Aluminum: China Exports Alleviate Overseas Tightness; Copper, Zinc, Nickel Diverge

Overview

This is JPMorgan's monthly base metal supply-demand tracking report. The core conclusion is 'China exports become the pressure relief valve alleviating aluminum supply tightness outside China'. The report details the latest supply-demand data, inventory changes, and trade flows for copper, aluminum, zinc, and nickel up to April-May 2026, and combines US tariff policy expectations and Chinese end-demand indicators to make differentiated judgments on the fundamental prospects of each variety. Overall, aluminum's marginal improvement is the most clear, copper shows a divergence of 'strong apparent, weak real' demand, while zinc and nickel face their respective demand weakness or supply surplus pressures.

Core views

Aluminum is the variety with the clearest marginal fundamental improvement. LME aluminum inventory continues to decline to 330,000 tons, while China's visible inventory remains at a multi-year high of approximately 1.4 million tons. As the arbitrage window for Chinese semi-finished aluminum exports to other Asian regions opens and remains at attractive levels, the report expects strong exports to accelerate domestic inventory drawdown in China. Over the past 6 weeks, SHFE and regional warehouses have only drawn down about 90,000 tons, but the pace of drawdown has accelerated since mid-May. On the supply side, China's electrolytic aluminum output in April increased by 3.4% year-on-year, with annualized operating capacity reaching 45 million tons, as high aluminum prices incentivize producers to produce near capacity limits. The risk lies in the potential interruption of bauxite exports from Guinea, which could constrain Chinese output (75% of China's bauxite imports come from Guinea), thereby affecting export policies and supply security. The copper market presents a significant divergence pattern of 'strong apparent consumption, weak end-demand'. China's apparent copper consumption in April increased by 9% year-on-year, mainly driven by supply chain restocking after previous buyer strikes, but JPMorgan's constructed consumption-weighted end-demand indicator decreased by 4% year-on-year (cumulative YTD increase of only 1.2%), reflecting the drag from slowing renewable energy installations and declining white goods production. Although grid investment, new energy vehicle production, and product exports still provide support, the structural weakness in end-demand cannot be ignored. Recently, copper prices have oscillated in the $13,500-$14,000/ton range, and the momentum of inventory drawdown in China has leveled off. On the policy level, the US Department of Commerce will submit recommendations to the President on whether further adjustments to Section 232 copper tariffs are needed by June 30. The report believes it is highly likely that tiered tariffs will be implemented (15% starting 2027, rising to 30% after one year), aiming to keep imported copper within the US as strategic reserves rather than encouraging short-term drawdown, which will continue to tighten non-US cathode copper supply. Zinc's fundamental contradiction focuses on 'tight raw materials, weak demand'. China's zinc concentrate imports in April decreased by nearly 10% year-on-year, and spot processing fees turned negative since the end of March, indicating that ore availability is beginning to tighten. However, relying on raw material inventory accumulated in the first quarter, refined zinc output in April still increased by 5% year-on-year. In the short term, raw material tightness has not yet transmitted to the output side, but if the ore market remains tight, the refined zinc balance may be tighter than expected. On the demand side, it is obviously sluggish: SHFE plus social warehouse inventory remains stable at a high level of 264,000 tons, galvanized operating rates are below the five-year average, construction activity is lifeless, and April apparent zinc demand decreased by 12% year-on-year. The nickel market faces dual pressure from inventory accumulation and policy uncertainty. Although LME inventory has slightly fallen back from the February peak, SHFE inventory continues to rise, and global visible inventory has increased by a net 70,000 tons YTD to approximately 470,000 tons. On the Indonesia side, higher ore benchmark prices will compress producer profits, which may suppress refined nickel output this year to some extent, but the market focus remains on whether additional Indonesia ore quotas will be added in the summer, which will be the key variable determining supply elasticity in the second half of the year.

Analysis framework

The report adopts a 'high-frequency supply-demand data tracking + cross-regional arbitrage analysis' framework, breaking down supply, demand, inventory, and trade flows dimension by dimension for each variety. Core methods include: constructing a 'consumption-weighted end-demand indicator' for China's copper demand to distinguish the deviation between apparent consumption and actual consumption; predicting the pace of China's inventory transfer to overseas by monitoring the openness of the arbitrage window for Chinese semi-finished aluminum exports to overseas; using changes in processing fees (TC) as a leading signal for ore tightness, combined with smelter raw material inventory cycles to judge the lag in output adjustments; and simultaneously introducing policy event calendars (such as US Section 232 tariff review nodes) to assess the medium-term impact of trade flow reconstruction on regional supply-demand balance. This multi-dimensional cross-verification method helps identify structural contradictions masked by single aggregate data.

