SMM: Copper prices may surge again in Q4 amid macro recovery & ore supply tightness, while the tight balance of supply and demand will support aluminum prices to fluctuate upward throughout the year

On June 20, at the 2025 SMM (4th) Electric Drive System Conference & Drive Motor Industry Forum - Main Forum, jointly hosted by SMM Information & Technology Co., Ltd., Hunan Hongwang New Material Technology Co., Ltd., Louxing District People's Government, and the National-level Loudi Economic and Technological Development Zone, Ye Jianhua, GM of SMM's Industry Research Department, delivered a speech on "Price and Cost Analysis of Electric Drive Metal Materials."

Macro - Unpredictable and Complex

Chinese and US senior officials held the second round of talks in London, with the market awaiting the outcomes of the new round of talks.

►SMM Analysis

Ø On May 12, substantive progress was made in the China-US economic and trade talks in Geneva, and a joint statement was issued. The content of the trade agreement exceeded market expectations, alleviating the market's previous tension. Additionally, negotiations between the US and countries such as India and Japan are currently showing a mild momentum, which is conducive to the global economic recovery and has boosted copper prices.

Ø On the evening of June 5, President Xi Jinping had a scheduled phone call with US President Donald Trump.

Ø On June 9, Chinese and US senior officials held the second round of talks in London. The market expects a short-term easing of trade tensions. Currently, the first round of talks has concluded, with the US releasing positive signals and China temporarily avoiding over-exerting its leverage, both leaving room for subsequent negotiations.

The manufacturing PMIs of major global economies are below 50. Affected by geopolitical conflicts and US tariff policies, the decline in the copper/gold ratio indicates strong market risk aversion sentiment.

He analyzed the trends of the manufacturing PMIs of major global economies, US CPI, copper/gold ratio, LME copper, and the US dollar index.

The "Stagnation," "Inflation," and "Recession" in the US economy are disrupting global asset prices.

He analyzed the US long-term and short-term Treasury bond yields, the previous value of the change in US non-farm payrolls, the University of Michigan Consumer Sentiment Index, the University of Michigan Consumer Current Conditions Index, the University of Michigan Consumer Expectations Index, the US: Markit: Manufacturing PMI (Final), and the US: Markit: Services PMI: Business Activity (Final).

Major European economic indicators have started to improve, and large-scale infrastructure investment funds have been established to boost the economy.

He introduced the situation from the perspectives of the gradual reduction in eurozone interest rates and the slowdown in the decline of construction and retail confidence in the eurozone.

The domestic consumer market needs further stimulation, the export market will face greater challenges, and local government bond issuance is relatively fast.

He interpreted the data changes from China's export situation, consumer confidence, the continued growth of household savings, the monthly total issuance of local government bonds, the inventory area, commencement area, and completion area of the real estate industry.

Copper and Aluminum Supply

The increase in global major copper mines primarily comes from expansion projects

It elaborates on the expected increments of new expansions & newly commissioned projects of global major copper mines from 2020-2030, among other contents.

The rapid expansion of global copper smelter capacity makes it difficult to change the tight raw material situation

Domestically, the growth rate of refining capacity will still be higher than that of smelting capacity in the future, theoretically creating a gap that needs to be filled by copper anode and copper scrap.

Overseas, although there will be expansions in anode copper capacity in the future, fundamentally, it is a transfer of copper concentrate raw materials. Due to the interference of copper concentrate raw material shortages, it is difficult to achieve the goal of increasing smelting capacity, which may lead to a decline in global smelting production and an expansion of the actual gap with refining capacity.

The shortage of copper concentrates intensifies, and the deterioration of the supply-demand structure in the short term is difficult to reverse

It conducted an analysis based on the expected global copper concentrate supply-demand balance results from 2021-2030 (including supply and demand side interference rates), the annual long-term contract benchmark TC for copper concentrates, and a comparison of the advantages of copper smelting raw materials.

Under the tight supply of copper concentrates, processing fees continue to decline, and smelter losses expand

It conducted an analysis based on the SMM import copper concentrate TC index, regional sulphuric acid prices, estimates of the consumable amount of copper concentrates by Chinese copper smelters, and the SAVANT global dispersion index for copper.

The LC price spread widened again in late April, with some imported B/Ls being re-exported to the US

The LC price spread widened again in late April, with the US continuing to attract supply. The supply gap in Chile and logistical issues in the DRC will continue to push up China's spot premium. A large number of LME Asian warrants were canceled, supporting the LME backwardation structure.

The expectation of tight supply is being realized, and the risk of copper futures squeeze increases

Entering May 2025, global visible inventory further declined, and the available days of global copper cathode continued to decrease. The market's borrowing funds were strong, and under the risk of a squeeze, copper prices on both SHFE and LME may rise in stages.

