This week, multiple news items on the raw material front successively boosted market sentiment, with finished steel prices rebounding from lows in phases and generally showing a bottoming-out trend. At the start of the week, the weak fundamentals of finished steel were hard to change, and ferrous metals prices had overshot to the bottom. Subsequently, however, coal mines in Shanxi were affected by rainfall, and circuit failures led to production suspensions at some mines, sentimentally driving ferrous metals prices to bottom out. Mid-week, there were rumors of a 48-hour strike at BHP, with limited short-term tangible impact, but sentiment...

[SMM Cobalt & Lithium Morning Call: Raw Material Prices Diverge, Industry Demand Maintains Structural Support] This week, industry chain prices showed divergence. Lithium ore, lithium chemicals, nickel chemicals and cobalt products were overall under pressure. Downstream procurement remained focused on long-term contract cargo pick-ups and essential restocking, and the market still held expectations of increasing supply and price declines in the long term. Cathode material side, ternary system prices pulled back along with raw material costs, while LFP and iron phosphate strengthened slightly, supported by order growth and cost support. Anode and separator markets held stable overall, and electrolyte moved up, driven by rising additive and solvent prices. Demand from energy storage, commercial vehicles and markets outside China maintained good performance, supporting continued growth in the industry's production schedules, but recovery on the consumption side remained relatively slow.

At the beginning of this week, the overall industry chain was relatively weak, with the price center of electrolytic metals, intermediates, and salts continuing to decline. During the traditional off-season, downstream purchasing was mainly small-scale, just-in-need buying. Cost support from virgin materials remained, but recycled materials, low-priced older stocks, and re-dissolution routes persistently depressed market psychological price levels, intensifying price negotiation divergences between upstream and downstream. The ternary cathode precursor and ternary cathode material markets weakened simultaneously due to falling raw material prices. August orders showed steady growth, but consumer-side demand had yet to recover significantly. The supply-demand balance for LCO remained weak, and short-term prices were expected to remain stable.

Recently, CAAM released the automobile production and sales data for June 2026. In H1, China's automotive industry continued its transformation and upgrading trend, with the traditional internal combustion engine vehicle market further stabilizing and NEV maintaining growth. From January to June, NEV production and sales reached 7.438 million and 7.446 million units, respectively, both showing YoY growth, with pure electric vehicle sales accounting for 67%. Against the backdrop of an overall positive NEV market, hydrogen fuel cell vehicles performed relatively weakly. In H1, China's hydrogen fuel cell vehicle production and sales were approximately 500 and 700 units, respectively, down 59.9% and 50.1% YoY. In June alone, production and sales were about 100 and 50 units, with YoY declines of 46.8% and 78.9%, indicating that market promotion remains under significant pressure. There is a mismatch between early-stage investment and long-term returns. Currently, hydrogen transportation has formed an industry chain covering hydrogen production, storage and transportation, refueling, and end-use applications, but various constraints still exist at each stage. At the hydrogen production end, the construction of hydrogen refueling station infrastructure usually requires high investment, with a long payback period. Affected by insufficient hydrogen supply sources and network density, some stations have low operational efficiency. The storage and transportation segment has yet to form a mature and unified refueling system, and coupled with generally high costs of hydrogen production, storage, transportation, and refueling, the economic viability of end-use applications still needs further verification. Industry insiders believe that the slowdown in fuel cell vehicle development is the result of multiple factors, including technology, costs, supporting facilities, and market demand. High hydrogen production and refueling costs make fuel cell vehicles less economical to purchase and operate than internal combustion engine vehicles and pure electric vehicles. High land costs in some large cities also increase the difficulty of site selection and construction for hydrogen refueling stations. Meanwhile, the limited number of supporting facilities and insufficient station profitability further constrain vehicle promotion. The industry has not yet achieved economies of scale. Profit pressure also reflects the development challenges of the hydrogen fuel cell industry. Take the domestic hydrogen fuel cell industry leader Yihuatong as an example: the company's net loss attributable to shareholders of the parent company in 2025 was 671 million yuan, with the loss further widening compared to 2024. The enterprise stated that the prolonged losses were mainly affected by factors such as the early-stage commercialization characteristics of the hydrogen fuel cell industry and changes in the business environment. The industry is still in the initial stage of development, without yet forming large-scale market effects. Market orders are relatively small, competition is intense, and product prices remain under pressure. At the same time, high-tech industries require long-term R&D investment, and the conversion of technological achievements into commercial returns also takes a certain period. It is widely believed within the industry that breaking the bottleneck in the large-scale development of hydrogen fuel cell vehicles requires joint efforts from all parties in the industry chain. Enterprises should maintain a dynamic balance between operation and R&D, continuously optimize cost structures, and seek breakthroughs in technology expansion and application scenario innovation. At the same time, the industry must follow the laws of development and avoid an imbalance between long-termism and short-term market enthusiasm.

