

Core View The main theme of lithium ore prices in H1 2026 was a sharp rally followed by a correction, rather than a one-way upward shift in the price center. The SMM spodumene concentrate index price (SC6, CIF China) started the year at around USD 2,000/t in January, briefly fell to USD 1,875/t in early February, then followed lithium carbonate prices higher and reached the year-to-date high of USD 2,780–2,840/t in mid-May, before retreating to the USD 2,385–2,480/t range in June. This trajectory almost fully mirrored lithium carbonate prices. Lithium carbonate spot prices started the year at around RMB 130,000/t, rose above RMB 200,000/t in May, and then pulled back to RMB 160,000–180,000/t in June. Lithium ore did not experience an independent rally throughout the period. It was pulled upward by lithium carbonate pricing via the futures market and then corrected as lithium carbonate prices peaked. Therefore, the starting point for understanding lithium ore prices in H1 is not resource-side supply and demand, but lithium carbonate pricing and market sentiment. One common misinterpretation needs to be corrected first: the strength in lithium ore prices in H1 was not the result of “tight effective supply pushing the price center higher.” The real drivers were the resonance of front-loaded demand, supply disruption expectations, and futures-driven sentiment. Front-loaded demand was triggered by export tax rebate adjustments; supply disruption expectations came from the repeated delays in Jianxiawo’s restart and Zimbabwe’s lithium concentrate export ban. When warehouse receipts accumulated and macro headwinds were released in May, and when Jianxiawo’s restart expectation materialized in June, prices corrected accordingly. After that, prices rebounded again as demand expectations improved. 1. Lithium Ore Followed Lithium Carbonate, While Spodumene-Based Conversion Margins Stayed Negative Throughout H1 The clearest evidence of the lithium ore pricing mechanism in H1 was not how much ore prices rose, but the fact that spot conversion margins for producing lithium carbonate from externally procured spodumene concentrate were negative for most of the period. The ore-salt margin inversion was structural and persistent in H1, rather than a short-lived squeeze on processing margins. The cause of this inversion directly points to the reversal of the pricing mechanism. Ore prices are no longer determined by a cost-plus model from the upstream side, which then determines lithium salt prices. Instead, lithium carbonate has become the pricing anchor, and ore prices are reverse-priced through the futures market. In early January, when lithium carbonate prices rallied on front-loaded demand and sentiment, ore prices were pushed higher at the same time. However, downstream lithium salt demand could not fully absorb the higher cost, and processing margins were squeezed into negative territory. In April, under the reality of ore-salt inversion and limited hedging opportunities, lithium salt producers relying on externally procured ore saw their ability to accept high-priced ore weaken significantly. For overseas miners, this means their realized selling prices are increasingly anchored by the profitability of China’s refining sector. This is not a narrative assumption, but a mechanism that can be verified month by month through spot margin data. The financialization of pricing was also visible in market transactions. When prices fell at the end of May, lithium salt producers became more active in pricing ore purchases. In June, the basis for new cargoes strengthened. Pricing based on futures quotation plus premium or discount has become the mainstream transaction model. Lithium salt producers tend to use pricing windows during price corrections to lock in ore supply. Whoever holds the pricing right controls the settlement timing, and in H1’s highly volatile two-way lithium carbonate market, this directly led to margin differentiation among different lithium salt producers. 2. The Three Drivers of the Rally and the Triggers of the Correction Front-loaded demand — export tax rebate adjustment. In January 2026, the Ministry of Finance and the State Taxation Administration clarified that the VAT export rebate rate for lithium battery products would be reduced from 9% to 6% from April 1, and fully removed from January 1, 2027. This policy directly stimulated downstream players to concentrate export shipments and inventory preparation before April, significantly front-loading demand into H1, especially supporting demand for energy storage and ternary-related materials. This was the most important demand-side catalyst in H1 and the one most easily overlooked by the “weak recovery” narrative. Supply disruption expectations — Jianxiawo and Zimbabwe. After Jianxiawo’s mining permit expired and production was halted in August 2025, its restart timeline was repeatedly pushed back in H1, continuously providing room for both bullish and bearish speculation in the market. Now that Jianxiawo’s restart has been confirmed, the largest bearish factor has been priced in, and the market’s focus has shifted back to whether demand can outperform expectations. In Zimbabwe, the lithium concentrate export ban at the beginning of the year disrupted shipment expectations. Positive progress was reported in late March, and by mid-May, Chinese-funded mining companies in Zimbabwe had completed export procedures and restarted shipments, easing the previous short-term tightness in African cargo arrivals. SMM expects the first batch of cargoes to arrive in China in mid-to-late July. Correction triggers — warehouse receipts, macro factors, and the materialization of restart expectations. After lithium carbonate prices rose above RMB 200,000/t in May, exchange warehouse receipts continued to accumulate and hit new highs, while concerns over off-balance-sheet inventory increased. Together with macro pressure from expectations of further Fed rate hikes, prices peaked and corrected in late May. On June 17, the approval of Jianxiawo’s land use application materialized, and clearer restart expectations further weighed on both ore and salt prices. By late June, according to SMM monthly production schedules, July demand showed resilience despite the seasonal lull, with both power and energy storage cell production schedules increasing month on month. Monthly lithium carbonate consumption remained at a high level, which restored some market confidence and pushed lithium prices higher again. 