Copper: Fear of Stagflation Clashes with Supply Shortages, Prices Remain at a High-Level Impasse
1. Macroeconomics. The US macro data for August continued the "slowing growth, stubborn inflation" stagflationary backdrop. The final Q2 GDP reading confirmed 1.48% quarterly growth, down from Q1's 2.1%; July core PCE rose 3.3% year-on-year, meeting expectations but still far from the 2% target. Personal income grew 0.4% month-on-month, and spending grew 0.2%, both exceeding forecasts. Durable goods orders jumped 1.07% month-on-month, well above the 0.5% estimate and up 11.95% year-on-year. However, the August S&P Global manufacturing PMI fell to 53.2 from 53.9, while the services PMI rose to 56.8, pushing the composite PMI to 56.0, its highest since April 2022.
Regarding the Fed, the hawkish stance of new Fed Chair Warsh at the Jackson Hole symposium quickly revived expectations for a September rate hike, though he gave no explicit guidance, leaving the upcoming FOMC meeting as the biggest source of uncertainty. On the geopolitical front, August saw the most subtle signs of de-escalation in the US-Iran standoff, but the issue of navigation through the Strait of Hormuz remains unresolved. In China, the official July manufacturing PMI came in at 49.2%, staying below the contraction threshold for a second month. A faster pace of fiscal spending and bond usage in H2 could lead to marginal improvements in demand expectations.
2. Fundamentals. In copper concentrate, domestic TC quotes continued to fall to historically extreme lows, indicating that the tightness in concentrate supply remains unresolved and continues to be a major support factor for the market. For refined copper, August output is estimated at 1,139,200 tons, up 1.1% month-on-month but down 2.76% year-on-year. While production remains high, it also highlights the constraints imposed by the concentrate shortage. On imports, July saw net refined copper imports rise 13.21% year-on-year to 244,700 tons, though cumulative imports are down 10.07%. July copper scrap imports were 219,100 metal tons, up 15.29% year-on-year, with cumulative imports up 9.37%.
Looking at inventories, global visible copper stocks increased by 17,000 tons to 1,066,000 tons by August 28th compared to the end of July. This included a 15,575-ton decrease in LME stocks to 234,275 tons, a 33,988-ton increase in Comex stocks to 683,691 tons, a 2,400-ton decrease in Chinese domestic social inventories of refined copper to 109,500 tons, and a 1,400-ton increase in bonded zone stocks to 38,500 tons. On the demand side, companies remain cautious about restocking at high prices, but due to tight spot supply, spot premiums persist.
3. Outlook. In September, copper prices are likely to experience high-level, wide-range fluctuations. The simultaneous presence of macroeconomic pressures and fundamental support increases the difficulty of predicting direction, suggesting that range-bound trading is the advisable strategy. First, the hawkish stance from Fed Chair Warsh at Jackson Hole has seen market expectations for a September rate hike climb from 35% to around 60%, and this resurgence of rate hike expectations itself creates systematic pressure on risk asset valuations. Second, there's the uncertainty surrounding tariff policy. The "90-day presidential decision period" is nearing its end, but the final plan remains unresolved, creating a pricing dilemma as the market can neither fully price in the benefits of tariffs being implemented nor rule out the downside if they fall short of expectations. This forces both bulls and bears to hold back, creating a stalemate.
Finally, as TC fees continue to decline, the focus returns to the shortage at the mine stage and its impact on refined copper supply. This supply-side tightness cannot be reversed in September, and the decline in LME and domestic inventories further underscores the supply squeeze. The potential for restocking within the industry's low inventory environment should not be underestimated. Overall, while macro pressure will significantly influence market rhythm and investor psychology in September, it's unlikely to reverse the underlying trend. The more probable outcome is "high-level wide fluctuations with limited pullbacks, requiring a catalyst for a breakout." Additionally, the National Day holiday at the end of September presents another consideration, as pre-holiday restocking coincides with overseas risks, tempering investor sentiment. Key risks include a greater-than-expected Fed rate hike in September, US copper tariff policies falling short of expectations, and significant volatility in US stocks.