From the historical profit trend of cold-rolled and hot-rolled steel, the spot profit of cold-rolled products was higher than that of blast furnace HRC in most cycles. However, from the end of 2025 to H1 2026, the profit centers of both cold-rolled and HRC shifted downward simultaneously, and the gap between their profit curves continued to narrow. The traditional processing premium of cold-rolled over HRC contracted significantly. At present, the spot profits of both cold-rolled and HRC are moving sideways around the break-even line, and overall industry profitability has declined markedly. On the one hand, raw material costs have shown strong resilience, supporting the bottom of finished steel prices. On the other hand, downstream end-use demand has continued to weaken since the start of this year, making it harder to support cold-rolled prices. Meanwhile, steel mills have taken more HRC orders than cold-rolled orders this year, and firm HRC prices have continuously squeezed the processing income of cold-rolled steel, steadily narrowing the profit gap between the two. Looking ahead to H2 2026, cold-rolled and HRC profits are likely to consolidate on a subdued note overall. Cold-rolled steel is still expected to retain a modest processing premium, but it will be difficult to see a repeat of the significant profit rises from 2023 to 2024. On the supply side, blast furnaces face expectations of seasonal maintenance, which can periodically shore up HRC supply. In the persistently low-profit environment for cold-rolled steel, some mill production lines are willing to voluntarily reduce output, potentially providing some support for cold-rolled processing fees. Demand will become the core variable driving profits. In H2, traditional manufacturing typically sees a seasonal recovery during the "September-October peak season," and downstream automobile and home appliance industries are expected to sprint toward their full-year production plans, providing some demand support. However, the extent of the recovery in downstream end-use demand this round remains uncertain. In the short term, absent stronger policy support to stabilize growth, the recovery pace of downstream demand is likely to be gradual, and cold-rolled and HRC profits will most likely continue to consolidate near the break-even line. On the raw material front, iron ore has seen no particular trend and is broadly fluctuating in line with steel. The second round of coke price reductions has been implemented, weakening cost support and leaving room for cold-rolled and HRC profit recovery. At the same time, if downstream users show strong willingness to stockpile for the peak season starting in late August, with orders being released continuously, demand support may lead to a phased recovery in cold-rolled profits and a renewed widening of the price spread between cold-rolled and HRC. If the manufacturing recovery falls short of expectations, profits of both cold-rolled and HRC will come under pressure simultaneously. Going forward, close attention should be paid to auto production and sales data, downstream order booking, and raw material price movements, and one should stay vigilant against the risk of profits falling short of expectations if the peak season fails to materialize.

