Base metals concluded the prior session with a generally weaker tone. In the copper market, the spread between COMEX and LME contracts narrowed to approximately $211 per tonne, while the import arbitrage window for refined copper in China remained closed.
On the macroeconomic front, the US ISM manufacturing index for August came in at 54.6, missing the 55.2 forecast but still marking the second-highest reading since 2022. The new orders sub-index slipped to 53.7, its weakest level since March, while factory employment rose for a second consecutive month. The prices sub-index held steady at 71.1. Separately, July JOLTS job openings totaled 7.27 million, slightly below the expected 7.31 million, although manufacturing openings hit their highest level since December 2023. July layoffs fell to their lowest point since January. Geopolitically, reports indicated the US military initiated strikes on targets within Iran, prompting threats of retaliation and heightened tensions in the region.
Inventory data showed mixed movements: LME copper stocks declined by 775 tonnes to 233,500 tonnes, while COMEX inventories grew by 3,218 tonnes to 691,678 tonnes. On the Shanghai Futures Exchange, copper warrants fell by 574 tonnes to 29,766 tonnes, and BC copper warrants were down by 100 tonnes to 9,075 tonnes. Demand remained cautious with buyers hesitant to stock up at higher prices, though tight spot availability kept premiums elevated.
The market is currently balancing macro pressures against supportive fundamentals, complicating the directional outlook. Attention remains focused on the arbitrage between US and London copper prices. As long as this trend persists, it suggests continued tightness in non-US copper supplies and a lingering risk of a short squeeze on the LME. However, the rapid narrowing of the price spread and the pullback in prices overnight suggest a shift towards more cautious sentiment, warranting a less optimistic near-term view.
In the nickel and stainless steel complex, LME nickel settled 0.57% lower at $16,675 per tonne, while Shanghai nickel fell 0.75% to 126,800 yuan per tonne. LME inventory added 174 tonnes to 268,536 tonnes, whereas SHFE warrants decreased by 840 tonnes to 100,096 tonnes. The LME cash-to-three-month spread remained in backwardation, and imported nickel premiums held at -50 yuan per tonne.
On the supply side, some miners are still awaiting approvals for their 2026 RKAB revisions, submitted between July 1st and 31st. The Ministry of Energy and Mineral Resources has started approving some 2026 RKAB revisions for coal and nickel, with over a dozen companies in each sector receiving approval, although specific production quota details were not disclosed. Additionally, market sources indicate that due to low nickel prices and high costs, an Indonesian high-pressure acid leach project might cut MHP production by around 30% in September. With expectations of quota releases and declining sulfur prices, the nickel price is likely to face continued downward pressure, though macro sentiment remains a key variable to watch.
For alumina, the market saw a firmer tone overnight, with the main contract closing 1.3% higher at 2,718 yuan per tonne, accompanied by an increase in open interest. The aluminium contract edged up marginally, while the aluminium alloy contract weakened slightly. Spot alumina prices rebounded to 2,676 yuan per tonne. Aluminium ingot spot discounts narrowed to a range of -10 yuan to par. In the processing sector, aluminium rod processing fees were mostly stable, while some low-carbon rod fees increased.
The overseas strength is providing some positive sentiment to the domestic market. With rising loss-making production and expectations of output cuts, the market appears to be forming a base after recent declines and may see a modest recovery supported by costs. Upcoming tenders from China Southern Power Grid and pre-holiday restocking demand are expected to gradually improve downstream purchasing and operational rates. However, the pace of inventory destocking has noticeably slowed, and the realization of peak-season demand remains a key factor to monitor.
Industrial silicon traded with a softer bias, while polysilicon saw a significant uptick. The market is hearing frequent rumors of major production cuts in Xinjiang. Futures and spot traders are showing restrained buying interest, and downstream purchasing enthusiasm is limited. There is a risk that the market could shift from pricing in anticipated cuts to reacting to actual supply reductions. Activity between futures and spot traders in polysilicon is relatively active, with clear price differences compared to major producers' high-priced orders. End-user restocking intentions are weak, as actual transaction prices for cells and modules are already declining. If this negative feedback loop extends to the polysilicon segment, it could challenge the recent price support efforts.
In the lithium carbonate market, the January contract declined 1.64% to 157,860 yuan per tonne, with open interest increasing. Spot prices for battery-grade lithium carbonate rose by 1,500 yuan to 160,000 yuan per tonne, while industrial-grade prices increased to 155,500 yuan per tonne. Battery-grade lithium hydroxide also moved higher. Warrant inventory increased by 215 tonnes to 45,839 tonnes.
On the supply front, weekly output rose by 801 tonnes to 23,808 tonnes, with September production forecast to increase by 10% month-on-month to 124,000 tonnes. Demand-side forecasts show September ternary material output falling 5% to 86,450 tonnes, while lithium iron phosphate output is expected to rise 6% to 612,000 tonnes. Large-sample weekly inventories fell by 7,590 tonnes to 78,802 tonnes, with destocking seen across all segments. The spot basis is strengthening slightly, but warrants continue to flow in. The estimated supply-demand deficit for September stands at around 25,000 tonnes, continuing a relatively rapid destocking pace, although the rate of inventory drawdown may slow. While supply-side disruptions are revising down second-half supply expectations, the downward revision in cathode material production forecasts dampened market sentiment, posing a short-term correction risk. Attention should focus on whether the spot market can show a genuine shortage against this destocking backdrop to provide strong support and positive feedback for futures prices. If spot feedback is weak, the upside for prices may be limited, and the potential influx of shipments later on could affect market mood.
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