Zhongtai Securities: Basic metal prices have bottomed out and rebounded; supply rigid varieties such as aluminum and copper may welcome a medium to long-term allocation window

According to the Zhitong Finance APP, Zhongtai Securities released a research report stating that the Sino-U.S. trade dispute has temporarily eased, leading to a rebound in basic metal prices. Due to the impact of reciprocal tariffs in April, global economic momentum has weakened, inflation expectations in the U.S. have strengthened, and the probability of a Federal Reserve interest rate cut has decreased, resulting in weak performance of basic metal prices. In May, with the temporary easing of tariffs, there is a trend of rebound in basic metal prices. Against the backdrop of a long-term reshaping of supply and demand patterns, the downside space for basic metal prices may be limited, and it is essential to look for the next entry opportunity, especially for rigid supply varieties such as aluminum and copper.

Key points from Zhongtai Securities:

Investment suggestion: Continuation of the trend.

The Sino-U.S. trade dispute has temporarily eased, leading to a rebound in basic metal prices. Due to the impact of reciprocal tariffs in April, global economic momentum has weakened, inflation expectations in the U.S. have strengthened, and the probability of a Federal Reserve interest rate cut has decreased, resulting in weak performance of basic metal prices. In May, with the temporary easing of tariffs, there is a trend of rebound in basic metal prices. Against the backdrop of a long-term reshaping of supply and demand patterns, the downside space for basic metal prices may be limited, and it is essential to look for the next entry opportunity, especially for rigid supply varieties such as aluminum and copper.

Market review: Industrial metal prices have slightly increased.

1. Industrial metal prices have slightly increased: The weekly price changes for LME copper, aluminum, lead, and zinc were 1.8%, -0.6%, -0.3%, and 0.8%, respectively; the weekly price changes for SHFE copper, aluminum, lead, and zinc were -0.4%, 0.1%, -0.1%, and -1.3%.

2. This week, the non-ferrous industry index outperformed the market: The Shenwan Non-ferrous Metals Index closed at 4783.3 points, up 1.26% week-on-week, outperforming the Shanghai Composite Index by 1.83 percentage points. The price changes for precious metals, industrial metals, energy metals, minor metals, and new metal materials were 5.58%, 1.86%, 0.36%, -1.90%, and -2.60%, respectively.

Macroeconomic "three factors" summary: The economic momentum turning point has emerged in April.

1. Chinese factors: In April, industrial added value declined year-on-year, and the impact of tariffs needs to be continuously monitored. In April 2025, industrial added value increased by 6.1% year-on-year (previous value +7.7%), with the non-ferrous metal mining and selection industry increasing by 6.6% year-on-year (previous value +9.3%), and the non-ferrous metal smelting and processing industry increasing by 7.5% year-on-year (previous value +6.5%). The reciprocal tariffs from the U.S. have already affected domestic manufacturing performance. In April, the cumulative year-on-year fixed asset investment completed was +4% (previous value +4.2%), with manufacturing cumulative year-on-year at +8.8% (previous value +9.1%), infrastructure cumulative year-on-year at +10.85% (previous value +11.5%), and real estate cumulative year-on-year at -10.3% (previous value -9.9%).

2. In April, U.S. manufacturing was affected by tariffs, and future attention should be paid to price performance. In April, the U.S. ISM Manufacturing PMI was 48.7 (previous value 49), and the Non-Manufacturing PMI was 51.6 (previous value 50.8); in April, the U.S. CPI increased by 2.3% year-on-year (previous value 2.4%), mainly due to the delayed effect of tariffs and a decline in energy prices; the core CPI increased by 2.8% year-on-year (previous value 2.8%); in April, the U.S. PPI increased by 2.4% year-on-year (previous value 3.4%)

3. The economic sentiment index in Europe rebounded significantly in May. In April, the Eurozone CPI month-on-month was 0.6% (previous value 0.6%), year-on-year was 2.2% (previous value 2.2%). The economic sentiment index in Europe rose in May. The Eurozone ZEW economic sentiment index in May was 11.6 (previous value -18.5). In April, the Eurozone CPI month-on-month was 0.6% (previous value 0.6%), year-on-year was 2.2% (previous value 2.2%).

