Base Metals in the Balance: Copper Shines, Aluminum Struggles Ahead of Trade Talks

Investors are bracing for volatility in base metals as U.S.-China trade talks loom large. While copper is soaring on supply shortages and geopolitical tension, aluminum and zinc face headwinds from oversupply and tariff battles. Let’s break down the key metals and what traders should watch.

Copper: The Star of the Show

Copper is the clear winner here, with prices hitting $4.69 per pound year-to-date—a 16% surge—driven by historic supply shortages and U.S.-China trade friction. Goldman Sachs now sees prices hitting $10,500/mt by late 2026, citing structural deficits.

The math is simple: China’s copper inventories have plummeted to 116,800 metric tons, down 55,000 mt from earlier this year, while U.S. demand soars due to Trump-era trade barriers that block cheaper imports. Meanwhile, COMEX copper inventories hit 2018 highs, signaling hedging activity against supply disruptions.

Action to Take: Buy copper miners like Freeport-McMoRan (FCX) or ETFs tracking copper futures. This is a long-term bet on green energy demand—copper’s role in EVs, renewables, and grid upgrades will only grow.

Aluminum: Stuck in a Slump

Aluminum is the laggard. Secondary aluminum prices have crashed 8.2% year-over-year, with the SMM A00 grade trading at 19,610 yuan/mt. The culprit? Weak demand and margin-crushing cost pressures.

• Demand Drought: Automotive production in Guangdong province—the heart of China’s car industry—has collapsed 18% year-over-year, while construction in Zhejiang province dropped 11%.
• Margin Squeeze: The premium for ADC12 (a key automotive alloy) over raw aluminum has halved since 2024, hitting 600–800 yuan/mt. Producers are now operating near breakeven at 19,800 yuan/mt, with some shutting plants altogether.

Action to Take: Avoid aluminum unless prices rebound above 20,500 yuan/mt. Look for a catalyst—like a China fiscal stimulus package—or prepare for more pain.

Zinc: A Geopolitical Tug-of-War

Zinc is caught in the crossfire of U.S.-China trade tensions. China’s 40% tariff on U.S. zinc concentrates has triggered chaos for Alaska’s Red Dog Mine, which supplies 5% of global zinc.

• Tariff Impact: Chinese buyers now face a $180–$220/mt cost hike, forcing Red Dog to slash prices or seek alternative markets.
• Inventory Tightness: LME zinc inventories have shrunk to 165,000 tons, pushing prices to $3,200/mt—but JPMorgan warns of a $2,500/mt average in Q2 due to oversupply.

Action to Take: Zinc is a “wait-and-see” play. If Red Dog can pivot to South Korea or India, prices could stabilize. But with a potential 130,000 mt surplus in 2025, patience is key.

Trade Talks: The Wild Card

The U.S. and China are set for critical talks in Geneva, but don’t expect miracles. Trump’s hints that “tariffs will come down” clash with Beijing’s demand for preliminary tariff cuts before deeper negotiations.

• Risk: If talks fail, U.S. zinc tariffs could hit 145%, and copper’s structural deficit could push prices to $10,500/mt.
• Reward: A compromise could unlock $300/mt relief in copper and ease zinc’s logistical bottlenecks.

Conclusion: Bet on Copper, Wait on the Rest

The base metals market is a tale of two metals: copper shines, while aluminum and zinc stagnate. Here’s the bottom line:

1. Buy Copper: The green transition and supply shortages make this a no-brainer.
2. Avoid Aluminum: Unless China’s infrastructure spending ignites, stick to sidelines.
3. Zinc? Proceed with Caution: Monitor Red Dog’s pivot efforts and tariff negotiations.

Trade talks could swing prices wildly—stay nimble. If the U.S. and China de-escalate, copper miners and zinc’s Red Dog could soar. If not? Copper’s fundamentals alone might keep it aloft, but zinc and aluminum could sink further.

Invest wisely—this is a game of inches.

Data as of May 2025. Past performance does not guarantee future results.