SMM News, May 30: Metals market: Overnight, base metals fell collectively in both domestic and overseas markets. LME copper and LME tin both led the decline with a 0.98% drop. SHFE zinc fell 0.86%, while the remaining metals saw relatively small fluctuations in their declines. The alumina front-month contract closed flat at 2,888 yuan/mt, and the foundry aluminum front-month contract fell 0.26%. Overnight, ferrous metals showed mixed performance. Stainless steel fell 0.74%, and iron ore fell 0.26%. Hot-rolled coil and rebar both rose around 0.2%. For coking coal and coke, coking coal rose 0.7% and coke rose 0.89%. Precious metals: Overnight COMEX gold rose 0.83%, up 1.03% on the week, but down 1.29% on the month, marking a third consecutive monthly decline. COMEX silver fell 0.43% overnight, down 0.81% on the week, and up 2.1% on the month. Domestically, SHFE gold rose 1.61%, down 0.23% on the week and down 1.61% on the month, recording a third consecutive monthly decline alongside the overseas market. SHFE silver rose 0.64% overnight, down 1.23% on the week, and up 3.08% on the month. As of 8:25 AM on May 30, overnight closing prices: Macro Front China: From January to April, total operating revenue of national state-owned and state-holding enterprises fell 0.5% YoY, while total profits rose 1.9% YoY. Specifically, total operating revenue was 26.27 trillion yuan, and total profits were 1.37 trillion yuan. Taxes payable rose 3.9% YoY to 2.12 trillion yuan. At the end of April, the asset-liability ratio of state-owned enterprises was 65.5%, up 0.4 percentage points YoY. (Xinhua News Agency) On May 29, in Q1 this year, China's integrated circuit exports reached $72.47 billion, up 77.5% YoY, of which memory product exports reached $45.99 billion, up 174.2% YoY. The surge in memory product exports also transmitted to supply chain service segments. A logistics enterprise executive said that since the beginning of this year, the company's orders related to memory exports doubled, with large orders exceeding 100 million yuan per transaction increasing significantly. Industry insiders noted that the explosive growth in memory product exports was driven by both cyclical factors of tight global supply and demand, and structural industrial changes including industry chain upgrades and market share gains in China's domestic memory sector. The Deputy Secretary General of the Shenzhen Electronics Chamber of Commerce said that compared to March last year, memory prices had risen nearly tenfold, with some even seeing more than tenfold increases. This was mainly because the significant price increases drove up the total (export) value. Domestic brand prices had a large price spread compared to ex-China brands, making them very competitive in terms of pricing. (CCTV Finance) [MIIT and Seven Departments: Encouraging Equipment Manufacturing in Aerospace, Shipbuilding, Automotive, Robotics and Other Sectors] On May 29, the General Office of the Ministry of Culture and Tourism, the General Office of the Central Publicity Department, the General Office of MIIT, the General Office of the Ministry of Education, the General Office of the State-owned Assets Supervision and Administration Commission of the State Council, the Office of the National Cultural Heritage Administration, and the General Office of the All-China Federation of Trade Unions issued a notice on promoting industrial culture, protecting industrial heritage, and developing industrial tourism. The notice mentioned enriching industrial tourism product supply. It encouraged actively developing industrial heritage tourism, promoting the revitalization of industrial sites through creative design, new business format integration, and facade renovation, and developing new scenarios, formats, and models for industrial tourism. It strongly promoted "factory tours," encouraging enterprises in equipment manufacturing sectors such as aerospace, shipbuilding, automotive, and robotics, consumer goods industries such as textiles and apparel, arts and crafts, and food processing, as well as e-commerce logistics, to innovate and launch programs including production process observation, simulated operations, hands-on experiences, and product customization, creating themed sightseeing factories while ensuring production safety and confidentiality requirements. It called for orderly expansion of smart