Historical cold-rolled and hot-rolled profitability data shows cold-rolled spot profit exceeded that of integrated hot-rolled coil in most cycles. However, from end-2025 to H1 2026, profit hubs for both shifted lower in tandem, their curves converged persistently, and cold-rolled's traditional processing premium over hot-rolled contracted markedly. At present, spot profits for both hover near break-even within a narrow range, and sector profitability has notably declined. On one side, raw material costs have been resilient, underpinning finished steel price floors; on the other, end-use demand has weakened continuously since the start of this year. Cold-rolled prices have struggled to hold, while steel mills have taken better hot-rolled coil orders than cold-rolled this year, with firm hot-rolled prices squeezing cold-rolled processing margins and narrowing the profit gap further. Looking to H2 2026, cold-rolled and hot-rolled profits are expected to consolidate on a subdued note overall. Cold-rolled is still likely to retain a small processing premium but will struggle to replicate the sharp profit upswings of 2023-2024. Supply side, seasonal maintenance expectations at integrated blast furnaces could intermittently floor hot-rolled coil supply; under persistently low profits, some cold-rolled lines at mills are showing a willingness to voluntarily cut production, which may provide a degree of support for cold-rolled processing fees. Demand will be the core variable steering profit direction. Traditional manufacturing is expected to undergo a seasonal recovery in the September-October peak season during H2, with downstream auto and home appliance sectors anticipated to sprint toward full-year production plans, offering some demand support. Yet uncertainty remains over the height of this round's end-use demand recovery. In the short term, absent strong pro-growth policies, the downstream demand recovery pace is likely to be moderate, and cold-rolled and hot-rolled profits will probably continue to consolidate near the break-even line. Raw material side, iron ore lacks a distinct narrative and broadly tracks finished steel price fluctuations. The second coke price cut has landed, easing cost support and creating room for profit recovery. If downstream peak-season stockpiling sentiment turns firm from late August and orders flow steadily, cold-rolled profits could see a phased recovery supported by demand, and the cold-rolled vs hot-rolled price spread could re-widen. Should the manufacturing recovery fall short of expectations, both cold-rolled and hot-rolled profitability will come under pressure simultaneously. Going forward, focus on auto production and sales data, downstream order status, and raw material price fluctuation trends; be alert to profit disappointments driven by a peak-season letdown. Data Source Statement: All data in this report, other than publicly available information, are derived from public information (including but not limited to industry news, seminars, exhibitions, corporate financial reports, broker reports, National Bureau of Statistics (NBS) data, customs import and export data, and various data published by major associations and institutions), market communication, and SMM’s internal database models. They are produced through comprehensive analysis and reasonable inference by the research team, are for reference only, and do not constitute decision-making advice. Shanghai Metals Market reserves the right of final interpretation of this statement and the right to adjust and amend its content based on actual circumstances.

Latest data released by the China Association of Automobile Manufacturers (CAAM) shows that China’s fuel cell vehicle (FCV) market posted a distinct pattern of “strong start followed by a steep decline, with both supply and demand contracting” in the first half of 2026. After a rush of deliveries at the end of 2025, production and sales volumes slumped sharply in H1, sending the industry into a phase of profound adjustment. Beneath the disappointing headline figures, however, this cooling-off period marks a pivotal turning point for the sector to deflate speculative bubbles and solidify its fundamentals. I. H1 Production & Sales Data: Multiple Signals Behind the Sharp Downturn Plunging Overall Volumes: A Grim Market Reality Production: Cumulative output from January to June 2026 stood at only 401 units, averaging fewer than 70 units per month, representing a precipitous 71.8% year-on-year drop from H1 2025 — nearly a three-quarters decline. Sales: Total sales reached 550 units, falling 63.5% year-on-year. The once sky-high growth trajectory has stalled abruptly, with market sentiment cooling markedly. Monthly Volatility: Wildly Contrasting Market Dynamics Rock-bottom start in January: Production and sales hit a trough, weighed down by the Spring Festival holiday and widespread market wait-and-see