Aluminum cost narrowly pulled back in May, with mixed performance in cost breakdown in June

According to SMM data, the average tax-inclusive full cost of China's aluminum industry in May 2025 was 16,333 yuan/mt, down 0.3% MoM and 5.1% YoY. During the period, disturbances in the bauxite sector in mid-May boosted alumina futures prices rapidly, with a slight delay in spot price increases. Moreover, alumina spot prices trended lower in the first half and higher in the second half of the month, resulting in limited growth in the monthly average alumina price in May. It is expected that the monthly average price will increase significantly in June.

►SMM Analysis

Entering June 2025, the upward momentum of the monthly average alumina price still exists; auxiliary material costs are weakening; electricity costs are declining. Overall, the aluminum cost may show a slight pullback trend.

Overall, SMM expects the average tax-inclusive full cost of China's domestic primary aluminum industry to be around 16,000-16,300 yuan/mt in June 2025.

In June, the proportion of liquid aluminum continued to rise, and there was no news of new capacity coming online as planned.

According to SMM statistics, China's primary aluminum production in May 2025 (31 days) increased 2.7% YoY and 3.4% MoM. The proportion of liquid aluminum in domestic aluminum smelters rose significantly in May, increasing 1.48 percentage points MoM to 75.5% this month. This was mainly due to reduced casting ingot volumes and increased liquid aluminum proportions at enterprises in multiple northern regions. It is expected that the proportion will remain at highs in the future. Based on SMM's data on the proportion of liquid aluminum, China's primary aluminum casting ingot volumes in May decreased 6.15% YoY to around 913,000 mt.

►SMM Analysis

Entering June 2025, China's operating capacity of primary aluminum remained at highs. Considering the progress of remaining new or replacement projects this year, there is no expectation of new capacity coming online in the short term. Additionally, the rising proportion of liquid aluminum may become a significant factor affecting the spot aluminum market. Currently, aluminum smelters in multiple northern regions are increasing the proportion of liquid aluminum and reducing casting ingot volumes, which may affect arrivals in mainstream regions in the future.

In the future, it is still necessary to monitor the trend of changes in the proportion of liquid aluminum in primary aluminum, as well as the inventory and demand for alloyed products.

Social inventory destocking supports aluminum prices

According to SMM statistics, China's social inventory of primary aluminum was 477,000 mt on June 9, destocking 27,000 mt from last Thursday. The social inventory of aluminum billet was 129,500 mt, destocking 500 mt from last Thursday.

►SMM Analysis

Looking ahead, supported by low arrivals in the short term, inventory is expected to maintain a destocking trend and break through the 500,000 mt threshold, remaining at historically low levels. However, if downstream operating rates weaken during the off-season and demand growth cannot keep pace with supply recovery, the destocking speed will significantly slow down. Close monitoring and verification are needed to further determine the period when domestic aluminum ingot inventory transitions to buildup during the off-season. It is temporarily expected that the inventory buildup turning point may be delayed until late June or early July.

Demand: Terminal demand structure shows differentiation

Although trade dependence on the US is declining, the US remains China's largest single trading partner.

Asia is China's main export market for copper semis, which is vulnerable to US coercion. Copper scrap imports from the US will significantly decrease in 2025.

In 2024, copper semis exports to the North American market were 60,000 mt, accounting for 7.4% of total exports. In 2024, nearly 20% of China's copper scrap imports came from the US.

Operating rates of aluminum processing enterprises: Entering the traditional off-season, operating rates of aluminum processing enterprises pull back

►Plate/sheet, strip and foil

• For aluminum plate/sheet and strip, a weak and volatile pattern is expected to continue in June. Currently, export orders are moderate. Domestic promotional activities such as 618 have driven the de-stocking of end-use product inventories, which may subsequently stimulate terminal purchasing demand and indirectly benefit the operating rate of aluminum plate/sheet and strip. However, as the industry enters the traditional off-season, the increase in downstream demand is limited, making it difficult to offset the impact of the overall decline in demand.

• For aluminum foil, the market is expected to remain in the doldrums in June, but there will still be growth in some niche segments. Air-conditioner foil and beverage packaging foil (such as container foil) may benefit from increased consumption during the hot season, driving a slight increase in the operating rate at the beginning of the month. In terms of exports, the easing of tariff barriers between China and the US may stimulate concentrated shipments in the home appliance and electronics sectors, creating a window for recovery for export-oriented products such as double-zero packaging foil.

► Construction Aluminum Extrusion

• Entering June, leading building material enterprises in central China reported that, except for a small portion of stable customers, new orders across various building material segments were weak. Orders from infrastructure, doors and windows, and dealers may decline to varying degrees.

