The London Metal Exchange's (LME) cash premium for copper has risen sharply, supporting prices at elevated levels, driven by a combination of macro easing and persistent supply tightness. Meanwhile, nickel is under pressure from quota release expectations, while aluminum faces subdued sentiment and inventory destocking challenges. Industrial silicon and lithium carbonate have seen recent price boosts driven by market sentiment, but their underlying fundamentals remain delicately poised.
Copper: LME Premiums Surge, Prices Remain High
On the macro front, the US Consumer Price Index (CPI) slowed to 3.4% year-on-year, with the core rate falling to 2.5%, both in line with market expectations. Combined with a negative non-farm payrolls report, market bets on a Federal Reserve rate hike in September have dropped to around 45%, weakening the US dollar and supporting copper's financial pricing. However, internal Fed divisions persist, with Richmond Fed President Barkin favoring holding rates steady while Cleveland Fed President Hammack reiterated a hawkish stance. Market attention is also on a key speech at the late-August global central bank symposium, which could provide guidance for the September meeting. Geopolitically, tensions remain high between the US and Iran over the Strait of Hormuz, keeping risk premiums elevated.
In terms of fundamentals, the copper concentrate treatment charge (TC) has fallen to a historic extreme low of -175.37 US dollars per tonne, indicating persistent tightness in concentrate supply, a key support for the market. Domestic refined copper production in August is estimated at 1.1392 million tonnes, up 1.1% month-on-month but down 2.76% year-on-year. Net imports of refined copper in June increased 10.29% year-on-year to 284,600 tonnes, while cumulative imports fell 13.24%. Global visible copper inventories stood at 1.024 million tonnes as of August 14, down 5,000 tonnes from the previous week, with LME stocks falling 18,000 tonnes. On the demand side, downstream buyers are maintaining just-in-time purchasing, with weak appetite for high-priced stockpiling, causing domestic copper premiums to shift to discounts.
The outlook for copper prices points to a continued high-level, range-bound consolidation. With LME swap fees rising rapidly, the risk of another overseas squeeze cannot be ruled out. Macro sentiment is mixed, as cooling US inflation and negative jobs data are offset by internal Fed divisions and ongoing geopolitical uncertainties. On the supply side, the TC has hit a record low, and negative news from major producers like the Democratic Republic of Congo (export ban), Chile (falling output), and Codelco (project delays) is bringing supply issues to the forefront. Critically, the US Section 232 copper tariff decision is pending, but the wide COMEX-LME spread is causing global copper to flow to North America, tightening supply in the rest of the world. However, high prices are significantly curbing downstream purchases, with spot discounts widening to 300 yuan per tonne, and import losses increasing. The short-term upside is limited by weak demand, as evidenced by lower refined copper rod operating rates compared to last year.
Nickel & Stainless Steel: Quota Disturbances, Focus on Timing
On the supply side, the weekly premium for 1.6% nickel ore fell by 1.5 US dollars per wet tonne to 1.5 US dollars per wet tonne. The HPM price for August's first period showed small increases for both 1.2% and 1.6% nickel ore. For demand, in the new energy sector, weekly ternary material production increased by 317 tonnes to 20,682 tonnes, and inventory rose by 320 tonnes. Auto sales in the first nine days of August saw a 17% drop in new energy vehicle retail sales compared to the same period last year, but the penetration rate for new energy vehicles in retail remained high at 61.6%. In stainless steel, total social inventory across mainstream markets was 1.106 million tonnes, up 1.75% week-on-week, with 300-series inventory increasing slightly. August crude steel production for 43 domestic stainless steel mills is estimated at 3.6388 million tonnes.
Regarding policy, Indonesia's new export regulation for rare earth elements (LTJ) is expected to be completed within a week, with the government revising the trade minister regulation to define content limits. Meanwhile, the Indonesian Nickel Miners Association (APNI) stated that the overall nickel ore production quota will remain around 260-270 million tonnes. With domestic consumption reaching 142.96 million tonnes from January to July, representing 53-55% of the annual quota, APNI has suggested allowing an additional 30 million tonnes of production as a strategic buffer to meet future demand from new smelting capacity expected to start in 2026. Social inventory has seen little change. Given the current expectation of quota releases, prices are expected to oscillate with a weak bias. The key focus will be on the pace of quota releases and support from underlying costs.
Aluminum: Sentiment Weakens, Inventory Destocking Hits a Snag
Alumina futures traded weaker for the week, while Shanghai aluminum also moved lower. The operating rate for alumina fell slightly, with output decreasing by 9,000 tonnes to 1.688 million tonnes. Some plants in Guangxi underwent maintenance. Overseas, Hydro's Alunorte alumina refinery in Brazil experienced a 50% production cut due to a gas supply interruption, though a temporary agreement with the gas supplier has been reached for a gradual restart. For electrolytic aluminum, the operating rate remained stable at 98.54%, with output steady at 874,800 tonnes.
