Chinese Copper Purchases Cool, Aluminum Destocking Continues, and Industrial Metals Face Mixed Macro Signals

Overview

The report uses high-frequency Chinese inventory data as a proxy for metals consumption to assess the copper, aluminum, zinc, steel, and iron ore markets as of August 21, 2026. Its core conclusion is that copper purchases have weakened amid high prices, aluminum continues to experience strong destocking, and zinc and macro signals are diverging across domestic versus overseas markets and the policy cycle.

Core views

The copper market is showing signs of cooling demand. After approximately four months of strong destocking, China's visible copper inventories rose for two consecutive weeks, increasing by 21kt last week to 127kt. The report believes copper prices remaining above $14,000/tonne have suppressed Chinese physical purchases, with the Yangshan copper premium falling below $100/tonne over the past week to approximately $90/tonne. Despite the marginal weakening in purchases, the 127kt inventory level still indicates an overall tight spot market, so the report does not interpret the short-term inventory build as evidence that supply tightness has been resolved. Aluminum inventory signals are clearly stronger than those for copper. Chinese aluminum inventories declined for a 15th consecutive week, falling by 23kt last week to approximately 875kt, below 1 million tonnes. The report notes that this level is closer to the upper end of the historical seasonal range, but the large inventory declines in recent weeks have significantly reduced total inventories, indicating that physical aluminum consumption and the destocking trend remain intact. Zinc shows a divergence between elevated inventories in China and low inventories outside China. China's visible zinc inventories increased by 6kt last week to 270kt, the highest level since 2022 and also elevated within the five-year range. Meanwhile, LME zinc inventories remain low by historical standards, and zinc spot premiums rose sharply over the past week, with copper showing a similar change. The report believes this is consistent with J.P. Morgan Commodities Research's earlier view that a sizeable ex-China supply deficit could drive LME prices higher to attract metal flows from China to the global market. Macro signals are split between positive and negative. The U.S. Treasury announced that it would double the size of its long-term Treasury liquidity-support buyback operations, driving yields lower; the report believes this could weaken the U.S. dollar and strengthen the renminbi on a relative basis, thereby supporting industrial metals. On the other hand, China's July National Bureau of Statistics data remained weak, with industrial production slowing and government budget expenditure also decelerating as fiscal deposits increased. J.P. Morgan's China economists lowered their 2026 full-year GDP growth forecast by 0.1 percentage point to 4.5% and slightly reduced their inflation forecast. The potential policy cushion has not yet translated into actual demand. J.P. Morgan economists increased the probability that the People's Bank of China will cut rates earlier than the fourth quarter assumed in their previous base case, and interpreted the increase in fiscal deposits as substantial unused fiscal capacity that could drive catch-up fiscal spending in the second half of 2026. Accordingly, the report sees a combination of currently weak activity data but potential monetary and fiscal policy support at a later stage. Steel and iron ore data remain generally weak. Chinese steel mill margins remain negative, with hot-rolled coil margins recovering only slightly due to higher prices. Chinese steel inventories stood at 29.6 million tonnes as of August 20, down 1% month over month but still up 10% year over year. Iron ore inventories at Chinese ports were approximately 156 million tonnes, down 1 million tonnes month over month. Global iron ore shipments rose 1% month over month and fell 5% year over year in June; Australian shipments increased 1% month over month and declined 4% year over year, while Brazilian shipments increased 12% month over month and fell 1% year over year, indicating sequential supply improvement but continued year-over-year weakness. Among EMEA mining companies, the report continues to identify Antofagasta as its top pick. The rationale is that support from copper prices is expected to drive an inflection in free cash flow, while brownfield growth of more than 30% means its valuation based on 2028 forecasts is still not expensive. The report has Neutral views on the London-listed securities of BHP and Rio Tinto, while another analyst rates the Australian-listed securities of both companies Overweight, demonstrating differences in coverage views across different listings of the same companies. Other current ratings listed in the report include Neutral for BHGJ.J, Underweight for LUMIN.ST, Overweight for RIO.AX, and Neutral for RIO.L.