3. Supply-Side Reality: Imports Weakened Month on Month, but Cumulative Imports Still Increased; Australia Remained Dominant From January to May, spodumene imports showed a combination of weaker month-on-month momentum and continued year-on-year cumulative growth. On a monthly basis, imports reached 758,000 physical tonnes in April, down 9.5% month on month, and 680,800 tonnes in May, down 10.2% month on month. However, total spodumene imports in January–May reached around 3.66 million tonnes, up approximately 25% year on year. By origin, Australia remained the dominant source. China imported around 1.585 million tonnes from Australia in January–May, although May imports from Australia were around 330,000 tonnes, down approximately 15.2% year on year. The share of African supply continued to rise. On the shipment side, lithium concentrate shipments from Port Hedland to China showed clear quarter-end volume acceleration, with March shipments reaching around 122,000 tonnes, up 64.3% month on month. The marginal changes in overseas mines were concentrated in restarts and offtake agreements. Core Lithium restarted its Finniss project on May 20 and plans to ship the first batch of concentrate in Q4. Mineral Resources also restarted Bald Hill, with first spodumene output expected in July. These restart volumes are limited and will not change the short-term supply structure, but they reinforce the expectation of new supply materializing in H2 2026 and H1 2027. On the domestic side, SMM’s domestic sample mines produced 160,690 tonnes LCE in January–June. The restart of Jiangxi lepidolite mines was constrained by permitting procedures, environmental protection, profitability, and other factors, and did not fully ramp up in H1. 4. Migration of Long-Term Pricing Mechanisms: Floor Price Plus Pricing Optionality Has Become the Norm The long-term spodumene offtake agreements signed intensively in H1 provide direct contractual evidence of the financialization of ore pricing. In February, Pilbara Minerals signed a two-year offtake agreement with Tianhua New Energy, setting a floor price of USD 1,000/t, with no price ceiling, together with a USD 100 million interest-free prepayment. In the same period, Pilbara also signed a long-term agreement with Canmax. Yahua Group signed an offtake agreement with Brazil’s MGLIT, also with a minimum price of USD 1,000/t on a 6% basis. Liontown and Tianhua agreed on supply for 2027–2028, priced against a spodumene index. The common feature is a structure of USD 1,000/t floor price plus index or pricing optionality, with downside protection but no upside cap. The pricing benchmark is migrating from fixed website-based long-term pricing toward index-based and futures-linked pricing. This confirms that ore pricing is shifting from traditional long-term contracts to a more financialized structure of “floor price + pricing optionality + premium/discount.” This provides a contractual basis for assessing pricing transmission lags and distortions, and is also a key point for overseas investors to understand how China’s pricing system is penetrating upstream resources. 5. H2 Outlook H1 2026 provides a very clear methodological lesson for H2: lithium ore prices will not move independently from lithium carbonate. The core pricing variables for ore are not the nominal size of global lithium resources, but the dynamic matching among lithium carbonate futures, spot conversion margins for lithium salt producers using externally procured ore, domestic mine restart progress, African cargo arrival schedules, lithium salt producers’ feedstock inventories, and downstream material production schedules. In H1, lithium salt conversion margins remained negative for an extended period, yet ore prices did not fall quickly. Instead, they rose together with lithium carbonate prices under the influence of downstream restocking and supply disruption expectations. This shows that the H1 rally was not an independent strengthening of upstream fundamentals, but a synchronized industry-chain movement driven by front-loaded demand, delayed supply realization, and amplified futures sentiment. For H2 lithium ore analysis, the first step is to distinguish between “no shortage in total resources” and “short-term tightness in effective ore supply.” From a global resource perspective, Australia, Africa, Brazil, South American brines, and Chinese domestic mines all have incremental supply expectations, so there is no absolute shortage of resources. However, from the perspective of Chinese lithium salt production, what truly affects lithium carbonate supply is ore that can be purchased in time, arrive steadily, meet grade requirements, have controllable impurities, and match existing processing lines. If ore is locked in long-term contracts, still in transit, concentrated in trader inventories, or if high prices reduce lithium salt producers’ willingness to purchase, its contribution to