Storage Chips, Lithium, and Metals Surge Simultaneously: Why Upstream Companies Profit Most Ruthlessly

Event Background

In July 2026, Chinese A-share listed companies released their mid-year earnings forecasts. Notably, upstream raw material enterprises in storage, lithium, and non-ferrous metals delivered impressive results collectively—some companies achieved net profit growth exceeding 10 times. Tungsten ore prices surged over 350% year-over-year in the first half, driving substantial earnings releases for related enterprises.

This is not an isolated phenomenon. Driving forces include:

1. Surging AI chip demand: Servers and data centers show sustained rising demand for enterprise-grade storage products, pushing storage chip prices steadily upward. 2. EV production expansion: The lithium battery supply chain faces robust demand, with lithium ore and lithium salt enterprises flooded with orders. 3. Emerging technology applications: Copper, tungsten, aluminum, rare earths, and other non-ferrous metals see expanding applications in chip manufacturing, new energy, and AI industries.

Why Do Upstream Enterprises Have Maximum Profit Elasticity?

1. Supply Time Lag (Steep Supply Curve)

When downstream chip design companies and automakers say "I need 10x orders," upstream mining enterprises cannot immediately increase output 10-fold. Mining, ore processing, and smelting all require time—from exploration to mine establishment through full capacity deployment typically takes 2-5 years. During this window, the demand curve shifts outward while the supply curve barely moves, resulting in rapid price increases and sharply rising profit margins.

2. The Bullwhip Effect Magnified

Economics has a famous phenomenon: when end-user demand grows 10%, distributor orders grow 20%, manufacturer orders grow 40%, and raw material supplier orders grow 80%. This is the "bullwhip effect"—the further from end-user demand, the more violent the fluctuations.

In this cycle: - AI chip demand growth (possibly 30-50%) - Chip manufacturers increase storage procurement (possibly 50-100%) - Mining enterprises face order increases (possibly 100-200%+)

3. Cost Structure Profit Amplification

Raw material enterprises typically have cost structures of: - Direct production costs: 60-70% (mining, transportation) - Fixed costs: 10-15% (mining rights, equipment depreciation) - Other: 15-20%

When prices rise from 100 yuan to 450 yuan (tungsten ore 350%+ increase), production costs don't increase proportionally, and profit margins jump from 20-30% to 70-80%. Profit elasticity is 2-3 times the price increase magnitude.

4. "The Final Celebration Within the Business Cycle"

Historical patterns show that upstream raw material enterprises' peak-cycle profits are often one-time events. Once new capacity comes online (new mines open, new smelters start), supply catches up with demand, and prices begin declining, with enterprise profits rapidly retreating. Tungsten prices can move from 350%+ increases to declines in just 12-18 months.

Why Do Downstream Enterprises (Chip Makers, Automakers) Show Relatively Modest Profit Growth?

1. Unequal bargaining power: Though chip manufacturing companies see order increases, costs rise simultaneously (storage costs + other material costs), suppressing profit margin expansion. 2. Intensified competition: Chip product prices may decline as supply increases, eroding profits. Mining products face no such issue—global tungsten supply is inherently constrained. 3. Inventory pressure: Chip design companies must accumulate inventory to meet downstream demand, tying up capital; mining enterprises sell as they extract, without inventory buildup.

Historical Precedent Evidence

This cycle shows striking similarities to two previous episodes:

1. 2007-2008: Before the subprime crisis, global infrastructure booms pushed copper and iron ore prices up 300%+, with mining enterprise profits surging, followed by price collapse after the 2008 crisis erupted. 2. 2020-2021: Post-COVID stimulus policies pushed commodity prices higher, with lithium and cobalt mining enterprises reaching record profits; as demand cooled after 2022, they quickly weakened.

Investment Implications

For investors holding these upstream enterprise stocks, the critical question is: How long can this cycle sustain? If AI chip and new energy demand truly have 5-10 years of growth ahead, mining enterprise profits may remain relatively stable; but if demand saturates within 18-24 months, upstream enterprises' high profits represent "bubbles mortgaging the future."

History teaches us that upstream enterprises' super-high profit periods are often mistakenly extrapolated as the "new normal," when in reality they represent only a specific stage of the cycle. Identifying when this window closes matters more to investors than chasing prices themselves.