Copper: Supply Concerns Remain Unresolved, Copper Prices Continue to Strengthen
1. Macro Overview. The U.S. economy is showing early signs of "stagflation," characterized by slowing growth alongside persistent inflation. U.S. Q2 GDP grew at an annualized rate of 1.5%, down from 2.1% in the prior quarter. However, the PCE price index rose to 5.1%, with core PCE up 3.3% year-on-year, still well above the Federal Reserve's 2% target. June nonfarm payrolls added only 57,000 jobs, less than half of expectations. While the unemployment rate edged down to 4.2%, this was mainly due to a continued decline in the labor force participation rate. The Fed held its interest rate steady at 3.50%-3.75% for the fifth consecutive meeting on July 29th. Notably, three regional Fed presidents voted for a rate hike for the first time since 2016. Chair Walsh maintained a hawkish tone, emphasizing that "there is no soft inflation target." In China, the July manufacturing PMI fell to 49.2%, down 1.1 percentage points from the previous month. The production and new orders indices were 49.9% and 48.5%, respectively, both below the 50-point threshold. The Politburo meeting at the end of the month stated that macro policies should be "more effective" in the second half of the year, "fully leverage the effectiveness of existing policies, promptly formulate and introduce practical and effective incremental policies," and "increase counter-cyclical adjustment efforts" to boost market confidence. Geopolitically, the situation sharply deteriorated in July. The US-Iran conflict reignited on July 7th, with the US conducting airstrikes on Iran for over ten consecutive nights. Iran closed the Strait of Hormuz and attacked a US military base in Jordan.
2. Fundamentals. In copper concentrate, domestic TC quotes have fallen again to historically extreme low levels, indicating that tightness in copper concentrate has never eased and remains a strong support factor for current fundamentals. For refined copper production, the estimated output of electrolytic copper in July was 1.1661 million tons, up 1.8% month-on-month but down 0.7% year-on-year. Production remains high, but the impact of insufficient copper concentrate on output is evident. On the import side, China's net imports of refined copper increased by 10.29% year-on-year to 284,600 tons in June, while cumulative imports fell by 13.24%. In June, copper scrap imports were 210,900 metal tons, up 15.11% year-on-year, with cumulative imports up 8.39%. In terms of inventory, as of July 30th, global visible copper inventories fell by 130,000 tons month-on-month to 1.052 million tons. LME inventories decreased by 73,825 tons to 255,400 tons. Comex inventories increased by 43,193 tons to 647,683 tons. Domestic refined copper social inventories fell by 95,500 tons month-on-month to 111,900 tons, and bonded zone inventories decreased by 3,500 tons to 37,100 tons. For demand, downstream demand slightly exceeded expectations, but the impact of high copper prices on demand suppression is also emerging, testing the strength of the peak season in the second half of the year.
3. Outlook. In August, copper prices are expected to continue their volatile but firm trend, with a tendency to rise rather than fall. First, macro headwinds are becoming less impactful, and the weight of fundamental pricing is increasing. With no Fed meeting in August, the market will look for clues from the next batch of economic data. The marginal pressure from rate hike expectations on copper prices will diminish, and prices will return more to supply-demand fundamental pricing. Second, multiple supply-side disruptions are overlapping, making it difficult to reverse the tight supply situation. The impact of weather in Chile is expected to last at least until mid-August. The standoff in the Strait of Hormuz is unlikely to resolve soon. Deeply negative TC prompts smelting output cuts, and US tariff uncertainty drives global copper resources to concentrate in North America. The combined effect of these four factors provides extremely solid support for copper prices from the supply side. Finally, downstream demand shows structural differentiation, but aggregate demand remains resilient. Traditional construction-related copper demand in China is weak, but emerging sectors like AI computing power, grid investment, and new energy vehicles continue to drive demand. Downstream buyers are eager to purchase on dips when copper prices fall. The availability days of global non-US visible inventories have dropped to low levels again, reigniting concerns about copper tightness in non-US regions. Therefore, the overall strategy is to buy on dips. The risk is that if the US-Iran conflict escalates fully, pushing oil prices higher, the market might price in a larger-than-expected Fed rate hike in September. Additionally, close attention should be paid to the implementation of the US government's tariff policy on refined copper.
Nickel & Stainless Steel: Short-Term Fluctuation, Focus on Quotas
1. Supply. The weekly premium for 1.6% nickel ore was flat, and weekly plant-gate prices for 1.2% and 1.6% nickel ore were flat. For the second HPM price period in July, prices for 1.2% and 1.6% nickel ore fell by $2.15/ton and $3.58/ton, respectively. For August production schedules, electrolytic nickel output is expected to decrease by 1.6% month-on-month to 30,900 tons. Domestic nickel pig iron (NPI) output is expected to increase by 6% to 32,000 nickel tons, while Indonesian NPI output is expected to increase by 4% to 135,300 nickel tons.
