China keeps buying copper while the market waits for a U.S. copper tariff update

Overview

This report is JPMorgan's base metals supply-demand tracker, covering copper, aluminium, zinc, nickel, and global and Chinese demand indicators. The core message is that although China's copper end-demand has weakened against a high base, refined copper production, inventory drawdown, and import arbitrage indicate that China is still absorbing copper; meanwhile, the market is awaiting policy communication following the U.S. Section 232 copper tariff review, and tariff expectations will determine the direction of LME copper.

Core views

The key issue for copper in 2H26 is not the traditional supply-demand balance table, but how U.S. copper tariff policy shapes import arbitrage and inventory flows. If the U.S. tariff path is interpreted by the market as escalating, the incentive to import into the U.S. remains, ex-U.S. inventories may continue to be drained, and China may also need to replenish import demand at higher prices, creating a bullish squeeze. If policy no longer conveys an escalation expectation, even an immediate tariff announcement could close U.S. import arbitrage and trigger an extended U.S. inventory drawdown, allowing China to regain pricing power, which would be bearish for LME copper. For aluminium, despite the start of Middle East supply recovery and the re-closing of China's semis export arbitrage, ex-China markets may still face a large deficit in 3Q26 and will need to keep drawing on Chinese inventories. For zinc, China is absorbing concentrates at the smelting end but domestic demand remains weak, so export arbitrage needs to open to ease the internal-external supply mismatch. For nickel, revisions to Indonesia's RKAB quota remain the key policy variable for prices.

Analysis framework

The report uses a high-frequency supply-demand tracking framework, combining end-demand indicators, apparent demand, inventories, trade flows, import or export arbitrage, regional premiums/discounts, and policy catalysts to assess metal price risks. For copper, the analysis focuses on Chinese inventories and import arbitrage, U.S. import arbitrage, LME canceled warrants, and U.S. Section 232 tariff expectations; aluminium, zinc, and nickel respectively focus on supply recovery, export arbitrage, and Indonesia's quota policy.

Methodology notes

• 需求指标中国铜消费加权终端需求指标

  A monthly demand estimate synthesized by weighting growth rates of output, installations, exports, and other indicators across end-use sectors by their copper consumption weights.

  This indicator covers construction, power grid, solar, wind, electric vehicles, other transport, durables, air conditioning and refrigeration, machinery, and product and cable exports, accounting for about 90% of China's end-use copper demand, with data through May 2026.

• 表观需求表观消费计算

  Apparent demand equals imports minus exports, plus production, minus the monthly change in exchange inventories.

  The report uses this metric to compare with end-demand indicators in order to identify the impact of actual metal absorption, inventory changes, and production resilience on demand readings.

• 库存与套利区域库存、升贴水和进出口套利监测

  Metal flows are assessed through SHFE inventories, bonded inventories, LME deliverable inventories, canceled warrants, regional premiums, and arbitrage windows.

  When inventories are low, premiums rise, and import arbitrage is open, it signals spot tightness and stronger restocking demand; when export arbitrage opens, it may drive Chinese inventories offshore to relieve regional mismatches.

• 政策催化Section 232铜关税情景分析

  U.S. tariff communication affects LME copper by changing import arbitrage and inventory flows.

  The report believes the market's most important disagreement is not whether tariffs are imposed immediately, but whether expectations form for future tariff rates to continue rising.

Asset mapping & comparison

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

• Copper

  Core covered asset, jointly driven by Chinese buying, U.S. tariff expectations, and ex-U.S. inventory constraints.

  Strengths

  Low Chinese inventories, open import arbitrage, rising spot premiums, and declining LME deliverable inventories provide near-term bullish support.

  Weaknesses

  China's end-demand indicators have weakened significantly against a high base, dragged by construction and renewable installation-related demand.

  Comparison

  Compared with aluminium, zinc, and nickel, copper is more influenced by U.S. Section 232 tariff communication and cross-regional inventory flows.

  Risks

  If U.S. tariffs do not create an escalation expectation, the closure of import arbitrage and U.S. inventory drawdown could weaken LME copper.

• Aluminium

  Secondary core covered asset, with focus on Middle East supply recovery, Chinese inventories, and semis export arbitrage.

  Strengths

  Ex-China markets may still remain short in 3Q26, requiring continued drawdown of Chinese inventories.

  Weaknesses

  EGA's restart progress is faster than initially expected, Indonesian capacity expansion is progressing, and China's semis export arbitrage has already closed.

  Comparison

  Aluminium's main theme is supply recovery and rebalancing of regional deficits, unlike copper, which is driven by U.S. tariff policy.

  Risks

  Faster-than-expected Middle East supply recovery or insufficient LME prices to reopen export arbitrage could alter the pace of inventory drawdown.

• Zinc

  Covered asset, with emphasis on China's domestic-external inventory mismatch and export arbitrage.

  Strengths

  China's smelting sector is still absorbing concentrates, and offshore inventory cover is low; if export arbitrage opens, outflows could provide support.

  Weaknesses

  China's domestic demand is weak, galvanizer operating rates are below the five-year average, and domestic inventories are near recent highs.

  Comparison

  More than copper, zinc depends on the opening of China's export arbitrage to resolve regional mismatch.

  Risks

  If export arbitrage remains closed for too long or domestic demand continues to weaken, China's inventory pressure will persist longer.

• Nickel

  Covered asset, mainly driven by Indonesia's RKAB ore quota policy and ore supply expectations.

  Strengths

  Indonesia may still actively maintain a price range through policy, preventing prices from moving too high or too low.

  Weaknesses

  Expectations for higher RKAB quotas have pushed LME nickel down from highs, while forward supply expectations pressure prices.