► Industrial Aluminum Extrusion

• Entering June, due to the low purchasing sentiment of downstream component manufacturers, enterprises are relatively pessimistic about the production schedule for components in June. However, according to the SMM survey, some manufacturers in Anhui are steadily ramping up their newly invested capacity, which is expected to reach full production in H2. Meanwhile, according to the SMM survey, some small and medium-sized enterprises in Anhui and Henan reported that their PV production lines are gradually exiting the market, with only orders from some long-established customers being retained. The operating rate of PV frames may remain low in June. Regarding automotive extrusion, although some enterprises in east and south China reported that some OEMs have indicated that the forecasted demand for June will increase, enterprises believe there will be deviations between actual demand and the forecasted values, and they will not increase production for the time being.

► Aluminum Wire and Cable

• At the beginning of June, the industry's operating rate showed a divergent trend. Leading enterprises, with reasonable production scheduling based on orders on hand, experienced a MoM decline in the operating rate but still demonstrated strong resilience, maintaining a relatively high level. Small and medium-sized enterprises, however, showed a significant weakening in operating performance due to the end of the previous intensive delivery period and the suppressed production willingness caused by the rebound in the center of raw aluminum prices. Recently, State Grid launched the third batch of tenders for power transmission and transformation projects. However, the market is currently in a lull between the end of previous order deliveries and the large-scale delivery of new orders. Market orders are showing a divergent and weakening trend. Except for some State Grid orders still being delivered, there is a downward trend in demand for new orders for overhead lines and PV in some provinces, making it difficult to form a strong boost for immediate operating rates.

Aluminum Semis Exports Increased 2.4% MoM in May, with Further Growth Expected

According to data from the General Administration of Customs, China's exports of unwrought aluminum and aluminum semis reached 547,000 mt in May 2025, up 5.60% MoM and down 3.19% YoY. From January to May, cumulative exports reached 2.431 million mt, down 5.1% YoY.

►SMM Analysis

According to the SMM survey, there was no significant increase in aluminum extrusion exports, and the industry as a whole continued to experience a situation with many inquiries but few actual transactions. However, the SMM survey also revealed that intensified domestic market competition is forcing enterprises to increase their efforts in exploring overseas markets. Despite the market's wait-and-see attitude, some industrial material enterprises in north China reported a small number of new orders from countries such as South Korea, Switzerland, Turkey, and Pakistan during the month, with their products mainly exported as customized semi-finished products. In terms of building materials, some enterprises in south China, east China, and north China reported stable demand for curtain walls and doors and windows in Southeast Asia, supporting export volumes. Meanwhile, some enterprises in east China reported that their in-plant inventory included export orders that had not yet been shipped, which is expected to support aluminum extrusion exports in June. Regarding wheel hubs, according to feedback from SMM's surveyed clients, since 70% of the world's aluminum alloy wheel hubs are manufactured in China, foreign customers find it difficult to find sufficient alternatives, and export orders in May maintained a steady and slight increase. In the short term, aluminum semis exports are expected to continue growing.

The State Grid Corporation of China plans to invest over 650 billion yuan in 2025, representing a YoY increase of over 7% compared to the actual investment in 2024.

The construction industry is still in a negative growth trend and has not yet been able to provide positive feedback for copper and aluminum consumption.

After comparing the data changes in recent years, including commercial housing sales, sources of real estate development funding, performance of construction and completion areas in the real estate sector, and changes in retail sales of building and decoration materials, it can be observed that the negative growth in construction and real estate-related data has narrowed.

The impact of tariffs on the home appliance industry is becoming increasingly evident.

►SMM Analysis:

ØThe operating rate of copper pipe & tube production in May declined both YoY and MoM, but the actual operating rate was higher than expected, mainly due to the gradual recovery of North American terminal orders that had previously stalled after the Sino-US tariff negotiations.

ØIn June, the actual domestic sales production schedule for household air conditioners increased by 29.3% YoY, while the actual exports decreased by 18.3% YoY. The export schedule dragged down the operating rate of copper pipe & tube production. It is estimated that the operating rate in June will be 80.22%, down 1.54 percentage points MoM and up 3.45 percentage points YoY.

ØWith the arrival of the off-season, the operating rates of domestic sales production schedules and copper pipe & tube factories primarily focused on domestic sales will seasonally decline. There are also no high expectations for export demand. It is expected that the operating rate of copper pipe & tube production will gradually decline in the future market.

Demand: New energy remains the main growth driver for aluminum consumption, but the growth rate is slowing down.

In the end-use consumption of aluminum, the construction, transportation, and power electronics industries account for nearly 70% of the total consumption. In recent years, with the downturn in the real estate sector and the rapid development of the new energy industry, the proportion of aluminum consumption in the new energy sector has continued to increase, providing a new consumption engine for domestic aluminum consumption.