Methodology notes

• Industry/Industrial Analysis FrameworkVolume-Price Split

  Distinguish apparent consumption from actual end demand

  Apparent consumption = production + net imports - inventory change, easily disturbed by restocking/drawdown; the end-demand indicator is constructed based on actual consumption weights of downstream industries. When the two diverge (e.g., copper apparent consumption +9% but end-demand -4% this period), it indicates that the inventory cycle rather than real demand dominates short-term data, and the misleading nature of apparent data needs to be guarded against.

• Industry/Industrial Analysis FrameworkUpstream-Midstream-Downstream Transmission

  Processing Fees (TC) as leading indicator for ore tightness

  When zinc concentrate spot TC turns negative, it indicates that miners' bargaining power strengthens and smelters' cost of obtaining raw materials rises. However, since smelters usually hold 1-3 months of raw material inventory, there is a time lag from TC deterioration to actual production cuts. Tracking the TC turning point can 提前 predict the direction of refined output adjustments in the next 1-2 quarters.

• Industry/Industrial Analysis FrameworkSupply-demand framework

  Cross-regional export arbitrage window drives inventory rebalancing

  When the price difference for exporting Chinese semi-finished aluminum to other Asian regions covers freight and tariffs and still yields profit, export arbitrage is triggered. This mechanism is the core channel for transferring China's high inventory to overseas low-inventory regions, and is also a key leading indicator for judging when LME inventory will stabilize and rebound.

Key data

• LME Aluminum Inventory330,000 tonsContinuously declining, reflecting supply tightness outside China
• China Visible Aluminum InventoryApprox. 1.4 million tonsStill at multi-year high, but drawdown accelerated since mid-May
• China Copper End-Demand Indicator (YoY April)-4%Cumulative YTD +1.2%, end-demand significantly weaker than apparent consumption
• China Copper Apparent Consumption (YoY April)+9%Driven by restocking after previous buyer strikes, diverging from actual demand
• China Zinc Concentrate Imports (YoY April)-10%Ore availability tightening, spot TC turned negative since end of March
• Global Visible Nickel Inventory (YTD Change)+70,000 tons to approx. 470,000 tonsSHFE accumulation offsets slight LME drawdown, overall surplus pattern unchanged
• China Electrolytic Aluminum Annualized Output (April)45 million tonsUp 3.4% YoY, high aluminum prices incentivize production near capacity limits
• China Grid Investment (YoY April)+9%Cumulative growth over 30% YTD, still an important support for copper demand

Impact & implications

For aluminum, increased Chinese exports mean overseas tightness is expected to gradually alleviate over the next few weeks, but the speed of alleviation depends on the sustainability of the export arbitrage window and whether the domestic drawdown pace can match. If Guinea bauxite supply experiences an unexpected interruption, China may prioritize domestic supply and contract exports, at which point overseas tightness will intensify again. For copper, the divergence between weak end-demand and strong apparent consumption suggests investors should not linearly extrapolate prices based solely on inventory drawdown or import data, and need to wait for stabilization signals in traditional demand fields beyond new energy and grid. If US Section 232 tariffs land as expected, global copper trade flows will be reshaped, and cathode copper supply in non-US markets will continue to be under pressure. For zinc and nickel, current fundamentals lack upward drivers; zinc needs to focus on when ore tightness substantially transmits to smelting production cuts, while nickel needs to wait for Indonesia quota policy clarification before assessing changes in supply elasticity.

Risks

• Guinea bauxite export interruption may threaten China aluminum output and change export policies
• US Section 232 copper tariff adjustment intensity or pace may exceed expectations, triggering violent reconstruction of global copper trade flows
• Zinc concentrate tightness duration uncertain, if 缓解 quickly then smelting production cut expectations will fail
• Indonesia adding ore quotas in summer may release additional nickel supply, suppressing price rebound space

What to watch

• Openness of China semi-finished aluminum export arbitrage window and weekly export data
• US Department of Commerce Section 232 copper tariff review result on June 30
• China zinc concentrate spot TC trend and smelter raw material inventory consumption speed
• Indonesia ore quota summer adjustment trends and refined nickel profit changes
• China renewable energy installation and white goods production monthly data