Demand is being constrained by the off-season and high temperatures, causing processing plant operating rates to decline. The average operating rate for downstream processors fell by 0.2% to 59.9%. Sub-sectors saw mixed performance, with declines in aluminum profiles and recycled aluminum alloys, while aluminum wire and cable saw a slight uptick. Inventory data showed LME stocks falling, while Shanghai aluminum inventories decreased. Social inventories for alumina and aluminum rods increased, while aluminum ingot inventories declined. The outlook suggests that the market will return to fundamental pricing logic after the pulse from the Brazilian production cut fades. Domestically, suspended alumina plants are preparing to restart, and strong import arrivals are adding to supply pressure. Combined with slower downstream raw material replenishment, alumina inventories are facing marginal pressure, and the market is following the weakening sentiment. For electrolytic aluminum, the Fed's divided stance on rate hikes is causing market sentiment to swing. The decline in aluminum ingot inventories is slowing, with some regions like South China beginning to accumulate stocks. Downstream processing operations are under pressure, and aluminum rod processing fees are falling. Aluminum prices are expected to trade in a range. The focus will be on whether downstream pre-holiday restocking expectations for late August can be realized.
Industrial Silicon & Polysilicon: Sentiment Boost, Awaiting Catalyst
Industrial silicon and polysilicon futures both showed strength during the week, though spot prices were mixed. On the supply side, weekly industrial silicon output increased slightly, while the furnace operating rate edged down. In the Northwest, one new furnace started in Xinjiang, while a furnace in Ningxia was shut down. In the Southwest, one furnace in Sichuan was closed. For demand, the polysilicon market remained quiet, with producers holding prices and waiting for policy clarity. Downstream silicon wafer prices and production schedules saw minor improvements, but there was no significant increase in procurement from upstream. The organic silicon market saw prices rise as monomer plants followed industry meeting agreements to raise prices and cut production. Polysilicon weekly output increased by 730 tonnes to 26,000 tonnes, while DMC output fell by 1,200 tonnes to 38,500 tonnes. Regarding inventory, industrial silicon exchange inventories increased by 600 tonnes, while polysilicon inventories rose by 2,300 tonnes. Social inventories for industrial silicon decreased slightly, with a notable 8,000-tonne drop in plant inventories. The outlook suggests that the recent rally in industrial silicon was driven by producers raising quotes following the futures price surge, with some hedging inventory pressure. However, downstream acceptance of the higher prices is limited. A rumored production cut by a major producer in Xinjiang on Friday pushed prices higher. Without further sustained catalysts, the market may turn to weak consolidation once sentiment fully dissipates. Polysilicon producers are holding prices firm, and traders are relatively active. The "buy the rumour" mentality has driven downstream purchases, lifting prices across the chain from silicon wafers to modules. Optimism about policy regulation supports high polysilicon prices, but caution is advised as the fundamental pattern of increased production and inventory accumulation remains unchanged. Market participants are waiting for tangible industry self-discipline and effective end-user demand.
Lithium Carbonate: Market Sentiment Recovers, Expectations Slightly Revised
On the supply side, weekly lithium carbonate output increased by 181 tonnes to 23,152 tonnes, with the lithium mica and salt lake routes seeing increases. In July, Chile exported 23,364 tonnes of lithium carbonate, up 8% month-on-month, with exports to China roughly flat. For demand, weekly ternary material production increased, while lithium iron phosphate (LFP) output rose by 1,896 tonnes to 125,266 tonnes. Auto sales data from the China Passenger Car Association (CPCA) for the first nine days of August showed a 17% year-on-year decline in new energy vehicle retail sales, but the penetration rate hit 61.6%. In the energy storage sector, the scale of new domestic operational energy storage projects reached 4.90 GW/15.77 GWh in July, a record for the month, with the average storage duration being 3.22 hours. Inventory data from a large sample showed a weekly decrease of 7,196 tonnes to 93,908 tonnes, with declines across all segments (other, smelter, and downstream). The outlook indicates that market sentiment has warmed, with a stock-commodity resonance driving futures prices up nearly 10% for the week. The market structure has shifted from backwardation to contango. The short-term view is that the current fundamentals still present a window for strong real-world trading, supported by a slight weekly increase in apparent demand and a relatively fast destocking pace in August. The low inventory levels in the intermediate links also provide a motivation for restocking. However, while basis trading remains stable, quotes are strong, and there is significant pressure from warehouse receipts. Waiting for a real shortage to coincide with destocking will take time. Therefore, prices are expected to oscillate with a strong bias in the short term, but caution is advised for a potential sentiment turning point. In the medium term, a strong positive feedback loop from the demand side is needed to correct forward expectations and open up upside potential.
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