industrial tourism, supporting the use of BeiDou, artificial intelligence, ultra-high-definition video, virtual reality, autonomous driving, and other digital technologies and equipment to create immersive and intelligent industrial tourism experiences. It supported industrial tourism venues in developing themed commerce, immersive experiences, specialty markets, and other formats to create "industrial tourism+" consumption scenarios. It encouraged localities to launch a batch of high-quality industrial tourism routes and brands with regional and industry characteristics. It encouraged industrial enterprises to strengthen product promotion, expand product sales, and build enterprise brands through industrial tourism. The Shanghai International Energy Exchange announced adjustments to the daily price limit for crude oil and low-sulfur fuel oil futures contracts to 17%, the hedging position trading margin ratio to 18%, and the general position trading margin ratio to 19%; it also adjusted trading limits for related crude oil and low-sulfur fuel oil futures contracts. US dollar: As of the overnight close, the US dollar index fell 0.07% to 98.93, down 0.39% on the week and up 0.85% on the month. Market optimism over the extension of the US-Iran ceasefire agreement weakened safe-haven demand. The US April PCE price index rose 3.8% YoY, the highest level since May 2023, in line with expectations, compared to the previous reading of 3.5%; the US April core PCE price index rose 3.3% YoY, a new high since November 2023, also in line with expectations, compared to the previous reading of 3.2%. Additionally, separate data released by the Bureau of Economic Analysis showed that the US economy grew at an annualized rate of 1.6% in Q1, below preliminary data. The initial estimate released last month showed growth of 2%. The data indicated that US consumers became more cautious amid cost-of-living pressures and uneven labor market performance. The Middle East conflict pushed up fuel and other raw material prices, with the impact transmitting to the broader economy and sending consumer confidence to record lows. Meanwhile, this inflation data is likely to further reinforce warnings from some US Fed officials that if price pressures fail to ease, the US Fed will need to consider raising interest rates. Kevin Warsh, who was just sworn in as Fed Chairman on May 22, may need to convince other officials that inflation expectations can be controlled without rate hikes. (Wallstreetcn) Minneapolis Fed President Kashkari said it is too early to conclude that interest rates need to rise, but he believes the US Fed should keep all policy options open. He stated it is too early to conclude that an immediate rate hike is needed. The Fed needs to continue watching economic data and monitoring developments in the Middle East conflict before he would consider whether policy adjustments are necessary. Kashkari noted that under both the most optimistic and most pessimistic scenarios, inflation could remain significantly elevated for an extended period. He is closely monitoring this risk, as well as the possibility that inflation expectations could become unanchored. (Wallstreetcn) US Fed Vice Chair for Supervision Michelle Bowman said it is too early to judge the impact of the Iran conflict on inflation, and policymakers need to look through transitory price shocks. She supported officials retaining language in their statement after last month's policy meeting that hinted further interest rate cuts remain possible. As she thinks about the future path of monetary policy, she wants a clearer understanding of the economic impact of the Middle East conflict and the persistence of those effects. As long as the Fed maintains credibility in its commitment to achieving its inflation target, it is appropriate to look through transitory inflation increases driven primarily by rising energy prices. She expects the "one-time" impact of tariffs implemented by US President Trump to fade. (Wallstreetcn) Macro: Next week, China will release May RatingDog Manufacturing PMI and May RatingDog Services PMI data; the US will release May S&P Global Manufacturing PMI final, May ISM Manufacturing PMI, April construction spending MoM, April JOLTs job openings, May ADP employment, May S&P Global Services PMI final, May ISM Non-Manufacturing PMI, April factory orders MoM, May Challenger