  Comparison

  Nickel's price elasticity is more policy-driven on the supply side, whereas copper and aluminium are more driven by cross-regional inventories and arbitrage.

  Risks

  Further increases in Indonesian quotas or market expectations for looser supply could pressure LME nickel.

• China renewable energy and grid demand

  An important subcomponent of copper end-demand and a driver of YoY readings under a high-base effect.

  Strengths

  Grid investment is still up about 13% YoY year-to-date.

  Weaknesses

  The 2025 rush in wind and solar installations and the high base in grid investment significantly pressure May 2026 YoY data.

  Comparison

  This subcomponent explains the weakening end-demand indicator, but does not fully explain why apparent consumption remains strong.

  Risks

  If demand does not recover after the high-base effect fades, the sustainability of China's restocking and import demand will weaken.

Key data

• 中国铜终端需求指标-5% YoY year-to-date in 5M26Affected by the high base from 2025 renewable energy installations and grid investment, the May reading weakened significantly.
• 中国铜表观消费+8% YoY in May 2026, about +3% year-to-date in 5M26Diverged from end-demand indicators, reflecting resilient refined production and inventory drawdown.
• 中国电网投资About +13% YoY year-to-date through May 2026Although May was below the exceptionally high base in 2025, year-to-date growth remained positive.
• 中国精炼铜产量Annualized close to 14 million tonnesThe report states that China's refined copper production remains resilient, partly supported by scrap copper imports.
• 中国精炼铜进口316kt in May 2026Close to the 2025 average level.
• 中国可见铜库存SHFE plus bonded inventories below 140ktBelow the five-year range, with Chinese spot premiums rising to about $95/t.
• LME铜可交割库存About 130kt on-warrant globallyCanceled warrants for copper in Asian warehouses rose by more than 65kt this week, leaving inventories near levels that could drive a sharp rise in spot premiums.
• 中国铜精矿进口-1% YoY year-to-date in 5M26Concentrate imports were slightly lower, but refined copper production remained strong.
• 中国铝库存Down about 320kt since end-May to around 1,000ktChina's semis exports were temporarily boosted by price differentials, driving aluminium ingot inventory drawdown.
• 铝价与出口套利LME aluminium fell back to about $3,150/tThe report says China's aluminium semis export arbitrage has closed again.
• EGA复产进度More than about 20% of pots cleared of frozen metal, about 7% of pots restartedHot metal output will still ramp gradually, and recovery to pre-incident levels could take up to one year.
• 中国锌精矿进口+9% YoY in 5M26China continues to absorb globally diverted concentrate supply, but domestic demand is weak and treatment charges remain under pressure.
• 镍价与印尼RKABLME nickel fell from above $19,000/t to around $17,000/tThe market is reflecting the possibility that Indonesia's July RKAB ore quota revision could significantly increase supply.
• 印尼RKAB配额假设Raised by 30-40 million wet tonnes to 290-300 million wet tonnesPrimarily skewed toward limonite, while saprolite availability remains limited.

Impact & implications

From an investment perspective, copper's risk-reward is driven more by policy path and inventory squeeze than by end-demand alone. If U.S. tariff expectations escalate, copper could face upside risk as the U.S. continues to attract imports, China restocks from low inventory levels, and LME inventories tighten; if tariff expectations do not escalate, the closure of U.S. arbitrage and inventory drawdown could pressure LME copper. Aluminium still faces an ex-China deficit in 3Q26, and prices may need to move higher again to reopen China's export arbitrage. For zinc, investors need to watch whether metal outflows from China emerge, while nickel looks more like a range-bound market maintained by Indonesian policy.

Risks

• If communication around U.S. Section 232 copper tariffs does not create escalation expectations, it could close U.S. import arbitrage and trigger U.S. inventory drawdown, which would be bearish for LME copper.
• If China's end-demand does not improve even after the high-base effect fades, the divergence between copper apparent consumption and end-demand indicators may be difficult to sustain.
• LME copper inventories are already near low levels; if logistics or canceled warrants tighten further, this could trigger sharp price volatility and spot premium spikes.
• Faster-than-expected recovery of Middle East aluminium supply or the release of new Indonesian capacity could weaken support from the 3Q26 aluminium deficit.
• If China's zinc export arbitrage fails to open for an extended period, high domestic inventories and weak demand will continue to pressure zinc prices.
• If Indonesia's RKAB quota policy becomes even looser, it could continue to lower nickel price expectations.
• Some report data are only through May 2026 or March, and subsequent monthly trade, inventory, and policy data may change the assessment.

What to watch

• Formal communication after the U.S. Section 232 copper tariff review, implementation timing, and market pricing of future tariff rate escalation.
• Whether U.S. refined copper import arbitrage remains open, and changes in the COMEX-LME copper spread.
• Whether China's SHFE plus bonded copper inventories, spot premiums, and import arbitrage window continue to hold.
• Whether LME canceled warrants in Asian warehouses and global on-warrant deliverable copper inventories continue to decline.
• After June 2026, whether China's copper end-demand indicators recover as the high base in renewable energy and grid investment fades.
• Restart progress at EGA's Al Taweelah smelter and alumina plant, and the impact of Middle East supply recovery on the 3Q26 ex-China aluminium deficit.
• Whether China's aluminium semis export arbitrage reopens, and whether Chinese aluminium inventories can continue to draw down.
• China's zinc export arbitrage window, refined zinc export volumes, and changes in domestic zinc inventories.
• The final scale of Indonesia's July RKAB quota revision, and whether subsequent ore, NPI, and nickel sulfate prices adjust in line with LME.