Nickel & Stainless Steel: Macro-Driven Volatility, Focus on Quotas and Costs
1. Supply. The weekly premium for 1.6% nickel ore remained steady at $1.5/wet ton, and the plant-gate price for 1.2% nickel ore stayed at $28/wet ton, with 1.6% ore at $65.8/wet ton. For nickel pig iron, weekly inventories increased by 10% to 111,900 nickel tons. The discount coefficient for MHP weakened, while its average spot price saw a slight increase this week; the coefficient for high-grade matte remained steady, with a slight increase in its average spot price.
2. Demand. In the new energy vehicle sector, weekly output of ternary materials increased by 377 tons to 21,002 tons, with weekly inventories up 240 tons to 21,741 tons. According to the CPCA, from August 1st-23rd, national retail sales of new energy passenger vehicles totaled 614,000 units, a 12% decrease compared to the same period last year and a 2% decrease from the previous month. Cumulative retail sales for the year stand at 6.283 million units, down 12% year-on-year. During the same period, wholesale shipments of new energy passenger vehicles reached 714,000 units, a 5% increase year-on-year and a 4% increase month-on-month, with cumulative wholesale volume for the year at 8.962 million units, up 7% year-on-year.
3. Inventories. Over the week, LME nickel inventories decreased by 126 tons to 268,362 tons; SHFE nickel inventories fell by 150 tons to 112,127 tons; social inventories decreased by 950 tons to 130,292 tons; bonded zone inventories remained steady at 1,400 tons.
4. Outlook. On the news front, the application period for the 2025 RKAB amendments is from October 1st to November 15th. Currently, some mining companies are still awaiting approval for their 2026 RKAB amendments, which were submitted between July 1st and 31st. The Ministry of Energy and Mineral Resources has stated it has begun approving 2026 RKAB amendments for coal and nickel. Director General of Minerals and Coal, Tri Winarno, mentioned that around a dozen nickel and coal companies have received approval for their 2026 RKAB amendments but declined to disclose the specific production quota amounts. Furthermore, Tri has indicated a requirement for miners to submit tax compliance certificates with their RKAB applications, targeting implementation by 2027. Meanwhile, according to SMM, due to low nickel prices and significant cost pressures, an Indonesian HPAL project may reduce its MHP output by approximately 30% in September. With the potential for further quota releases, a rapid recent drop in sulfur prices, potential supply increases, and lower theoretical cost support, nickel prices may continue to face downward pressure.
Aluminium: Marginal Support, Awaiting Peak-Season Demand Validation
In August, alumina futures traded with a firm bias, with the main contract closing at 2,648 yuan/ton as of the 28th, a monthly gain of 1%. Shanghai aluminium also trended higher, with the monthly main contract closing at 23,920 yuan/ton, up 1.2% for the month. The main aluminium alloy contract ended the month flat at 23,215 yuan/ton.
1. Supply. According to SMM, domestic metallurgical-grade alumina operating capacity is expected to rise to 87.6 million tons in August, with output of 7.53 million tons, up 1% month-on-month but down 2.6% year-on-year. Maintenance-related capacity in Guizhou and Henan is resuming production, a new project in Guangxi is ramping up, and overseas, EGA's Al Taweelah alumina refinery has restarted, with capacity already back to 50%. Domestic electrolytic aluminium operating capacity is expected to remain stable at 44.3 million tons in August, with output of 3.9 million tons, up 0.6% month-on-month and 2.7% year-on-year. The aluminium liquid ratio has recovered to 78.5%. At the Al Taweelah smelter in the UAE, 25% of its 1,262 pots have been restarted, suggesting production resumption is proceeding faster than initially expected.
2. Demand. The impact of the downstream off-season is deepening. The average operating rate of downstream aluminium processors in August was 60.1%, a 1.9 percentage point decrease from July. This included declines in aluminium plate/sheet at 69.08% (down 0.68 ppts), foil at 70.38% (down 1.02 ppts), profiles at 51.16% (down 2.36 ppts), and wire/cable at 62.36% (down 4.16 ppts). The operating rate for recycled aluminium alloys also fell 2.02 ppts to 49.46%. Processing fees for aluminium rods decreased across the board by 60-180 yuan/ton, and fees for aluminium wire dropped by 50-200 yuan/ton.