job cuts, initial jobless claims for the week ending May 30, May unemployment rate, May seasonally adjusted non-farm payrolls, May average hourly earnings YoY, and May average hourly earnings MoM data; the UK will release May Nationwide house price index MoM, May Manufacturing PMI final, April central bank mortgage approvals, May Services PMI final, and May Halifax seasonally adjusted house price index MoM data; the Eurozone will release May Manufacturing PMI final, April unemployment rate, May CPI YoY preliminary, May CPI MoM preliminary, May Services PMI final, April PPI MoM, April retail sales MoM, Q1 GDP YoY revised, and Q1 seasonally adjusted employment QoQ final data; Switzerland will release April real retail sales YoY, April trade balance, May CPI MoM, and May seasonally adjusted unemployment rate data; France will release May Manufacturing PMI final, May Services PMI final, April industrial output MoM, and April trade balance data; Germany will release May Manufacturing PMI final and May Services PMI final data; in addition, Australia Q1 GDP YoY and Canada May employment data will also be released. Crude oil: As of the overnight close, oil prices in both markets fell together, with WTI down 1.28% and Brent down 0.87%. On a weekly basis, oil prices suffered heavy losses this week, with WTI down 9.15% and Brent down 8.3%, both recording a second consecutive weekly decline and the largest weekly drop since April. WTI fell 16.47% on the month and Brent fell 16.77% on the month, with WTI posting its largest monthly decline since November 2021 and Brent its largest monthly decline since March 2020. According to Xinhua News Agency, US President Trump said on the 29th that the US and Iran had reached agreement on secondary issues beyond Iran's nuclear program and Strait of Hormuz passage, and crude oil fell in response. The oil market in May underwent a clear three-phase evolution: Early month (May 1-6): Oil prices pulled back slightly from near four-year highs, but Brent briefly surged to around $114 after OPEC+ announced a modest production increase and shipping attacks, before plunging to the $101-106 range after US-Iran de-escalation signals emerged. Mid-month (May 7-20): Oil prices oscillated between ceasefire breakdowns and mediation progress, with the continued blockade of the Strait of Hormuz maintaining an elevated risk premium. Month-end (May 21-29): Driven by reports of a US-Iran agreement in principle to reopen the strait, Brent briefly fell to the $93-100 low range, WTI touched $88-92, and Brent closed around $92. (Wallstreetcn) Nevertheless, analysts emphasized that until the conflict truly ends and the strait resumes normal passage, global crude oil inventories will continue to deplete by approximately 10 to 14 million barrels per day, and physical market fundamentals remain tight. The decline in oil prices under ceasefire expectations reflected more the pricing of future supply recovery rather than a fundamental change in the current supply-demand pattern. (Wallstreetcn) Recently, reports disclosed that calculations by Goldman Sachs showed global crude oil inventories could fall below the equivalent of 100 days of global demand as early as the end of May. Goldman Sachs estimated that as of the end of April, global crude oil inventories were equivalent to approximately 101 days of global demand, and were expected to fall to 98 days by the end of May. Of this, "visible inventory" observable through satellites and other means was estimated at only 73 days of demand. Reports indicated that currently only a few vessels can pass through the Strait of Hormuz each day, resulting in a daily global crude oil supply loss exceeding 10 million barrels. (Wallstreetcn)

US President Trump once again emphasized his stance on Iran and stated that he would "make a final decision." He made it clear that Iran must commit to never developing nuclear weapons, while demanding that the Strait of Hormuz immediately achieve two-way free passage without charging any transit fees. In addition, he mentioned that the US Navy's blockade of the Strait of Hormuz is about to be lifted, and Iran's enriched uranium materials will be dug up and destroyed.Trump also revealed that the US and Iranian sides had reached agreement on other secondary matters beyond the key issues of Iran's nuclear program and passage through the Strait of Hormuz.

