Industrial metals are experiencing upward momentum driven by both financial and commodity factors. The Federal Reserve has initiated an interest rate cut cycle, while global copper and aluminum inventories remain at relatively low levels. China's economic recovery and the new energy sector's growth are expected to boost demand for these metals.
**Copper: Structural Bull Market Takes Off** Chile's Codelco has significantly raised its 2026 CIF China copper benchmark price to $350/ton from $89/ton in 2025, marking a historic high. Chile's copper production growth remains sluggish, with only a 0.1% increase to 5.51 million tons in 2025 and a projected 2.5% rise to 5.6 million tons in 2026. The market has accepted Codelco's premium, reflecting expectations of U.S. copper tariffs. COMEX copper continues to trade at a premium over LME, incentivizing traders to redirect refined copper to the U.S., tightening supply elsewhere. Global copper inventories show COMEX at 440,000 tons, LME at 160,000 tons, and SHFE + bonded warehouses at 180,000 tons. The LME curve has shifted from contango to backwardation in just two weeks, signaling a squeeze. With the COMEX-LME spread persisting, further price upside is likely.
**Aluminum: Tight Supply Paves the Way for Gains** The global aluminum market is precariously balanced, with supply already maxed out. China's operating capacity is near its limit at 44.5 million tons, while Europe's 3.36 million tons of capacity faces energy competition risks. This fragility is squeezing out short sellers, making upward price movement the path of least resistance. Although bauxite and alumina are oversupplied, aluminum producers stand to benefit from improved margins.
**Price Movements** - **Copper**: LME copper rose 4.4% to $11,665/ton, while SHFE copper gained 6.1% to ¥92,800/ton. Combined inventories fell 2.3% to 251,500 tons. - **Aluminum**: LME aluminum edged up 1.2% to $2,901/ton; SHFE aluminum climbed 3.4% to ¥22,000/ton. Chinese inventories held steady at 595,000 tons.
**Supply-Demand Dynamics** - **Copper**: Smelter-capacity cuts loom as annual TC/RC negotiations stall. Chile’s record-high premiums may slash imports, exacerbating non-U.S. supply tightness. High prices are dampening demand outside fixed needs, though new energy sectors (e.g., data centers) provide support. - **Aluminum**: Oxidized alumina supply tightened temporarily due to maintenance in Shanxi. Operating rates dipped to 82.71%. Downstream, aluminum rod production cuts in Inner Mongolia and Xinjiang offset steady sheet demand.
**Macro Drivers** The dollar’s prolonged decline and weak U.S. ADP jobs data reinforced Fed rate-cut expectations. Geopolitical tensions, including U.S.-Colombia friction, bolstered safe-haven demand for gold and silver.
**Risks** 1. **Global recession**: A sharp downturn could cripple metal demand. 2. **U.S. inflation**: Uncontrolled price growth may force aggressive Fed tightening, pressuring dollar-denominated metals. 3. **China’s property slump**: Persistent weak sales threaten construction-related metal consumption.
*Note: This analysis is for informational purposes only and does not constitute investment advice.*
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