China Securities Co., Ltd.: LME spot prices surge strongly, with copper prices approaching historical highs.

China Securities Co., Ltd. released a research report stating that this week, colored commodities have encountered some profit-taking at their respective key resistance levels, and there has also been a situation of cashing out in colored equities. However, given that commodity prices still have significant upward drivers, it is suggested to maintain some patience with colored metals. Gold prices are temporarily under pressure around the $4,500 mark, but both employment and inflation data have reduced the likelihood of interest rate hikes before the mid-term elections, keeping gold prices in a favorable period. There has been a rare high premium in the copper spot market, highlighting an extremely tight inventory situation; copper prices are just a step away from breaking historical highs, and the PE, priced at 10 times and only 100,000 copper, provides sufficient safety margins, showcasing cost-effectiveness. Key points from China Securities Co., Ltd. are as follows: Industrial Metals: This week, prices of LME copper, aluminum, lead, zinc, and tin changed by 1.1%, -0.8%, 0.6%, 1.7%, and 1.4% respectively. Industrial metal prices are determined by both "financial attributes" and "commodity attributes." From the financial perspective, the Federal Reserve has initiated a rate-cutting cycle; from the commodity perspective, global copper and aluminum inventories are relatively low, with a promising recovery in the Chinese economy and the boosting of demand from the new energy sector, leading to an improvement in copper and aluminum demand growth. LME spot prices are experiencing a significant premium, with copper prices nearing historical highs. (1) Gold: Optimism has slightly cooled, with gold prices hovering around the $4,500 mark. This week, the U.S. released July price data, showing a year-on-year CPI increase of 3.4%, the lowest year-on-year growth since March of this year; the core CPI increased by 2.5% year-on-year. Following the release of this data, market expectations for Federal Reserve rate hikes have noticeably cooled to around 35%. However, after a rapid rebound earlier, profit-taking has temporarily pressured gold prices around $4,500, while the probability of a rate hike before the mid-term elections continues to decline, creating a favorable period for gold prices. In the medium to long term, structural deficits in major economies, central banks strategic gold purchases, and escalating geopolitical conflicts continue to sustain gold's premium over sovereign credit systems. The World Gold Council's "2026 Global Central Bank Gold Reserve Survey" indicates that 89% of central bank reserve managers expect global central bank gold reserves to continue increasing over the next 12 months. (2) Copper: LME spot prices are experiencing a significant premium, with copper prices approaching historical highs. On one hand, the Comex-LME price spread is widening, reflecting the market's speculation regarding President Biden's announcement of tariffs on copper. As the C-L price spread expands, arbitrage activities to transport goods to the U.S. are intensifying, leading to further declines in inventories outside the U.S. and increasing spot tension. The premium for LME spot copper relative to three-month copper has reached $434/ton, up from $45 two weeks ago, marking the highest level since October 2021. The price structure where near-month contracts are priced higher than far-month contracts highlights a severe inventory shortage, which is very favorable for strong commodity prices. Currently, copper prices are just a step away from the historical high of $14,527.5/ton, with strong momentum to break this high. The incremental supply of global copper mines this year has once again fallen short of expectations, leaving the global refined copper market in a state of total deficit, amplified by localized tensions caused by U.S. transport activities, allowing copper prices to maintain strength. (3) Aluminum: The resumption of production in the Middle East does not alter the annual shortage, and aluminum prices maintain an upward trend. This week, LME aluminum fell by 0.76% due to a slightly faster-than-expected production resumption process announced by Emirates Global Aluminium. The Middle East has cut 2.86 million tons of capacity this year, and Mozambique has shut down 520,000 tons of capacity, resulting in a global electrolytic aluminum supply gap of 1.2 million tons this year. Both domestic and foreign stocks continue to deplete, with domestic inventories officially falling below 900,000 tons and LME inventories dropping below 250,000 tons. While production is resuming in the Middle East, attention is also on the commissioning of new overseas capacity in the millions of tons, but these will contribute to future output increases and cannot resolve the reality of this years shortage. The short-term gap will drive an aluminum price rebound, leading to outstanding performances from aluminum companies and a rise in aluminum-related assets. Risk Warnings 1. A significant global economic downturn and a cliff-like decline in consumption. The World Bank, in its latest "Global Economic Outlook," has raised the global economic growth forecast for 2026 from 2.3% to 2.6%. However, economic growth has shown signs of slowing in recent years. If the global economy falls into a deep recession, it will have a tremendous impact on the consumption of non-ferrous metals. 2. U.S. inflation spirals out of control, and the Federal Reserve tightens monetary policy more than expected, with a strong dollar suppressing equity asset prices. If the U.S. fails to effectively control inflation and continues raising interest rates, the Federal Reserve's substantial and consecutive rate hikes will maintain upward pressure on service prices, especially rent and wages, which are sticky and restrain inflation's return. If the Federal Reserve maintains high-intensity rate hikes, it will be detrimental to non-ferrous metals priced in dollars. 3. Domestic new energy sector consumption growth is less than expected, and the real estate sector continues to show sluggish consumption. Although policies for real estate sales have been relaxed to varying degrees, residents' purchasing willingness is lacking, and the progress in resolving real estate companies' debt risks has not proceeded smoothly. If sales continue to show no improvement, the real estate completion sector will face a risk of stalling, which would negatively impact the consumption of certain non-ferrous metals in the domestic market.