In May, the global aluminum market continued the core pattern of LME outperforming SHFE with divergent trends. The most-traded SHFE aluminum contract moved sideways in the doldrums, while LME aluminum maintained strength supported by low inventory and geopolitical premiums, with both seeing slight corrections at month-end. This month's market-driving logic revolved around Middle East ceasefire negotiations, rising expectations for US Fed interest rate hikes, divergence in inventory in and outside China, and accelerating export transmission, further highlighting the divergence between domestic and overseas aluminum price trends. The SHFE/LME aluminum price ratio declined further from the April average of 7.03 to the May average of 6.66, with the inverted price spread between domestic and overseas markets widening, as the trend of overseas aluminum prices outperforming SHFE aluminum continued to deepen. May Aluminum Price Review: Similar Pace but Intensifying Divergence in Strength China · The Most-Traded SHFE Aluminum Contract The contract opened low at around 24,800 yuan/mt at the beginning of the month. After the holiday, it pulled back rapidly due to high domestic inventory and weaker-than-expected downstream demand, hitting the monthly low of 24,075 yuan/mt on May 7. In mid-month, it rebounded to 24,620 yuan/mt driven by positive signals from the China-US meeting. In the latter part of the month, it pulled back to 24,375 yuan/mt as ceasefire expectations heated up combined with off-season drag. Ex-China · LME Aluminum The contract opened at $3,480/mt at the beginning of the month. In mid-month, it rallied to $3,680/mt (the monthly high and a four-year high) supported by supply disruptions and continued destocking. At month-end, it corrected to $3,628/mt, impacted by news that a US-Iran ceasefire agreement was 95% reached. In terms of price-driving factors, geopolitics remained the core common variable for aluminum prices in and outside China this month. Production cuts in the Middle East and shipping disruptions through the Strait of Hormuz continued to provide a shortage premium for LME aluminum. The price divergence stemmed from dual differences in macro policy and fundamentals—slow destocking from high inventory levels in China constrained SHFE aluminum's rebound space, while historically low inventory and a high premium structure outside China provided strong support for LME aluminum prices. Core Inventory Indicators: Extreme Divergence Between Domestic and Overseas Inventory with Contrasting Destocking Pace China · Gradual Decline from High Levels, Pressure Persists Social inventory began to pull back from the high of 1.456 million mt at the beginning of May, reaching approximately 1.401 million mt by month-end, with only about 55,000 mt destocked over the entire month. The destocking pace was slow, with inventory remaining at a near six-year high for the same period. SHFE warrants recorded 485,500 mt on May 29, still showing inventory buildup on a weekly basis, confirming ample spot supply in China. Ex-China · 20-Year Low, Structural Deficit Becomes Evident LME total inventory declined from approximately 363,000 mt at the beginning of the month to 338,000 mt at month-end, a decrease of approximately 25,000 mt over the month, with inventory levels at historically extreme lows. LME aluminum Cash-3M premiums closed at $92.53/mt at month-end, widening significantly from approximately $29/mt at the beginning of the month. Japan's Q3 spot premiums rose, premiums in Europe and the US continued to climb, and the rigid supply gap outside China provided sustained and strong support for LME aluminum. Macro and Fundamentals Intertwined: Geopolitical Dynamics and Rate Hike Expectations Dominating Sentiment Geopolitical Variables: Repeated Ceasefire Negotiations At the beginning of the month, the US military launched airstrikes on southern Iran, with military frictions between the two sides recurring. Shipping through the Strait of Hormuz remained disrupted, and geopolitical risk premiums climbed. At month-end, a US-Iran framework agreement was reportedly 95% complete, and a 60-day temporary ceasefire draft emerged. Expectations for the resumption of strait navigation warmed, and geopolitical premiums converged significantly. On the morning of May 28, both SHFE aluminum and LME aluminum plunged. US Fed Expectations: Hawkish Pressure US April CPI came in at 3.4% YoY, with core PCE reaching 2.8%. Inflation stickiness, compounded by Middle East conflicts pushing oil prices above $90/barrel, led hawkish US Fed officials to release signals of "raising rates at any time." Market expectations