[SMM Daily Comment: Rising Policy Uncertainty Fuels Strong Wait-and-See Sentiment in the Market] June 1 — The SMM upstream sentiment index for high-grade NPI was 3.05, down 0.06 MoM, while the downstream sentiment index for high-grade NPI was 1.94, down 0.03 MoM.

[China Inventory Continued to Decline This Week, Aluminum Prices Show LME Outperforms SHFE in the Short Term] China inventory continued to decline this week but at a modest pace, limiting the upside elasticity of SHFE aluminum, with the divergence between domestic and overseas markets expected to persist in the short term. Key areas to watch going forward include whether China inventory destocking accelerates, whether the US-Iran deal can be formally signed, further clarity on the US Fed's rate path, and whether China is further tightening regulations on aluminum capacity operations. Overall, aluminum prices are expected to continue moving sideways in the short term, with LME outperforming SHFE.

[SMM Lead Morning Meeting Minutes: Divergent Fundamentals in and outside China, Lead Prices Expected to Lack Upward Momentum] Over the weekend, U.S.-Iran negotiations took another turn, with foreign media reporting that Trump significantly revised the memorandum of understanding, proposing tougher terms in an attempt to pressure Iran into accelerating negotiations. The macro landscape remains complex and volatile, while lead fundamentals diverge. In markets outside China, LME lead had previously been in a backwardation structure...

[SMM Zinc Morning Comment] Overnight, the most-traded SHFE zinc 2607 contract opened lower with a gap at 24,880 yuan/mt. At the beginning of the session, SHFE zinc briefly touched a high of 24,885 yuan/mt before bulls reduced their open interest, sending prices rapidly lower. Near the end of the session, it dipped to a low of 24,630 yuan/mt, ultimately closing down at 24,665 yuan/mt, a decline of 300 yuan/mt or 1.20%. Trading volume fell to 67,517 lots, and open interest decreased slightly by 128 lots to 109,000 lots.

Analysis of Copper Scrap Market Operations in May 2026: Supply-Demand Deadlock and Structural Contradictions amid High Volatility

Mexico is formally seeking the removal of US Section 232 tariffs on steel and aluminum — currently set at 50% — as part of ongoing USMCA review negotiations. Mexico's Economy Minister Marcelo Ebrard described the 50% rate as unacceptable and without justification, following May 27-29 talks between Mexico's Ministry of Economy and the US Trade Representative. Mexico is also advocating for a regional approach to the automotive sector, citing deep North American production integration and existing USMCA rules of origin. Additional rounds of negotiations are scheduled for June and July. Separately, Mexico has already mandated that federal construction projects use only domestically produced steel.

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

[China zinc concentrates market] According to SMM, this week the domestic zinc concentrates market was in the peak period of TC negotiations for June, with overall TCs continuing to decline. The tight supply situation of domestic ore remained unchanged, and smelters continued to actively purchase domestic zinc concentrates.

[Ore Supply Tightness Remains Unchanged, Domestic and Imported Zinc Concentrate TCs Continue to Decline]: Based on weekly data, the SMM Zn50 domestic weekly average TC fell 250 yuan/mt Zn WoW to 150 yuan/mt Zn, and the SMM imported zinc concentrates index dropped $7.19/dmt WoW to -$63.44/dmt.

[Frequent Market Disruptions Drive SHFE and LME Prices Higher] At the beginning of the week, the tug-of-war between longs and shorts intensified. On the macro front, the Middle East situation remained unresolved and market uncertainty persisted, but the US dollar index retreated from highs. Combined with persistently low zinc ingot inventory outside China, LME zinc maintained a fluctuating trend......