Analysis framework

The report first uses weekly changes in visible inventories at exchanges, bonded zones, and regional warehouses as a proxy for Chinese metals consumption, and then combines the Yangshan copper premium, LME inventories, and spot premiums to assess domestic and overseas supply and demand. It subsequently evaluates the pricing environment through Chinese macro data and the transmission mechanism among U.S. Treasury yields, the U.S. dollar, and the renminbi, supplemented by steel mill margins, steel inventories, port iron ore inventories, and global shipment data. Finally, it maps copper prices, free cash flow, and expansion prospects to ratings and valuation assessments for relevant mining companies.

Methodology notes

• Industry/Sector Analysis FrameworkSupply-demand framework

  Using high-frequency visible inventories as a proxy for consumption

  The report assesses the strength of metals demand through weekly inventory changes at SHFE, bonded zones, and regional warehouses: destocking typically indicates consumption exceeding supply, while inventory builds suggest a marginal slowdown in purchases or consumption.

• (Out-of-Vocabulary Method)

  Comparison by weeks after Chinese New Year and historical seasonal ranges

  The report aligns each year's data by the number of weeks after Chinese New Year to reduce distortions caused by changes in the holiday's date, and compares current inventories with historical seasonal ranges. Average values are used for inventory increases in the first and second weeks after Chinese New Year due to reporting lags.

• Company Fundamentals and Financial FrameworkFree cash flow analysis

  Copper prices and the free cash flow inflection point

  The report links support from copper prices to future improvement in Antofagasta's free cash flow and combines this with brownfield growth exceeding 30% to assess its valuation appeal based on 2028 forecasts.

• (Out-of-Vocabulary Method)

  Yield–U.S. dollar–renminbi–industrial metals transmission

  The report believes lower long-term U.S. Treasury yields could weaken the U.S. dollar and strengthen the renminbi on a relative basis, a currency combination that could provide a tailwind for industrial metals prices.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Copper

  Chinese purchases have slowed amid high prices, and inventories have risen for two consecutive weeks, but total inventories remain tight.

  Strengths

  Visible inventories are only 127kt, and the report believes the market remains tight.

  Weaknesses

  Inventories rose by 21kt last week, and the Yangshan copper premium fell to approximately $90/tonne.

  Comparison

  After approximately four months of continuous strong destocking, the trend reversed over the past two weeks.

• Aluminum

  Chinese aluminum inventories continue to decline strongly.

  Strengths

  Inventories declined for a 15th consecutive week, falling by 23kt last week, with total inventories now below 1 million tonnes.

  Weaknesses

  Inventories of 875kt remain near the upper end of the historical seasonal range.

  Comparison

  The inventory trend is stronger than for copper and zinc, both of which experienced inventory builds over the same period.

• Zinc

  Chinese inventories are elevated, but tight ex-China supply is driving up LME spot premiums.

  Strengths

  The ex-China deficit could push LME prices higher and attract metal flows from China to the global market.

  Weaknesses

  Chinese inventories increased to 270kt, the highest level since 2022.

  Comparison

  High Chinese inventories contrast sharply with LME inventories at historically low levels.

• Chinese Steel

  Steel mills remain loss-making, with hot-rolled coil margins recovering only slightly.

  Strengths

  Higher hot-rolled coil prices drove a modest recovery in margins.

  Weaknesses

  Steel inventories increased by 10% year over year, while overall steel mill margins remained negative.

  Comparison

  Inventories declined by 1% month over month but remained significantly elevated year over year.

• Iron Ore

  Chinese port inventories declined month over month, while shipments from major global producing regions improved sequentially but remained weak year over year.

  Strengths

  Chinese port inventories declined by 1 million tonnes month over month, while Brazilian shipments increased by 12% month over month in June.

  Weaknesses

  Global, Australian, and Brazilian shipments declined by 5%, 4%, and 1% year over year, respectively, in June.

  Comparison

  Brazil's sequential shipment increase exceeded the 1% increases globally and in Australia.

• Antofagasta (ANTO.L)

  The report's top pick among EMEA mining companies, rated OW.

  Strengths

  Support from copper prices is expected to drive a free cash flow inflection, brownfield growth exceeds 30%, and valuation based on 2028 forecasts is considered inexpensive.

  Comparison

  Compared with the other EMEA mining companies covered in the report, Antofagasta is explicitly identified as the top pick.

• BHP Australian Listing (BHP.AX)

  The relevant analyst assigns an OW rating.

  Comparison

  The Australian-listed security is rated OW, while the report body has an N view on BHP's London-listed security.

• BHP Group Ltd (BHGJ.J)

  The report lists the current rating as N.