for a 25bp rate hike within the year surged abruptly, and a stronger US dollar continued to weigh on the demand outlook for non-ferrous metals. IV. Current Core Market Trades and Arbitrage Strategies (Including Divergence in Capital Behavior) Based on the current SHFE and LME fundamentals, inventory pace, and LME curve structure, the aluminum market overall exhibits a cautious unidirectional and arbitrage-dominated trading pattern. In particular, SHFE-LME cross-market reverse arbitrage (selling SHFE and buying LME) has become the core market play. Capital behavior among market participants has shown clear divergence, mainly falling into three categories: 1. Early-positioning capital (light long positions in reverse arbitrage) Some trading capital has positioned reverse arbitrage ahead of time based on the logic that China's inventory inflection point has already appeared. The core expectation of such capital is that as China's inventory gradually enters a destocking channel, accelerated destocking is highly likely to follow, rapidly easing China's high inventory pressure. The weak SHFE aluminum pattern is expected to be corrected, and the depressed SHFE-LME ratio has clear room for recovery, warranting early light positioning to capture the ratio rebound. 2. Wait-and-see cautious capital (staying on the sidelines for now) The majority of market capital has maintained a wait-and-see stance, with two core concerns: First, China is currently only experiencing slow destocking, and its sustainability is questionable during the off-season, as inventory pressure has not been substantially cleared and SHFE aluminum lacks sufficient rebound momentum. Second, LME is currently in a deep backwardation structure, making roll and extension costs for LME aluminum bulls extremely high, with significant cost erosion and high open interest pressure for holding long-term reverse arbitrage positions. Combined with the entrenched short-term pattern of LME outperforming SHFE, the price spread still risks further widening. Therefore, this segment of capital has chosen to wait for confirmed signals of accelerated destocking in China before entering the market. 3. Previously trapped capital (open interest under pressure, caught in a dilemma) Some positions that were established earlier to set up SHFE-LME reverse arbitrage are currently slightly underwater. Recently, LME has been continuously driven higher by geopolitical risks while SHFE has been range-bound and weak, with the divergence between LME outperforms SHFE intensifying, causing the ratio to remain persistently low and unrealized losses to emerge. Meanwhile, LME contango fees have risen sharply, long positions carrying costs continue to increase, and the pressure of holding trapped positions has further intensified. In the short term, these positions are caught in a dilemma, highly dependent on the subsequent pace of China's inventory destocking to restore the spread. Overall, the sole core inflection variable for SHFE-LME reverse arbitrage is currently the pace of domestic inventory destocking. Once weekly inventory drawdowns continue to widen and accelerated destocking is confirmed, it will directly drive a reversal in three types of capital behavior: sidelined capital entering the market en masse, trapped positions getting unwound, and early-entry positions realizing profits, triggering a rapid recovery in the ratio. Looking ahead to June, the aluminum market's core focus centers on three dimensions: first, whether the US-Iran ceasefire agreement can be formally signed and the pace of resuming navigation through the Strait of Hormuz, which will directly determine the extent of geopolitical premium convergence — if the agreement materializes and Middle Eastern aluminum supply gradually recovers, the prior support logic for LME aluminum faces correction risk; second, whether domestic inventory destocking can accelerate — continued export growth and import suppression will keep driving destocking, and the magnitude of destocking will determine SHFE aluminum's upside elasticity. The US Fed's June FOMC meeting is highly likely to keep rates unchanged, but a hawkish tone and sticky inflation will continue to suppress interest rate cut expectations, with a stronger US dollar maintaining sustained pressure on non-ferrous metals. Overall, the aluminum market in June is expected to continue the pattern where LME outperforms SHFE, though the degree of divergence is likely to narrow. LME aluminum is expected to hover at highs amid the tug-of-war between geopolitical premium convergence and rigid ex-China supply deficits, with downside room constrained by low inventory and high premiums. [ Data source disclaimer: Data other than publicly available information is derived from public information, market communication, and SMM's internal database models, processed by SMM for reference only and does not constitute decision-making advice. ] Data source: SMM

