China’s metals consumption rebounds after holiday: copper inventories fall sharply, but steel output continues to weaken

Consumption rebounds after the holiday: what signal is copper sending?

The week ending 23 October was the first full week of activity after the National Day holiday. JPMorgan uses weekly changes in visible inventories as a proxy for consumption and on that basis sees a recovery in industrial activity momentum.
Visible copper inventories in China shifted from rising to falling, dropping by 22 thousand tonnes in a week, the largest weekly decline since July and stronger than the seasonal trend. Inventories fell to 83 thousand tonnes, about half their level a year earlier.
China’s Yangshan copper premium rose to 168 dollars per tonne, a high for the year. JPMorgan’s commodities research team expects China’s refined copper demand to grow by 2.9% in 2027, supported by demand from the power grid and machinery sectors.

Aluminium inventories fell by 53 thousand tonnes in the same week, following two consecutive weeks of drawdowns of about 50 thousand tonnes per week; however, China’s visible aluminium inventories still stood at 583 thousand tonnes, unchanged from a year earlier.
JPMorgan considers an aluminium supply surplus in 2027 to remain one of the biggest risks to prices. Emirates Global Aluminium’s Al Taweelah smelter has returned to 50% of capacity, faster than many expected.
Zinc inventories fell by 7 thousand tonnes in a week, a drawdown stronger than the seasonal trend; but total inventories remained at 195 thousand tonnes, their highest level since 2022 and about 80 thousand tonnes below this year’s peak.

In the ten days ending 20 October, China’s steel output fell 4% year on year and 3% from the preceding ten days. Annualised output based on the period’s production was 865 million tonnes, the lowest for the same period in more than five years; steel mill margins remained negative.
Iron ore prices remained near their 52-week low of about 90 dollars per tonne, but falling freight rates lifted miners’ free-on-board prices after freight. Freight from Australia to China has fallen by about 3 dollars since early October to 11.7 dollars per tonne, while freight from Brazil to China has fallen by about 7 dollars to 30 dollars per tonne.
JPMorgan estimates that Australian and Brazilian iron ore free-on-board prices have recovered to about 78 dollars and 60 dollars per tonne, respectively. Despite the decline, freight on the Brazil route remains about 50% above its normal level before the Iran conflict.

Slower infrastructure spending has left budget expenditure weak, but an additional 550 billion yuan in local government bond quota and approximately 1 trillion yuan in government bond issuance since October lead JPMorgan to expect that fiscal impetus may continue through year-end and into early 2027.
The bank believes that progress on infrastructure projects including water networks, new power grids, computing networks, communications networks, underground utility networks and logistics networks could support metals demand.