3. Inventories. At the exchange level in August, alumina inventories decreased by 277 tons to 137,600 tons; SHFE aluminium stocks fell by 51,300 tons to 403,800 tons; and LME stocks dropped by 14,100 tons to 246,800 tons. For social inventories, alumina port stocks increased by 91,000 tons to 1.036 million tons. Monthly aluminium ingot social inventories drew down by 101,000 tons to 852,000 tons, while aluminium rod inventories accumulated by 20,000 tons to 139,500 tons.
4. Outlook. The earlier sentiment premium supporting alumina prices has largely dissipated, and warehouse warrants are accumulating again. In September, the launch of new capacity and restart of maintenance lines will add further supply pressure in the near term. However, with seasonal declines in shipments from Guinea and high imported ore costs, expectations for production cuts under loss-making pressure are rising. After a deep decline, prices show signs of bottoming and may see a narrow recovery supported by costs. For electrolytic aluminium, the upcoming September Fed meeting continues to introduce volatility into the macro sentiment. With the upcoming Southern Grid tenders expected to land in batches and pre-holiday restocking demand ahead of the National Day break, downstream pickup demand and resumption of operations should gradually improve. Aluminium prices are expected to have room for an upward correction in September. However, given the noticeable slowdown in the pace of inventory drawdowns domestically and globally, whether prices can achieve a breakthrough rally will depend on how demand materializes in the upcoming peak season.
Industrial Silicon & Polysilicon: Diverging Expectations, Range-Bound Volatility Ahead
In August, industrial silicon futures moved higher, with the main contract closing at 8,785 yuan/ton as of the 28th, a monthly increase of 7.53%. Polysilicon futures also trended up, with the main contract closing the month at 37,605 yuan/ton, a gain of 13.82%. Spot prices showed modest increases: non-oxygenated 553 grade silicon rose 100 yuan/ton to 8,900 yuan/ton; oxygenated 553 held steady at 9,000 yuan/ton; and 421 grade rose 150 yuan/ton to 9,550 yuan/ton. For polysilicon, N-type material prices increased by 8,500 yuan/ton to 40,000 yuan/ton, and N-type blended material rose 9,500 yuan/ton to 39,250 yuan/ton.
1. Supply. According to Baichuan, domestic industrial silicon output is estimated at 353,400 tons for August, a 4.9% month-on-month decrease and 4.6% year-on-year decrease. The number of operating furnaces dropped by 23 to 227, lowering the operating rate by 2.89 percentage points to 28.52%. In the Northwest, Xinjiang added 3 furnaces to reach 120, but Gansu shut down 9 and Ningxia shut down 3, bringing the Northwest's total to 145 active furnaces. In the Southwest, Yunnan added 2 furnaces, while Sichuan shut down 7, resulting in 64 active furnaces. In other regions, Inner Mongolia shut down 9 furnaces.
2. Demand. Domestic polysilicon output in August was 118,200 tons, up 13% month-on-month but down 5.6% year-on-year. DMC production in August was 185,000 tons, up 6.7% month-on-month and down 15.8% year-on-year. Most polysilicon manufacturers continue to hold back from quoting, waiting for policy outcomes and industry requirements. Downstream silicon wafer prices and production schedules have seen slight improvements, leading to a modest increase in upstream purchasing demand, though not yet on a large scale. Monomer plants are seeing marginal production increases, and downstream inquiry and purchasing activity has improved somewhat, driven by pre-peak-season restocking sentiment. However, significant restocking hasn't yet occurred, and buyers remain resistant to high-priced material.
3. Inventories. On the exchange side, industrial silicon inventories increased by 6,365 tons to 167,800 tons in August, while polysilicon inventories grew by 7,500 tons to 69,800 tons. For social inventories, industrial silicon total stocks increased by 23,700 tons to 547,800 tons in August. This included a rise of 16,500 tons in producer inventories to 333,100 tons; Huangpu port stocks were stable at 65,000 tons; Tianjin port stocks rose by 7,000 tons to 93,000 tons; and Kunming port stocks increased by 200 tons to 56,700 tons. Polysilicon producer inventories accumulated by 33,000 tons in August to reach 309,000 tons.