Downstream Rigid Procurement Demand Persisted, MHP and High-Grade Nickel Matte Payable Indicators Fluctuated at Highs This Week

Nickel prices overall moved sideways this week with a slight pullback. Early in the week, driven by rising expectations for US Fed interest rate hikes and repeated geopolitical tensions over the Strait of Hormuz, the most-traded SHFE nickel contract briefly fell below 141,000 yuan/mt. However, from mid-week onward, strong supply-side support logic helped nickel prices stabilize above 142,000 yuan/mt, after which they moved sideways, with a weekly decline of 0.26%. Spot market side, the average SMM #1 refined nickel price was 143,700 yuan/mt this week, down 150 yuan/mt WoW. Jinchuan nickel premiums dropped significantly this week, with the range falling to 600-1,000 yuan/mt. Domestic mainstream electrodeposited nickel premiums were affected by contract rollover, with the range falling to -700-100 yuan/mt. Spot market transactions were mediocre this week, with downstream buyers only making just-in-time procurement and consumption remaining mediocre. On the macro front, Kevin Warsh was officially sworn in as Fed Chairman, while facing two major challenges — surging US Treasury yields and rising US inflation expectations. Market expectations for interest rate cuts continued to be pushed back, and expectations for interest rate hikes further strengthened. The US April PCE price index rose 3.8% YoY, hitting a three-year high, with the core index accelerating to 3.3% YoY. The US dollar index fluctuated at highs, continuing to weigh on non-ferrous metal prices. Geopolitical tensions remained stagnant this week. Iranian officials stated that the Iran-US "memorandum of understanding" text had not been finalized and Iran had not agreed to any memorandum of understanding. Should tensions ease, expectations for a recovery in sulfur supply would exert short-term pressure on nickel prices; on the other hand, a continued stalemate would mean sulfur cost support remains intact, providing a floor for nickel prices. Inventory side, Shanghai Bonded Zone inventory was approximately 1,700 mt this week, flat WoW. China's social inventory was approximately 117,000 mt, an inventory buildup of approximately 4,200 mt WoW. Currently, nickel prices are in a prolonged tug-of-war between bulls and bears. High inventory continues to suppress nickel price elasticity, serving as the core resistance constraining price upside. The most-traded SHFE nickel contract is expected to trade in a core range of 138,000-148,000 yuan/mt next week.

Today, the most-traded BC copper contract 2607 opened at 92,800 yuan/mt. After touching a low of 92,310 yuan/mt at the start of the session, the copper price center fluctuated upward, reaching 93,610 yuan/mt after the daytime session opened, then hovered at highs, and finally closed at 93,200 yuan/mt, up 0.92%. Open interest stood at 10,095 lots, an increase of 364 lots from the previous trading day, while trading volume reached 7,821 lots, an increase of 141 lots from the previous trading day. US April core PCE inflation rose to 3.3%, and US Fed officials remained open to rate hikes. Iran's Revolutionary Guard struck US military bases, escalating military conflict between the two sides. The Iran-US memorandum of understanding has not yet been finalised, with Iran demanding unconditional unfreezing of assets while the US insists on nuclear concessions as a precondition and denied the strait transit fee plan. Expectations of a US-Iran deal gradually deepened, and combined with PCE data meeting market expectations, this boosted copper prices. On the fundamentals, supply side, affected by the widening price spread between futures contracts, suppliers had weak willingness to sell, while spot copper supplies in circulation across China's regions remained tight. Demand side, affected by rising copper prices, downstream players showed insufficient willingness to chase higher prices, maintaining only just-in-time procurement, and overall market trading was sluggish. SHFE copper 2607 contract closed at 105,000 yuan/mt. Based on the BC copper 2606 contract at 93,200 yuan/mt, its after-tax price was 105,316 yuan/mt. The price spread between SHFE copper 2607 contract and BC copper was -316 yuan/mt, showing an inversion that widened compared to the previous day.