sentiment. Anomalous rebound in February: Sales surged to 300 units, nearly four times the month’s production. This surge was likely driven by concentrated deliveries of backlogged orders carried over from late 2025 or bulk purchases by major regional corporate clients, creating a false impression of robust demand. Prolonged slump from March to June: Both production and sales retreated to sub-100-unit monthly ranges. June saw output hold steady at 100 units, while sales dwindled to merely 50 units, building up mounting inventory pressure. Year-on-Year Disparity: Double Headwinds of High Comparative Base and Policy Void The late half of 2025, particularly Q4, saw monthly production and sales exceed 3,000 units at peak frenzy, creating an inflated comparative base for 2026. Compounding this headwind, subsidy incentives have been phased down, while detailed implementation rules for the new round of demonstration city cluster evaluations remain unclarified. Manufacturers have adopted conservative production schedules, and end-users have held off purchases pending new supportive policies, locking the market in a policy-driven stalemate. II. Industry Growing Pains: Concentration of Structural Bottlenecks Misalignment between Policy Cycles and Local Fiscal Timelines The fuel cell vehicle sector remains heavily reliant on policy financial support. The year-end rush to claim subsidies in 2025 drained short-term demand. In 2026, local governments have slowed the disbursement of subsidy funds. Manufacturers hesitate to ramp up production, while buyers delay purchases in anticipation of updated policy frameworks, trapping the market in a standoff. Lagging Hydrogen Refueling Infrastructure Restricts Overall Expansion Vehicle technologies have matured considerably, yet the rollout of hydrogen refueling stations has failed to keep pace with market demand. The February sales spike was largely confined to designated demonstration cities, creating isolated hotspots. Regions outside these pilot zones face limited refueling access, stifling wider adoption and fragmenting the national market geographically. Seasonal and One-off Distortions The Spring Festival holiday suppressed manufacturing output in January and February, yet February’s counterintuitive sales surge underscores that short-term market performance is dominated by irregular factors such as ad-hoc bulk corporate orders. The subsequent months’ return to subdued volumes reveals a lack of sustained organic market demand. Cost and Operational Economic Viability Crunch Slower-than-expected cost reductions for fuel cell systems, paired with volatile hydrogen fuel prices, weigh heavily on commercial fleet operators highly sensitive to running costs. Weak economic returns have dampened corporate purchasing appetite and constrained demand growth. III. H2 2026 Outlook: The Downturn Nears Its End, Recovery on the Horizon Based on weak H1 performance and historical market patterns, the second half is projected to follow a trajectory of “muted early months followed by mild recovery” Q3: A lull phase focused on inventory destocking and policy waiting: Monthly production and sales are expected to hover between 100 and 200 units, as manufacturers hold back output pending formal policy rollouts or new demonstration project launches. Q4: Restorative rebound amid traditional peak season and policy windows: While volumes will unlikely match the late 2025 monthly peak of 3,000 units, monthly output and sales are highly likely to recover to a range of 500–1,000 units, reigniting industry growth momentum. SMM’s analysis concludes that the bleak H1 2026 data represents an inevitable rationalization phase for the industry to move past speculative overheating. Once speculative bubbles are squeezed out, genuine competitiveness will be rooted in technological upgrades, expanded hydrogen infrastructure and optimized real-world commercial deployment. In H2, as supportive policy frameworks take shape and infrastructure gaps narrow, the market is set to stabilize by late Q3, with tangible recovery emerging in the fourth quarter.

The latest data from CAAM shows that in H1 2026, China's fuel cell vehicle market exhibited a marked pattern of "moving downwards after a higher opening and declines in both supply and demand." After the sprint peak at the end of 2025, H1 production and sales experienced a "cliff-like drop," with the industry entering a period of deep adjustment. But looking beyond the data, this "calm period" is precisely a critical turning point for the industry to squeeze out bubbles and solidify its foundation. I. H1 Production and Sales Data: Multiple Signals Behind the Sharp Chill 1. Total Volume Plunge: The Real Picture Amid the Harsh Winter Production side: From January to June 2026, cumulative production was only 401 units, averaging fewer than 70 units per month, a 71.8% YoY plunge compared to the same period of 2025, nearly halving. Sales side: Cumulative sales reached 550 units, down 63.5% YoY. The once high-growth curve abruptly lost momentum, and market enthusiasm cooled significantly. 