2. Demand. Weekly production of ternary precursor materials increased by 203 tons to 19,677 tons, with weekly inventories up by 452 tons to 20,467 tons. For August production schedules, ternary material output is expected to increase by 5% month-on-month to 93,840 tons. Lithium battery output is expected to grow by 7% month-on-month to 288.9 GWh, with ternary batteries up 8% to 48.2 GWh. For end-use, according to the China Passenger Car Association (CPCA), total retail passenger car sales in China in July were about 1.52 million units, with new energy vehicles (NEVs) selling 980,000 units, pushing the market penetration rate to a record 64.5%. For stainless steel, total social inventory across 89 warehouses in mainstream national markets was 1.102 million tons, up 0.32% week-on-week. 300-series inventory decreased by 1,841 tons to 670,000 tons. On the supply side, the estimated crude steel production schedule for August 2026 from 43 domestic stainless steel mills is 3.6388 million tons, up 2.22% month-on-month and 9.75% year-on-year. This includes 1.0503 million tons for the 200-series (up 1.45% month-on-month), 1.8982 million tons for the 300-series (up 3.9% month-on-month), and 690,300 tons for the 400-series (down 1.05% month-on-month). Indonesian stainless steel production in August is expected to decrease by 0.7% month-on-month to about 400,000 tons.
3. Inventories. LME nickel inventories decreased by 1,170 tons week-on-week to 266,172 tons. SHFE nickel inventories increased by 1,882 tons to 111,974 tons. Social inventories increased by 1,641 tons to 131,439 tons, while bonded zone inventories remained at 1,700 tons.
4. Outlook. This week saw disruptions related to export review policies. Specifically, the Indonesian government, under Trade Minister Regulation No. 6 of 2026, banned the export of 18 types of rare earth elements (LTJ) and their compounds with purity below 99%. Due to the lack of clear regulations on the content limits of associated rare earth elements, the export clearance of mineral products like nickel pig iron (NPI) was blocked, with about 120 cargo ships stranded at ports. In response, the Head of the Presidential Staff, Dudung Abdurachman, explicitly stated that law enforcement agencies should not interpret the rules on their own and hinder normal exports before the rare earth element content regulations are issued. Looking at fundamentals, weekly inventories increased. For August production schedules, primary nickel output is expected to decrease slightly month-on-month, while domestic and Indonesian NPI output is expected to increase. On the demand side, production schedules for new energy and stainless steel are both expected to increase month-on-month. Overall, nickel has no strong contradictions and is expected to remain volatile in the short term. Focus on new policies related to quotas.
Aluminum: Marginal Improvement, Valuation Recovery
In July, alumina futures fluctuated and weakened, closing the month at 2,621 yuan/ton for the main contract, a monthly decline of 5.8%. SHFE aluminum fluctuated higher, with the main contract closing the month at 23,630 yuan/ton, a monthly gain of 4.7%. Aluminum alloys also fluctuated higher, with the main contract closing at 23,215 yuan/ton, up 3.02% for the month.
1. Supply. According to SMM, domestic metallurgical-grade alumina operating capacity is expected to reach 87.6 million tons in August, with production of 7.53 million tons, up 1% month-on-month but down 2.6% year-on-year. Maintenance-related production in Guizhou and Henan continues to recover. A new project in Guangxi is nearing the end of its ramp-up phase. A manufacturer in Inner Mongolia plans to commission a second 500,000-ton production line in mid-August. Overseas, EGA's Al Taweelah alumina refinery has restarted, with capacity now recovered to 50%. Domestic electrolytic aluminum operating capacity is expected to remain stable at 44.3 million tons in August, with production of 3.9 million tons, up 0.6% month-on-month and 2.7% year-on-year. The aluminum liquid ratio is expected to rise to 78.5%. Overseas capacity additions and restarts continue to ramp up. The Icelandic aluminum smelter restarted at the end of April and reached full capacity by the end of July. The first phase (150,000 tons) of the Dak Nong project in Vietnam officially commenced production in Q2.
2. Demand. The impact of the off-season cycle in downstream sectors is deepening. The average operating rate for aluminum downstream processors in July was 61.44%, down 2.18% from June. Specifically, the operating rate for aluminum sheet/plate fell 2.08% to 69.44%, aluminum foil fell 1.8% to 71.1%, aluminum profiles fell 2.62% to 53.04%, and aluminum wire/cable fell 3.64% to 65.04%. The operating rate for secondary aluminum alloys fell 2.65% to 50.9%. For aluminum rod processing fees, Linyi increased by 80 yuan/ton, while other regions saw decreases of 70-450 yuan/ton. Aluminum rod processing fees fell across the board by 350-550 yuan/ton.
