[SMM Analysis]Weak Supply-Demand Pattern; Secondary Aluminum Prices Were Expected to Come Under Pressure and Pull Back in April

Supply glut, cautious demand, and fading cost support drag the benchmark contract down RMB 205/mt in the week of March 30 – April

Ero Copper and Southern Copper have reported strong earnings growth, reinforcing investor confidence in copper producers amid ongoing market volatility.

The escalating conflict in the Gulf, involving Israel, the 'US', and Iran, has caused a structural shift in global energy markets that extends far beyond short-term volatility. According to research firm Pexapark, attacks on liquified natural gas ('LNG') infrastructure have amplified this impact, shifting the focus from temporary logistical disruptions to medium-term supply risks. This evolving dynamic has direct and significant consequences for global electricity markets, power purchase agreements ('PPAs'), and the battery energy storage system ('BESS') sector.

This week, spot lithium carbonate prices retreated after a rapid rise and fluctuated downward overall. SMM battery-grade lithium carbonate prices continued to pull back, with industrial-grade lithium carbonate largely moving in sync. The futures market saw wild swings, with the price range of the most-traded contract fluctuating down from 170,000-173,000 yuan/mt at the beginning of the week to 154,300-162,800 yuan/mt. Intraday volatility was significant on each trading day, open interest continued to decline, and capital participation weakened. Market transactions remained sluggish, with upstream and downstream psychological price levels diverging further. Upstream lithium chemical plants saw stronger sentiment to hold prices firm and withhold sales this week, with relatively weak willingness to sell spot orders, and quoted prices generally staying above 164,000 yuan/mt. Downstream material plants, however, saw long-term contract volumes and customer-supplied volumes arrive successively at the beginning of the month, and, coupled with restocking through dip-buying at the start of last week, held relatively sufficient inventory at the beginning of the month. Purchase willingness was relatively weak, with only just-in-time procurement maintained, and the psychological purchase price level was basically around 155,000 yuan/mt. Market inquiries were moderate, but actual transactions were relatively mediocre. This week's price decline was mainly driven by the combined impact of multiple factors: First, supply side, repeated market rumors surrounding mines in Zimbabwe and Jiangxi continued to ferment, prompting some funds to close positions and exit, which became an important force pushing prices lower. As prices retreated from highs, earlier bulls showed stronger willingness to take profits; meanwhile, open interest continued to decline, reflecting increasingly cautious market sentiment. In addition, escalating geopolitical tensions in the Middle East increased uncertainty from the macro perspective, also putting some pressure on prices. Capital flows were characterized by continued position reductions and rollovers into deferred-month contracts. Futures open interest continued its declining trend this week, with position reductions of varying degrees on each trading day. It is worth noting that open interest between the 2605 contract and the 2609 contract has already shifted, indicating that funds are gradually moving to deferred months and that the market's willingness to participate in the short-term market has declined. Looking ahead, the market is expected to maintain a relatively strong pattern in the short term. Supply side, continued attention is still needed on the recovery of shipments from Zimbabwean mines and on when Jiangxi mines will resume production; demand side, the intensive launch of new car models in April is expected to drive marginal demand improvement. Lithium carbonate prices are expected to remain relatively strong in the short term.

Most second-quarter orders in the domestic EV market have been signed sequentially. While some manufacturers saw modest upward adjustments in payables, overall market changes remained limited.

Copper futures trading volumes on COMEX have rebounded to over 73,000 contracts, with open interest slightly increasing, indicating renewed market participation amid ongoing volatility.

Yieh United Steel Corp. announced further price increases for April 2026, marking its fifth consecutive monthly hike since December 2025. The mill raised surcharges for 304 and 316L series by NT$4,000/ton, while the 430 series rose by NT$1,500/ton. The cumulative growth for 304 products has now reached NT$19,500 over five months. These adjustments are driven by soaring energy costs amid Middle East tensions and tight supplies of ferrochrome and scrap. Additionally, potential Indonesian nickel export duties and stricter ore controls have pushed NPI prices higher. Combined with TWD exchange rate volatility, these factors necessitated the hike to offset rising production expenses.

Strikes on Middle East 'LNG' infrastructure are affecting long-term 'PPAs' and battery energy storage system ('BESS') economics, according to Swiss firm Pexapark. Lead analyst Nicolas Briet noted that supply risks from Qatar have tightened European fundamentals, visibly impacting 'PPA' valuations. A 10-year solar pay-as-produced 'PPA' in the UK saw a 19% fair value increase. Despite improved economics, 'PPA' transactions may remain slow due to buyer caution and rising equipment costs linked to higher energy prices. Conversely, 'BESS' is directly benefiting from increased intraday volatility and wider price spreads. Pexapark also reported 30 new 'PPA' deals in February 2026, the highest monthly volume since February 2024.

According to Cailian Press, the optical fiber concept rebounded amid intraday volatility, with SDGI hitting the daily limit-up after Hangdian Holding earlier touched limit-up; Zhongtian Technology, SDGI, YOFC, and TDG Holding also rose in tandem. On the news front, a research report by China Securities said that in February this year, China exported 3,779.9 mt of optical fiber worth 790 million yuan, up 63.6% and 126.8% YoY, respectively. Converted into kilometers, China’s optical fiber exports in February were about 25.2 million core-km, accounting for about 65% of China’s monthly effective optical fiber production.