2. Monthly Fluctuations: A Rhythm of Fire and Ice in Disarray Starting with a freeze: In January, production and sales plunged to rock bottom, compounded by the Chinese New Year holiday and a wait-and-see sentiment in the market. February's "abnormal recovery": Sales surged to 300 units, nearly four times the production volume. This may have stemmed from the concentrated delivery of backlog orders from the end of 2025, or from bulk purchases by a certain region/large client, creating a "false prosperity." From March to June, a continued downturn: Both production and sales fell back to the 100-unit range. In June, production held at 100 units while sales were only 50 units, quietly driving up inventory pressure. YoY Disparity: The Double Squeeze of High Base and Policy Vacuum. The "carnival" in H2 2025, especially in Q4 when monthly production and sales exceeded 3,000 units, set a high base trap for 2026. Coupled with the phasing-out of policy subsidies and the start of a new assessment cycle for demonstration city clusters with details yet to be clarified, enterprises adopted a more conservative production pace, end-users fell into a wait-and-see mode, and the market fell into a "policy vacuum period." II. Industry Growing Pains: The Exposure of Multiple Bottlenecks Policy Cycle and Fiscal Rhythm Bottlenecks. Fuel cell vehicles are highly dependent on policy "blood transfusions." After the installation rush at the end of 2025 overdrew demand, the pace of local subsidy disbursements slowed in 2026, leaving enterprises hesitant to expand production and users holding back for new policies, plunging the market into a strategic standoff. Hydrogen Infrastructure Lagging: A Weak Link Constraining the Overall System. While vehicle technology is maturing, hydrogen refueling station construction still struggles to match demand. The February sales surge may have been concentrated in the "island" effect of demonstration cities, while non-pilot regions face a deployment deadlock due to "refueling difficulties," reflecting a fragmented market. Seasonal and Unconventional Disturbances. The Chinese New Year holiday led to capacity contraction in January and February, yet the counter-trend surge in February sales exposed the dominance of unconventional factors, such as massive purchases by large clients. The subsequent return to normal low ebb reveals insufficient sustained demand. Cost and Economic Viability Constraints. The cost reduction of fuel cell systems has fallen short of expectations, and coupled with hydrogen price fluctuations, B-end users are highly sensitive to operating costs, suppressing their willingness to purchase vehicles and hindering demand release. III. H2 Outlook: Winter Will Pass, Recovery in Sight. Based on the weak performance in H1 and historical patterns, H2 is expected to show a "low before high, mild recovery" trend. Q3: A period of digesting inventories and waiting for the right opportunities. Monthly production and sales may remain in the 100-200 unit range, as enterprises wait for policy implementation or the launch of new demonstration projects. Q4: Traditional peak season combined with a policy window period could bring a "corrective rebound." While it will be difficult to replicate the peak of 3,000 units per month seen in 2025, there is a high probability of monthly production and sales returning to the 500-1,000 unit range, and the industry will regain growth momentum. SMM believes that the "data winter" of H1 2026 represents the necessary path for the industry to bid farewell to feverish growth and return to rationality. After the bubbles are squeezed out, true competitiveness will be distilled through technological iteration, infrastructure improvement, and scene implementation efficiency. In H2, as policy tailwinds gradually emerge and infrastructure weak links are addressed, the market is expected to stabilize by the end of Q3, with recovery dawning in Q4.

Recently, the China Association of Automobile Manufacturers (CAAM) released automobile production and sales data for June and H1 2026. In June, production and sales reached 2.76 million and 2.81 million units, up 5.5% and 6.9% MoM, respectively, while down 1.2% and 3.2% YoY, respectively. In H1 2026, cumulative production and sales totaled 14.993 million and 15.017 million units, down 4% and 4.1% YoY, respectively. Looking to H2, CAAM believes that the program of large-scale equipment upgrades and consumer goods trade-ins will continue to be implemented in an orderly manner, auto aftermarket consumption is expected to usher in new growth opportunities, enterprises' new product supply continues to be enriched, market prices remain relatively stable, and the industry's overall economic performance will further improve.