3. Inventories. For exchange inventories in July, alumina accumulated 1,370 tons to 141,700 tons. SHFE aluminum decreased by 57,800 tons to 455,000 tons. LME aluminum decreased by 26,400 tons to 264,400 tons. For social inventories in July, alumina port inventories accumulated 54,000 tons to 945,000 tons. Aluminum ingot inventories decreased by 177,000 tons for the month to 953,000 tons. Aluminum rod inventories decreased by 1,500 tons for the month to 119,500 tons.
4. Outlook. The lack of an official announcement on the specific rules for bauxite export controls, coupled with increased port inventories and rapid accumulation of warrants after cancellation, has largely dissipated the sentiment premium in alumina futures, which hit a year-to-date low at the end of the month. Entering August, Indonesia has tightened approvals for alumina exports. An alumina plant in Guangxi with an 800,000-ton annual capacity plans a kiln maintenance shutdown, which will tighten supply in the short term. Bauxite shipments decline during the rainy season in Guinea, increasing the cost of imported long-term bauxite contracts for alumina plants. After the deep sell-off, the futures market shows bottoming characteristics and is expected to see a narrow recovery. For electrolytic aluminum, the ongoing tensions in the Middle East continue to push back expectations for the release of accumulated aluminum ingots, with LME inventories hitting lows. However, declining operating rates in domestic downstream sectors and narrowing export space are showing early signs of weakness in social inventory destocking. The Fed's July meeting held rates steady, providing an opportunity for valuation recovery in the non-ferrous metals sector for August. Aluminum prices are expected to be volatile with a firm tone, though short-term upside is still constrained by off-season effects. As we enter mid-August, the focus will be on whether the pre-peak season restocking window can open successfully to lead aluminum prices higher.
Industrial Silicon & Polysilicon: Weakness Unchanged, Bottom Stalemate
In July, industrial silicon futures fluctuated and weakened, with the main contract closing at 8,170 yuan/ton on the 31st, a monthly decline of 2.56%. Polysilicon futures also fluctuated lower, with the main contract closing at 33,040 yuan/ton for the month, a monthly decline of 6.47%. Spot prices corrected across the board. Non-553 grade (unoxygenated) fell by 100 yuan/ton to 8,800 yuan/ton. Oxygenated 553 grade fell by 100 yuan/ton to 9,000 yuan/ton. 421 grade fell by 100 yuan/ton to 9,400 yuan/ton. Polysilicon N-type fell by 650 yuan/ton to 31,500 yuan/ton. N-type mixed lump material fell by 500 yuan/ton to 29,500 yuan/ton.
1. Supply. According to Baichuan, domestic industrial silicon production in July was 369,500 tons, up 22.5% month-on-month and 21.2% year-on-year. The number of operating furnaces decreased by 3 to 250, with the operating rate falling by 0.38% to 31.4%. In the Northwest region, Xinjiang shut down 8 furnaces, leaving 117 ore furnaces operating, and Ningxia shut down 1, bringing the total operating furnaces in the Northwest to 154. In the Southwest region, Yunnan started 7 new furnaces, while Sichuan shut down 2, leaving 69 furnaces operating in the Southwest. In other regions, Inner Mongolia started 1 new furnace.
2. Demand. Polysilicon production in July increased by 22,300 tons to 109,800 tons, up 15.2% year-on-year and 25.5% month-on-month. DMC production in July increased by 13,300 tons to 190,100 tons, down 5.8% year-on-year but up 7.5% month-on-month. New orders in the downstream polysilicon market showed no increase, continuing the pace of one-off negotiations. Downstream wafer producers have insufficient inventory, and spot prices are stabilizing near the cost support level. The latest production cut quota from the organic silicon industry meeting has been raised to 60%. Current production cuts are around 50%, but some companies showed signs of restarting production at the end of the month. Upstream players are reducing prices to stimulate sales, leading to increased downstream purchasing and batch restocking.
3. Inventories. On exchanges, industrial silicon inventories accumulated 1,920 tons in July to 161,400 tons. Polysilicon inventories accumulated 19,600 tons to 62,400 tons. For social inventories, industrial silicon inventories accumulated 36,100 tons in July to 490,200 tons. Factory inventories accumulated 34,000 tons to 289,700 tons. Huangpu Port inventories accumulated 1,000 tons to 63,000 tons. Tianjin Port inventories were stable at 81,500 tons. Kunming Port inventories accumulated 1,100 tons to 56,000 tons. Polysilicon factory inventories accumulated 1,800 tons in July to 283,100 tons.