• Lundin Mining (LUMIN.ST)

  The report lists the current rating as UW.

• Rio Tinto Limited (RIO.AX)

  The Australian-listed security is rated OW.

  Comparison

  The Australian-listed security is rated OW, while the London-listed security is rated N.

• Rio Tinto plc (RIO.L)

  The London-listed security is rated N.

  Comparison

  The London-listed security's rating is below the OW rating of the Australian-listed security.

Key data

• Inventory Tracking PeriodWeek ending August 21, 2026Primary observation period for high-frequency copper, aluminum, and zinc inventory data
• Copper Price Level>$14,000/tonneThe report believes persistently high prices have slowed Chinese copper purchases
• Weekly Change in Chinese Copper Inventories+21ktSecond consecutive week of inventory builds following approximately four months of continuous destocking
• China's Visible Copper Inventories127ktIncreased over the past two weeks, but the market remains tight
• Yangshan Copper PremiumApproximately $90/tonneFell below $100/tonne over the past week, indicating weaker physical purchases
• Consecutive Aluminum Destocking Period15 weeksThe strong destocking trend remains intact
• Weekly Change in Chinese Aluminum Inventories-23ktInventory decline in the most recent week
• China's Visible Aluminum InventoriesApproximately 875ktNow below 1 million tonnes and near the upper end of the historical seasonal range
• Weekly Change in Chinese Zinc Inventories+6ktInventories began rebuilding again in the most recent week
• Chinese Zinc Inventories270ktThe highest level since 2022 and elevated within the five-year range
• China 2026 GDP Growth Forecast4.5%J.P. Morgan lowered the forecast by 0.1 percentage point and slightly reduced its inflation forecast
• U.S. Long-Term Treasury Buyback OperationsSize doubledYields declined after the operation was announced
• Chinese Steel Inventories29.6 million tonnesAs of August 20, 2026, down 1% month over month and up 10% year over year
• Iron Ore Inventories at Chinese PortsApproximately 156 million tonnesDown 1 million tonnes month over month
• Global Iron Ore Shipments in JuneMonth over month +1%, year over year -5%Global shipments improved sequentially but declined year over year
• Australian Iron Ore Shipments in JuneMonth over month +1%, year over year -4%Australian supply remained below the prior-year level
• Brazilian Iron Ore Shipments in JuneMonth over month +12%, year over year -1%Strong sequential increase but a slight year-over-year decline
• Antofagasta Rating and PricingOW; current price 3,905p; target price 4,300pThe report lists prices as of the August 21, 2026 close
• BHP Australian Listing Rating and PricingOW; current price A$65.16; target price A$67The relevant analyst rates the Australian-listed security Overweight
• BHGJ.J Rating and PricingN; current price 76,523c; target price 65,600cCurrent rating and pricing listed in the report
• Lundin Mining Rating and PricingUW; current price Skr260.10; target price Skr209Current rating and pricing listed in the report
• Rio Tinto Australian Listing Rating and PricingOW; current price A$175.38; target price A$205The Australian-listed security is rated Overweight
• Rio Tinto London Listing Rating and PricingN; current price 7,648p; target price 8,100pThe London-listed security is rated Neutral

Impact & implications

The report indicates that demand for industrial metals in China is not moving in unison: high copper prices have begun to suppress physical purchases, aluminum continues to experience relatively strong destocking, while zinc is subject to opposing forces from high Chinese inventories and low ex-China inventories. Current Chinese macro activity is weak, but potential earlier rate cuts, catch-up fiscal spending in the second half of the year, and U.S. dollar weakness could provide a cushion. At the company level, the report believes copper price support, improving free cash flow, and brownfield expansion make Antofagasta relatively more attractive.

What to watch

• Monitor whether China's visible copper inventories continue to rise and whether the Yangshan copper premium can recover from approximately $90/tonne.
• Monitor whether Chinese aluminum inventories can extend the destocking trend that has already continued for 15 weeks.
• Monitor LME zinc inventories and spot premiums, as well as whether the ex-China deficit drives metal flows from China to the global market.
• Monitor whether the People's Bank of China cuts rates earlier than the fourth quarter assumed in the previous base case and whether fiscal spending can catch up in the second half of 2026.
• Monitor subsequent changes in Chinese steel mill margins, steel inventories, and iron ore shipments from major producing regions.