[Bearish for Precious Metals] The escalating US-Iran conflict pushed up crude oil, and the risk of a rebound in inflation extended the high-rate cycle. This week, the US-Iran military confrontation further intensified. Over several consecutive days, the US military launched airstrikes on military facilities along Iran’s coast and around the Strait of Hormuz and resumed a maritime blockade of Iranian ports. Trump threatened to impose a 20% fee on goods transiting the strait, while Iran retaliated by striking US military bases in the Middle East. Driven by supply disruption fears, WTI crude surged over 12% during the week to break above $80 per barrel, and Brent approached $86. The renewed surge in oil prices sparked concerns about a second inflation wave, and market expectations shifted toward a prolonged period of high US Fed rates, indirectly weighing on the valuation of non-yielding precious metals assets. Warsh’s congressional testimony maintained a hawkish stance, reiterating zero tolerance for inflation and not ruling out rate hikes. Fed Chairman Warsh attended the semi-annual monetary policy hearing before Congress this week and, in his first appearance, sent a resolute signal. Although the June CPI released on the same day cooled significantly, Warsh stated clearly that “this is just one data point and far from mission accomplished,” stressed zero tolerance for persistent high inflation, and noted that the interest rate tool remains on the table. The hawkish tone partially offset the easing expectations triggered by the inflation data. The probability of a September rate hike remained above 45%, capping the downside room for real interest rates and limiting the rebound potential of precious metals. US Treasury yields continued to consolidate at highs, and institutional fund outflows persisted. The 10-year US Treasury yield consolidated at highs in a 4.5%–4.7% range during the week, briefly dipping to 4.54% after the CPI release before rebounding quickly. The US dollar index fell under pressure to break below 100 early in the week, then regained its footing above 100.5 as oil prices rebounded. In terms of fund flows, holdings in the SPDR Gold Trust, the world’s largest gold ETF, continued to decline. With yields staying high, the carrying cost of precious metals remained elevated. Short-term sentiment stayed bearish, casting doubt on the sustainability of any rebound. [Bullish for Precious Metals] US June CPI and PPI both came in below expectations, signaling a continued easing of inflationary pressures. The US June CPI, released on July 14, was up 3.5% YoY (expected 3.8%, prior 4.2%) and down 0.4% MoM, marking the first month-over-month decline since 2020. Core CPI was up 2.6% YoY (expected 2.8%) and flat MoM, the smallest increase since 2021. The following day, June PPI also surprised to the downside, falling 0.3% MoM (expected unchanged). The two inflation reports confirmed a cooling trend, and the market’s implied probability of a July Fed rate hike plummeted from nearly 50% before the data to around 10%. The central bank has increased its gold holdings for 20 consecutive months, with monthly purchases expanding gradually, building a bottom support. As of end-June, China's official gold reserves reached 75.44 million ounces, up by 480,000 ounces MoM, marking the 20th straight month of accumulation. The monthly addition size has expanded for four consecutive months, hitting a near 16-month high. The central bank displayed a clear "buy the dip" pattern, accelerating purchases during the sharp gold price correction in June, reflecting a long-term strategy of reserve diversification. Coupled with moderately accommodative domestic monetary policy and ample liquidity, the official gold purchasing trend provides structural support for gold prices, with downside room being materially constrained. Trump Calls for Interest Rate Cuts On July 16, Trump stated, "I hope interest rates will come down. Pausing rate hikes is better than hiking. The U.S. should have the lowest interest rates in the world." Market expectations for rising political pressure on the Fed intensified. [Macro Summary] This week, precious metals showed a "first down, then up" pattern with wild swings. At the start of the week, pressured by the escalation of US-Iran conflict pushing up oil prices and rising inflation rebound expectations, gold and silver continued to weaken and hit bottom. On July 14, the June CPI data came in well below expectations, cooling rate hike expectations, and precious metals rebounded, with gold once surging to around $4,110. However, later, Walsh's hawkish congressional testimony and persistently rising oil prices led to partial giving back of gains. Currently, the market's core tension lies in the tug-of-war between substantial cooling of inflation data and the risk of inflation resurgence from geopolitical conflicts driving up energy prices, as well as the expectation gap between the Fed's hawkish stance and weakening data. The key upcoming observation windows are the U.S. June retail sales data and the FOMC meeting at end-July. The former will test how much consumption resilience supports inflation, while the latter will clarify the Fed's policy rate path, becoming a key variable in determining whether precious metals can open upside room.