short-term lithium salt supply will be weakened. Therefore, H2 analysis should not simply focus on mine output. It should track port inventories, traders’ saleable inventories, in-plant inventories at lithium salt producers using externally procured ore, vessel schedules, and long-term contract lock-up structures. On the domestic supply side, Jianxiawo is the core variable driving H2 market expectations, but its impact should not be simplified as “restart equals immediate supply.” After the mine was suspended, the market treated it as the key anchor for marginal domestic lepidolite supply. The real question in H2 is not the single event of whether it restarts, but whether the restarted volume becomes freely tradable ore. If the output is mainly consumed within CATL’s integrated system, the impact on the spot ore market and externally procured ore salt producers will be limited. Only if the output enters the spot market will it directly pressure ore prices and conversion margins. At the same time, the suspension and restart timeline of other Jiangxi lepidolite mines also needs to be incorporated into the framework. Previous public reports indicated that some mines in Yichun may first exhaust their annual mining quota during the license renewal process and then enter a production halt for license renewal. If these mines continue to be affected by permitting, environmental protection, safety, or profitability factors in H2, the supply elasticity of domestic lepidolite will be weaker than nominal capacity suggests. Conversely, if Jianxiawo and other Yichun mines move forward with restarts or license renewals in Q3–Q4, the marginal contribution of domestic ore to lithium carbonate supply will increase significantly and put pressure on high ore prices. In other words, domestic ore supply in H2 should not be treated as a single variable. It is jointly determined by Jianxiawo, other Yichun mines, and the operating rates of Jiangxi lepidolite-based lithium salt producers. For overseas ore, African supply remains one of the largest sources of H2 supply elasticity. In H1, the disruptions in Africa were more about policy, shipment, and arrival timing rather than the disappearance of resources. If shipments from Zimbabwe and other regions recover and previously delayed cargoes arrive in China in a concentrated manner, feedstock availability for lithium salt producers will improve and the bargaining power of ore sellers will weaken. However, if policy disruption, logistics cycles, grade volatility, or financing pressure cause arrivals to remain inconsistent, lithium salt producers using externally procured ore may still be unable to raise operating rates quickly even if margin repair expectations improve. Australian supply is relatively stable, but a large portion is locked under long-term contracts, limiting its marginal adjustment impact on the spot market. Brazilian and other emerging resources are more important for medium- and long-term expectations, while their short-term impact on Chinese lithium salt production depends on arrival timing and quality stability. Demand is the key factor determining downside support for ore prices. In H2, power batteries and energy storage will enter the traditional peak season, and the expansion and ramp-up of cell and material producers will continue to lift lithium salt consumption. In particular, lithium iron phosphate output, supported by energy storage and commercial vehicle demand, is expected to remain high and provide sustained demand for lithium carbonate. Although ternary materials are growing more slowly than LFP, they may still see periodic restocking driven by certain overseas and high-end power battery demand. If material producers’ expansion is realized smoothly, lithium salt producers will need to maintain high operating rates to meet long-term contract deliveries and spot orders, which will in turn support rigid ore procurement demand. Conversely, if terminal orders fail to absorb the expansion of materials, material producers may enter a destocking cycle, and lithium salt producers’ ore procurement will quickly weaken, causing ore prices to come under pressure earlier. Therefore, H2 lithium ore prices can be divided into four scenarios. Base case: margins gradually rebalance, and ore prices fluctuate at high levels before edging lower. Jianxiawo’s restart expectation materializes, but actual mining and beneficiation ramp-up is gradual. African cargo arrivals recover but do not form a concentrated shock. Power battery and energy storage production schedules remain high, while material producers’ expansion is gradually realized. In this scenario, lithium carbonate prices remain volatile at high levels, the margin inversion of externally procured ore salt producers slowly improves, and lithium ore prices follow lithium carbonate lower but do not collapse. The profits that were excessively concentrated in upstream resources and futures expectations in H1 begin to gradually flow back toward midstream refining. Correction scenario: supply materializes in a concentrated manner, and profits quickly flow back to midstream refining. If Jianxiawo ramps up faster than expected and part of its output enters the spot market; if other Yichun mines progress faster than expected in license renewals; if African ore arrives in China in a concentrated way; and if lithium carbonate warehouse receipts and futures market pressure intensify, ore prices will face stronger downside pressure. The transmission chain would be: lithium carbonate futures turn bearish → lithium salt producers become more cautious in procurement → rigid demand for externally procured ore slows → traders release saleable inventories → ore prices correct