4. The global manufacturing PMI returned to the contraction zone in April. The global manufacturing PMI index in April decreased by 0.5 percentage points to 49.8; production remained flat, with future output projects maintaining expansion but falling nearly 4 percentage points month-on-month; the demand side fell by 1 percentage point to 49.8, especially export orders which fell nearly 3 percentage points month-on-month. The impact of tariffs is becoming evident, and the turning point for global manufacturing sentiment may have been established.

Base Metals: Uneven resumption of work after the holiday, slight accumulation of copper and zinc

1. For electrolytic aluminum, demand weakens, destocking maintains, aluminum prices fluctuate sideways

1. In terms of supply, the electrolytic aluminum industry increased its operating capacity by 20,000 tons compared to last week. This week, electrolytic aluminum enterprises had mixed production adjustments, with Shandong continuing to implement the capacity transfer plan to Yunnan, and Guizhou releasing new production capacity. This week, the theoretical operating capacity of electrolytic aluminum remained flat month-on-month. The operating capacity of the electrolytic aluminum industry this week was 43.865 million tons, an increase of 20,000 tons month-on-month. According to Baichuan, the electrolytic aluminum output this week was 841,300 tons, an increase of 0.05% month-on-month.

2. In terms of profitability, the industry's immediate profit per ton remains above 3,000 yuan. The spot aluminum price on the Yangtze River was 20,400 yuan/ton, an increase of 0.84% month-on-month; the industry's 90th percentile cash cost (including tax) was 16,998 yuan/ton, and the total cost was 18,207 yuan/ton, with an immediate profit per ton of 3,405 yuan.

3. In terms of demand, the operating rate of downstream processing slightly decreased month-on-month. As of May 22, 2025, the average operating rate of aluminum processing enterprises was 61.4%, a decrease of 0.2% month-on-month. Among them, the operating rate of aluminum plates and strips increased by 0.4%, while aluminum foil and aluminum profiles decreased by 0.5%, and aluminum wires and cables decreased by 0.4%. Exports of plates, strips, and foils showed a mild recovery, with some enterprises reporting pre-purchase demand from customers during the traditional off-season from June to August.

4. In terms of inventory, destocking maintained this week. Domestic aluminum ingot inventory was 605,000 tons, a decrease of 41,000 tons month-on-month; domestic aluminum rod inventory was 215,300 tons, a decrease of 11,300 tons month-on-month; overseas, LME aluminum inventory was 384,600 tons, a decrease of 10,900 tons month-on-month. Global inventory was 1,204,900 tons, a decrease of 63,200 tons month-on-month. In terms of downstream processing enterprises, aluminum plate, strip, and foil enterprises had raw material inventory of 252,300 tons, an increase of 1,600 tons month-on-month; finished product inventory was 536,900 tons, a decrease of 5,000 tons month-on-month.

2. For alumina, production stoppages in some mines in Guinea stimulate short-term bullish sentiment

1. In terms of supply, alumina production has decreased. As of May 23, 2025, according to Aladdin statistics, the constructed alumina capacity was 110.82 million tons, remaining flat month-on-month; the operating capacity was 88 million tons, an increase of 1.15 million tons month-on-month. According to Steel Union statistics, the weekly alumina output was 1.635 million tons, an increase of 30,000 tons compared to last week

2. On the demand side, the supply and demand remain tightly balanced. The operating capacity ratio of alumina/electrolytic aluminum is 2.01, slightly widening from last week's 1.98. The increase in operating capacity this week is due to maintenance recovery and new production coming online.

3. In terms of inventory, the inventory continues to decrease. The inventory dropped from 3.844 million tons last week to 3.813 million tons, a decrease of 31,000 tons week-on-week.

4. Regarding profitability, it has turned positive. As of May 23, the price of alumina is 3,210 yuan/ton, an increase of 3.08% week-on-week. The significant price increase is mainly due to the ongoing fallout from the intensified mining regulation events in Guinea, with signs of expanding duration and scope of impact, leading to increased speculation among traders and a rapid and substantial price rise. For bauxite, the domestic price is 551 yuan/ton, unchanged week-on-week; the imported bauxite from Guinea is 74 USD, an increase of 4 USD week-on-week. Based on the domestic bauxite price, the cost of alumina is 2,907 yuan/ton, unchanged week-on-week, with a gross profit of 268 yuan/ton, an increase of 298% week-on-week; based on the price of imported bauxite from Guinea, the cost of alumina is 2,984 yuan/ton, with a gross profit of 200 yuan/ton, an increase of 172% week-on-week.