►SMM Analysis

2024 is a year when domestic aluminum consumption in China continues to tilt towards the new energy industry. Global PV installations and NEV penetration rates are expected to grow, driving an increase in aluminum usage in the power and transportation sectors, offsetting the decline in aluminum usage in traditional industries such as construction. In 2024, the total aluminum usage in the power electronics and transportation sectors in China is up 7.5% YoY, accounting for 46.3% of the total domestic aluminum consumption. In 2025, the total aluminum usage in these two sectors is expected to grow by 4%, providing a new engine for domestic aluminum consumption.

Taking into account the aluminum usage in other sectors, SMM expects that the domestic primary aluminum consumption in 2025 will be up 1.5% YoY, with the growth in power electronics and transportation sectors leading the way.

In the medium and long-term, the new energy industry remains one of the main drivers of global copper consumption growth

It analyzed the changes in global NEV production from 2022-2030E and the development trends of global new energy copper consumption.

Global Copper Cathode Balance and Price Forecast

►SMM Analysis

ØIn 2025Q1, before the Trump tariffs were implemented, market risk sentiment increased, especially the expectations for copper tariffs, which boosted COMEX copper, causing the LME-CME price spread to widen significantly and remain at a high level, with the US siphoning off a large amount of copper. Additionally, since December, US economic data has been positive, inflation expectations have risen, and commodities have generally stabilized and rebounded. At the beginning of the year, favorable policies were introduced domestically, and macro sentiment was positive, benefiting copper prices. Fundamentally, the widening ore supply deficit and expectations for reduced copper cathode supply also contributed to the rise in copper prices.

ØIn 2025Q2, after the US reciprocal tariffs were implemented, China's countermeasures intensified, and the tariff storm, coupled with weakening US economic data, led to market trading on the expectation of economic damage from tariffs. As a barometer of the global economy, copper prices plummeted. Subsequently, various favorable policies may be introduced domestically to boost domestic demand, and Sino-US negotiations could ease the trade war. Supported by fundamentals (accelerated destocking of copper outside the US, low global inventory levels, and expectations of a squeeze under a strong backwardation structure) and easing macro sentiment, the center of copper prices rebounded.

ØIn 2025Q3, amid expectations of smelter production cuts, the off-season for consumption, and the damage caused by earlier tariffs, there is a risk of inventory buildup. However, global inventories will still hover at low levels, and although there is some pressure on copper prices, the room for decline is limited.

ØIn 2025Q4, the effects of relatively loose fiscal policies in both China and the US begin to show, and expectations for global economic recovery gradually strengthen. The worsening situation at the mine end will leave smelters facing a raw material shortage, and global copper cathode production will further decline, with the center of copper prices expected to move upward again.

Supply-Demand Balance Table: Global supply and demand to shift to a small surplus in 2025, with demand entering a period of steady growth

►SMM Analysis

ØFrom a full-year perspective in 2025, the domestic supply side in China will gradually approach its ceiling, with new capacity coming online mainly in Q4. The annual production growth rate will narrow to around 1.9%. Meanwhile, the development of new energy and other sectors in China will continue to drive primary aluminum consumption. Demand for overseas export orders remains moderate, and the decline in aluminum consumption in the traditional construction sector in China is limited. SMM expects aluminum consumption in China to increase by approximately 2.4% YoY in 2025. Additionally, despite the trend of LME outperforming SHFE in aluminum prices, net imports this year have exceeded expectations and increased, partly offsetting the "ceiling" constraints. However, overall supply remains tight, coupled with a significant reduction in casting ingot volumes, leading to an upward shift in the aluminum price center throughout the year.

ØOutside of India, consumption growth in other overseas regions is not optimistic. However, with the commissioning of new projects in Southeast Asia, overseas supply and demand will shift to an inventory buildup pattern.

Key Points on Aluminum

►SMM Analysis

Entering June, the domestic macroeconomic environment in China is generally positive, but considering the time it takes for policies to be implemented, there has been no significant feedback from the industry yet. The negative impact of overseas trade wars still exists, and caution is needed regarding the influence of overseas macroeconomic uncertainties. On the fundamental side, the domestic aluminum market is characterized by a mix of bullish and bearish factors. On the supply side, aluminum production remains stable, with a notable recent reduction in casting ingot volumes, affecting the arrival of goods at major consumption centers. The unexpected destocking of social inventory has provided support for aluminum prices. On the demand side, the downstream sector has entered the traditional off-season, compounded by the impact of overconsumption in the PV sector, leading to a pessimistic market outlook on demand and insufficient upward momentum for aluminum prices. Currently, with a mix of bullish and bearish factors in the fundamentals, aluminum prices are expected to fluctuate considerably, with the monthly average price center around 20,150 yuan/mt. Continuous attention should be paid to the progress of tariff events, changes in aluminum ingot inventory, and changes in downstream orders.

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