quickly. In this scenario, profits do not disappear; they shift quickly from upstream resources back to midstream refining, and overseas miners’ realized prices also come under pressure. The key is not the nominal restart volume of Jianxiawo, but whether the restarted ore is internally consumed or enters the spot market, and whether downstream material inventories can absorb the additional lithium salt supply. Support scenario: effective ore supply remains tight, and profits stay upstream. If Jianxiawo’s actual output is later than market expectations, if license renewals or environmental factors continue to suppress the supply elasticity of other Yichun mines, if African arrivals remain inconsistent, and if peak-season energy storage and power battery production schedules continue to exceed expectations, lithium salt producers using externally procured ore will still face the situation of “orders and capacity available, but feedstock either expensive or unstable.” In this case, negative conversion margins will force some marginal lithium salt producers to reduce operating rates. The contraction of effective lithium carbonate supply will support lithium salt prices; and once salt prices stabilize, ore prices will also gain support. The persistent margin inversion in H1 has already shown that losses are not simply bearish. They act as an automatic stabilizer for the industry chain: they force some marginal refining capacity to shut down, reduce lithium salt supply, and thereby support prices in reverse. Upside scenario: effective ore shortage transmits into lithium salt supply contraction, driving ore prices higher again. If H2 sees the combination of stronger-than-expected demand, weaker-than-expected domestic ore realization, and inconsistent overseas arrivals, lithium ore prices could still rise further. Specifically, if energy storage demand remains highly robust and power batteries enter the traditional peak season with further upward revisions to cell and material production schedules, especially as new LFP capacity continues to ramp up, monthly lithium carbonate consumption will continue to rise. At the same time, if Jianxiawo’s restart is slower than expected, or if output after the restart is mainly consumed within the integrated system with limited spot supply, and if other Jiangxi lepidolite mines are temporarily halted due to license renewal, environmental protection, safety, or profitability factors, domestic ore supply elasticity will fall short of nominal expectations. If African ore arrivals are also inconsistent due to shipment schedules, policy disruptions, grade volatility, or financing issues, lithium salt producers using externally procured ore will face difficulties replenishing feedstock. Under this scenario, ore is no longer merely a variable reverse-priced by lithium carbonate. It begins to constrain lithium salt supply in reverse. The transmission chain would be: downstream material and cell production schedules are revised upward → lithium carbonate spot destocking accelerates → lithium salt producers increase operating rates to fulfill orders → demand for processable ore rises → domestic ore and overseas arrivals fail to ramp up simultaneously → feedstock inventories at externally procured ore salt producers decline → some marginal producers cut output because they cannot secure suitable ore or because margins remain deeply negative → effective lithium carbonate supply contracts → lithium carbonate spot and futures prices strengthen again → lithium ore prices follow lithium carbonate upward. In this case, ore price increases are not driven by independent upstream strength. They are re-priced upward by lithium carbonate after insufficient effective ore supply starts to restrict lithium salt output. In this upside scenario, spot conversion margins for externally procured ore may remain negative or even widen further. On the surface, negative margins should pressure ore prices. But under the combination of strong demand, strong lithium salt prices, and tight ore supply, negative margins can instead become a price-supporting mechanism. On one hand, they force some high-cost externally procured ore producers to suspend operations, reducing lithium carbonate supply. On the other hand, producers with long-term delivery obligations, customer orders, or futures hedging needs still have to keep buying ore, further consuming saleable ore supply. The end result is that industry-chain profits remain concentrated upstream, lithium salt producers’ margin recovery is delayed, and the ore price center may move further upward. Overall, the core issue for the H2 lithium ore market is not whether there is too much or too little ore, but whether ore can be converted into lithium carbonate supply in time. The correct analytical framework should cover six variables: the strength of power battery and energy storage production schedules, inventory cycles at material and cell producers, lithium carbonate spot and futures pricing, the depth of margin inversion for lithium salt producers using externally procured ore, the actual restart and distribution path of Jianxiawo and other Yichun mines, and changes in African arrivals and traders’ saleable inventories. Lithium ore is not the starting point of the industry-chain cycle. It is the result of reverse pricing by lithium carbonate supply-demand fundamentals, refining margins, and the futures market. Only when ore starts to restrict lithium salt producers’ operating rates, or when new ore supply begins to materially increase lithium carbonate supply, will lithium ore shift from a price-following variable to a supply-demand-leading variable. SMM New Energy Analyst: Lesley Yang yangle@smm.cn +61 0451581533