3. For electrolytic copper, processing fees have stabilized temporarily, and domestic inventory has begun to accumulate.

1. On the supply side, the conflict between mining and metallurgy has deepened, and smelting profits remain in the red. The processing fee for copper concentrate has declined again. As of May 23, the SMM imported copper concentrate index (weekly) reported -44.28 USD/ton, a decrease of 1.23 USD/ton from the previous period. This week's theoretical smelting profit is -2,957 yuan/ton, an increase of 39 yuan/ton week-on-week. Freeport Indonesia's Manyar smelter, which was shut down due to a fire last October, is expected to resume operations ahead of schedule, starting to produce cathode copper in the fourth week of June and reaching full production by December. Zijin Mining's Kamoa-Kakula copper mine has experienced multiple seismic events in the Kakula section. Following a decision by Kamoa Copper's management, underground operations in that area have been suspended, and relevant personnel and some equipment have been evacuated from the underground work site. Due to the seismic impact, the Kamoa-Kakula copper mine's first and second phase processing plants will temporarily operate at lower capacities, processing ore from surface stockpiles.

2. On the demand side, the operating rate of initial processing has been adjusted downwards. This week, the weekly operating rate of major domestic refined copper rod enterprises recorded 70.64%, a decrease of 2.62% week-on-week. The operating rate of copper wire and cable enterprises is 82.34%, a decrease of 1.05% week-on-week. In terms of end-user demand, the peak of market demand release has passed, and the market has returned to calm, with only State Grid orders performing relatively well. Orders for new energy power generation have decreased significantly, and there is still no optimistic performance in the civil and infrastructure sectors. Additionally, orders that previously shifted to transshipment trade due to tariff fluctuations are unlikely to return to the domestic market in the short term, compounded by the demand overdraft effect caused by the surge in orders in early April and the dual impact of the traditional industry off-season at the end of May, leading to a contraction trend in both new orders and existing order scales for enterprises.

3. In terms of inventory, global inventory has slightly decreased. In terms of overseas inventory, LME copper inventory is 164,700 tons, a decrease of 14,700 tons week-on-week, and an increase of 52,100 tons compared to the same period last year. COMEX inventory is 175,600 tons, an increase of 6,000 tons week-on-week, and an increase of 156,800 tons compared to the same period last year. In terms of domestic inventory, the domestic spot inventory is 200,600 tons, a decrease of 200 tons week-on-week, and a year-on-year decrease of 314,300 tons Global inventory totals 541,000 tons, a decrease of 8,900 tons month-on-month and a decrease of 105,500 tons year-on-year, indicating a slight destocking.

4. For refined zinc, the processing rate at the initial stage has returned to normal, and domestic social inventory is at a historical low.

1. In terms of supply, processing fees remain stable, and weekly production of refined zinc is relatively high year-on-year. This week, the SMM Zn50 domestic weekly TC average remained stable at 3,500 yuan/metal ton, while the SMM Zn50 imported weekly TC average remained stable at 45 USD/dry ton. This week, SMM zinc concentrate inventory at major ports in China totaled 358,000 tons, a decrease of 22,000 tons from last week. According to Baichuan statistics, as of May 23, the domestic weekly production of refined zinc was 117,000 tons, an increase of 560 tons month-on-month and an increase of 6,700 tons year-on-year.

2. In terms of demand, the processing rate at the initial stage has returned to normal. This week, the domestic weekly operating rate for galvanizing recorded 62.03%, an increase of 1.09% month-on-month; the operating rate for die-casting zinc was 56.41%, a decrease of 2.67% month-on-month; the operating rate for zinc oxide was 62.03%, a decrease of 0.38% month-on-month.

3. In terms of inventory, global inventory is being reduced, and domestic inventory remains low. This week, the total zinc ingot inventory in seven regions in China was 80,400 tons, a decrease of 5,900 tons from last week, indicating low social inventory of zinc ingots; LME inventory was 153,500 tons, a decrease of 7,300 tons from last week.

Risk warning: macroeconomic fluctuations, policy changes, assumptions in calculations not meeting expectations, risks of metal price fluctuations, risks of industrial policies not meeting expectations, risks of downstream consumption not meeting expectations, and risks of public information used in research reports being outdated or not updated in a timely manner, etc