4. Outlook. In August, some manufacturers in the Southwest were forced to halt production due to losses. Towards the end of the month, news of production cuts from a major Xinjiang producer circulated, leading many companies to adopt a strategy of refusing to quote or partially quoting to support prices. However, futures arbitrageurs were reluctant to buy, downstream purchasing interest was low, and producer inventories continued to build. September may see a real contraction in supply and a narrow recovery for industrial silicon, but caution is needed as the market may shift from pricing in expectations to pricing in reality once production cuts are confirmed. Polysilicon producers remain in a wait-and-see mode, while arbitrageurs are relatively active. Significant price gaps exist between freely traded material and the high-priced orders from major producers. Downstream is not actively restocking, still awaiting policy implementation and clearer market trends. There is potential for marginal supply increases in September, especially as actual transaction prices for battery cells and modules have already started to decline. If this negative feedback loops back to the polysilicon segment, it will test the effectiveness of the current price support strategy. Polysilicon is expected to continue its fluctuating battle, with attention on the outcomes of meetings scheduled in September, whether spot transaction volumes can continue to expand, and if downstream prices can stabilize.
Lithium Carbonate: Supply Disruptions Lower Growth Forecasts, Focus on Spot Support in the Short Term
1. Supply. Weekly production increased by 801 tons to 23,808 tons. This included a rise of 234 tons in spodumene-based output to 12,490 tons, a decrease of 150 tons in lepidolite-based output to 2,612 tons, an increase of 835 tons in salt lake output to 5,646 tons, and a decrease of 118 tons in recycled material output to 3,060 tons.
2. Demand. For upstream materials, weekly production of ternary materials increased by 377 tons to 21,002 tons, with inventories up 240 tons to 21,741 tons. Lithium iron phosphate production rose by 3,298 tons week-on-week to 130,280 tons, with inventories decreasing by 1,249 tons to 133,508 tons. Based on a monthly survey of 38 major battery companies and their supply chains, and cross-calculating with September production plans and orders on hand, DDT Think Tank projects China's total lithium battery market output (storage + EV + consumer) for September to be around 332 GWh, a 9.2% month-on-month increase. This includes 110.2 GWh from Battery Maker A, 40.9 GWh from Battery Maker B, and 18.9 GWh from Battery Maker C. For September 2026, global production of EV, storage, and consumer batteries is estimated at around 346 GWh, an increase of 9.1% month-on-month.
Looking at the vehicle sector, according to the CPCA, from August 1st-23rd, retail sales of new energy passenger vehicles totaled 614,000 units, down 12% year-on-year and 2% month-on-month, with cumulative retail sales of 6.283 million units. Wholesale shipments during the same period were 714,000 units, up 5% year-on-year and 4% month-on-month, bringing cumulative wholesale volume to 8.962 million units, a 7% increase. For the storage sector, incomplete statistics from CNESA DataLink show China's cumulative installed power storage capacity reached 237.7 GW as of the end of June 2026, a 41.7% increase year-on-year. Within this, new-type storage accounts for 168.3 GW / 448.7 GWh, up 59%/71% year-on-year and 15% from the end of 2025.
3. Inventories. In the broad-sample weekly data, lithium carbonate inventories fell by 7,590 tons to 78,802 tons. This included a decrease of 1,815 tons in other segments to 37,577 tons, a reduction of 1,358 tons in smelter inventories to 10,128 tons, and a drop of 4,417 tons in downstream inventories to 31,098 tons.
4. Outlook. Weekly production saw a slight increase, inventory drawdowns accelerated somewhat, and apparent weekly demand rose by 2% week-on-week. The spot basis remains slightly firm, but warehouse warrants continue to flow in. On the supply side, with shipments from Zimbabwe arriving at ports and the resumption of previously halted or maintenance capacity, supply could potentially increase by around 10%. As demand enters the "Golden September, Silver October" peak season, cathode material production schedules are expected to grow 5-6% month-on-month. This suggests a supply-demand deficit of around 25,000 tons in September, continuing the relatively rapid pace of inventory destocking, though the marginal rate of drawdown may begin to slow. Supply-side disruptions have been frequent recently, effectively leading the market to revise down its supply forecasts for H2. In September, the key question is whether the spot market can demonstrate a physical shortage given the ongoing destocking, which would provide strong support and positive feedback for futures prices. If the spot market response proves weak, the upside for near-term prices may be limited. Additionally, from September onwards, participants should be wary of supply releases from concentrated port arrivals, as a slowdown in marginal destocking could weigh on market sentiment. For H2, monitor supply-side factors such as policy in Zimbabwe and the status of Jiangxi lithium mine permits, and track demand through installation rates and export data.
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