Outlook. Due to a significant pullback in industrial silicon profit margins, overall operations in the Southwest during the July wet season fell short of expectations. Entering August, silicon factories in Inner Mongolia have confirmed production cuts and maintenance. Intermittent restarts in Xinjiang and Yunnan have not alleviated supply pressure. The three major downstream sectors lack concentrated restocking momentum. Polysilicon has no plans for pre-emptive procurement. Organic silicon will implement the production cut requirements. The aluminum alloy sector is in its off-season with weakening operating rates. Industrial silicon is expected to trade near production costs in August. A phase rebound would trigger concentrated hedging by companies, capping upside potential. For polysilicon, three silicon factories will increase output in August, while another three will cut or undergo maintenance, leading to a continued marginal increase in total output. Downstream wafer production schedules are expected to increase slightly in August, but companies have ample raw material inventory. Polysilicon material factories still face sales resistance. The number of companies signing new orders is declining, maintaining a purchasing-on-demand strategy without concentrated restocking. Futures prices are approaching the cash costs of leading companies, which provides some constraint on further downside. However, under the dual pressure of high inventory and weak demand, prices are unlikely to escape the weak range in the short term.
Lithium Carbonate: Inventory Drawdown Does Not Imply Scarcity, Prices Continue to Fall
1. Supply. Weekly production decreased by 1,027 tons to 22,841 tons. Output from spodumene leaching decreased by 734 tons to 11,775 tons. Output from lepidolite leaching decreased by 340 tons to 2,405 tons. Output from salt lake brine leaching increased by 127 tons to 5,396 tons. Output from recycling decreased by 80 tons to 3,265 tons. Lithium carbonate production is expected to increase by 7% month-on-month in August to 112,000 tons. Spodumene-based output is expected to increase by 6,263 tons, lepidolite-based output by 2,000 tons, salt lake brine-based output by 1,750 tons, and recycling-based output by 880 tons.
2. Demand. Weekly production of ternary precursor materials increased by 203 tons to 19,677 tons, with weekly inventories up by 452 tons to 20,467 tons. Weekly production of lithium iron phosphate (LFP) increased by 950 tons to 121,880 tons, with weekly inventories down by 850 tons to 136,450 tons. For August production schedules, ternary material output is expected to increase by 5% month-on-month to 93,840 tons. LFP output is expected to increase by 5% to 565,100 tons. Lithium cobalt oxide (LCO) output is expected to increase by 4% to 7,380 tons. Lithium manganese oxide (LMO) output is expected to increase by 11% to 11,920 tons. Total lithium battery output is expected to grow by 7% month-on-month to 288.9 GWh, with ternary batteries up 8% to 48.2 GWh, LFP batteries up 7% to 232.1 GWh, and other batteries down 8% to 8.6 GWh. According to the CPCA, total domestic passenger car retail sales in July were about 1.52 million units, with NEV sales reaching 980,000 units, pushing the market penetration rate to a record 64.5%. On the energy storage side, as of the end of June 2026, China's cumulative installed capacity of electric energy storage projects reached 237.2 GW, up 41.4% year-on-year. New-type energy storage accounted for 168.2 GW, over 70% of the total. New installations were 21.64 GW / 58.20 GWh, with steadily increasing storage duration, rapid iteration of technology routes, and continuous expansion of application scenarios.
3. Inventories. Large-sample weekly inventories decreased by 6,449 tons to 107,877 tons. Small-sample inventories decreased by 3,324 tons to 83,587 tons. Based on the large-sample data, inventories in other links decreased by 4,285 tons to 46,042 tons. Smelter inventories increased by 1,051 tons to 14,342 tons. Downstream inventories decreased by 3,215 tons to 47,493 tons.
4. Outlook. The current contradiction is that despite continuous inventory drawdowns, there is no sign of scarcity. On a weekly basis, affected by upstream maintenance and production cuts, weekly output continues to decline, and the pace of weekly inventory destocking is accelerating. However, based on spot transaction prices, although the basis has strengthened compared to earlier, the center of transaction prices remains weak. Furthermore, warrant levels are not low after concentrated cancellations. Overall, spot market performance currently cannot provide positive feedback for prices. Ongoing monitoring of spot market support for prices is recommended. Looking at the preliminary production schedules for August, lithium carbonate output is expected to increase relatively quickly, by 7% month-on-month. Spodumene-based production shows the most obvious increase, followed by lepidolite-based production, likely influenced by imports arriving at ports and project restarts. On the demand side, according to various institutions, cathode material production schedules are expected to increase by approximately 3-5% month-on-month, while battery production schedules are expected to increase by 7-9% month-on-month. This divergence may be influenced by cathode material capacity additions and battery consumption taxes. However, it is relatively certain that the pace of inventory destocking will gradually slow down going forward.
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