Metal Prices Fall: SHFE Nickel and Zinc Lead Market Decline

What Caused the Recent Metal Price Declines?

The global metals market has recently experienced a synchronized downturn, with multiple factors converging to drive widespread price reductions. Base metals, ferrous metals, and precious metals all faced selling pressure during early July 2025, creating significant challenges for producers and opportunities for strategic buyers.

Key Factors Driving the Market-Wide Decline

Macroeconomic pressures have intensified as global economic uncertainty continues to weigh on commodity markets. The U.S. dollar index rose 0.08% to 97.07 on July 7, 2025, applying downward pressure on dollar-denominated metals. A stronger dollar typically makes commodities more expensive for holders of other currencies, dampening demand in international markets.

Supply-demand imbalances have emerged across multiple metal categories. Production volumes have increased while demand growth remains moderate, creating inventory builds in key markets. This is particularly evident in the copper market, where Guangdong inventories have risen for six consecutive days.

"The current market environment demonstrates how quickly sentiment can shift when multiple bearish factors align. Strategic buyers who understand these cyclical patterns can position themselves advantageously during these downturns." – Metal Market Analysis, July 2025

OPEC oil production impact caught markets by surprise with an unexpected 548,000 barrels per day increase announced for August 2025. This decision, made during the July 5 virtual meeting, represents a significant shift from previous production restraint. Since April 2025, OPEC+ has implemented a cumulative production increase of 1.918 million barrels per day, with the UAE permitted to raise output by an additional 300,000 barrels per day.

Trade policy uncertainties loom large as new tariffs approach implementation. U.S. Treasury Secretary Scott Bessent indicated the country is finalizing multiple trade agreements ahead of tariffs scheduled to begin July 9, 2025. The announced tariff market impact includes a basic 10% tariff on most countries with additional tariffs of up to 50%, creating significant uncertainty for metal traders and consumers.

How Significant Were the Base Metal Price Drops?

The recent decline in base metal prices varied in severity across different metals and trading venues, with particularly notable movements in nickel and zinc markets. The synchronized nature of these declines suggests broad-based selling pressure rather than metal-specific concerns.

SHFE Base Metals Performance Analysis

Shanghai Futures Exchange (SHFE) metals experienced substantial declines during the July 7, 2025 session, with all six major base metals posting losses:

Nickel's steep decline reflects growing concerns about Chinese stainless steel production rates, which account for approximately 70% of global nickel consumption. The 1.31% drop represents the most significant single-day move for SHFE nickel since late June, indicating heightened market sensitivity to production data.

Zinc's 1.12% fall follows reports of increasing treatment charges at major smelters, suggesting adequate concentrate supply despite earlier concerns about mine output constraints. Market participants report that galvanized steel producers have reduced purchasing volumes as construction activity slows seasonally.

Copper's 0.87% decrease coincides with six consecutive days of inventory builds in Guangdong warehouses. The spot market showed increased inventory primarily due to higher arrivals, with premiums for high-grade copper cathodes decreasing by 30 yuan/mt from the previous trading day.

LME Metals Market Correlation

London Metal Exchange (LME) prices displayed a uniform decline pattern, though with generally smaller percentage changes than their SHFE counterparts:

• LME copper: -0.46%
• LME aluminum: -0.64%
• LME nickel: -0.59%
• LME zinc: -0.46%
• LME tin: -0.42%
• LME lead: -0.46%

The comparative analysis shows that LME nickel (-0.59%) experienced a significantly less severe decline than its SHFE counterpart (-1.31%), highlighting the stronger bearish sentiment in Chinese markets. This divergence creates potential arbitrage opportunities for sophisticated traders who can manage the logistics of physical delivery between markets.

The market alignment across global trading platforms demonstrates consistent downward pressure despite regional variations in magnitude. This synchronization typically occurs when macroeconomic factors overshadow metal-specific supply-demand dynamics.

What's Happening in the Ferrous Metals Sector?

The ferrous metals market has shown notable weakness, with all major contracts declining. This sector, critical to construction and manufacturing, faces multiple headwinds from both supply and demand perspectives.

Ferrous Metals Market Conditions

Coking coal led the ferrous metals decline with a substantial 1.59% drop, indicating potential weakening in steel production expectations. As a primary input for steel manufacturing, coking coal prices often serve as a leading indicator for steel market conditions. The significant drop suggests steel producers may be reducing purchases in anticipation of lower production requirements.

Coke closely followed with a 1.57% reduction, reinforcing the bearish signal from the coking coal market. The parallel movement of these metallurgical coal products typically indicates consensus among market participants about steel production trajectories.

Iron ore trends fell 0.61%, suggesting moderated steel production expectations among blast furnace operators. This relatively smaller decline compared to metallurgical coal products may reflect iron ore's broader demand base and different supply dynamics.

Finished steel products showed consistent declines across categories:

• Rebar: -0.62% (construction sector applications)
• Hot-rolled coil: -0.75% (manufacturing applications)
• Stainless steel: -0.59% (specialty applications)

The uniform direction of price movements across the ferrous metals complex points to market-wide factors rather than product-specific issues, consistent with broader macroeconomic pressures affecting industrial commodities.

Production Data and Supply Factors

China's coal output reached an impressive 1.99 billion tons in the first five months of 2025, according to data from the China National Coal Association. This production level represents continued growth in domestic supply, with May setting a new daily production record of 13.01 million tons.

"With the continued release of advanced production capacity in Shanxi, Shaanxi, Inner Mongolia, and Xinjiang, domestic coal production will increase by about 5% for the whole year," the China National Coal Association stated.

This robust production growth creates downward pressure on coal prices, potentially benefiting steel producers through lower input costs. However, the simultaneous decline in steel prices suggests that demand concerns are currently outweighing the positive impact of lower production costs.

Annual projections indicate a 5% increase in domestic coal production for the full year, which would represent the highest annual growth rate since 2023. This expansion comes as China continues to prioritize energy security through domestic resource development.

How Are Precious Metals and Specialty Materials Performing?

While precious metals and specialty materials typically demonstrate different market dynamics than industrial metals, the recent selling pressure has affected most categories. However, certain niche products have shown remarkable resilience, creating interesting divergence opportunities for specialized investors.

Precious Metals Market Movement

COMEX gold declined 0.67%, showing vulnerability despite its traditional safe-haven status. This weakness during a period of economic uncertainty suggests that the rising dollar index is currently the dominant factor for gold prices analysis, overwhelming potential safe-haven buying.

COMEX silver dropped 0.28%, demonstrating relative resilience compared to gold. Silver's industrial applications, particularly in electronics and photovoltaics, may be providing some support despite the broader market weakness.

Domestic precious metals trading on the Shanghai Futures Exchange showed similar but less pronounced declines:

• SHFE gold: -0.47%
• SHFE silver: -0.02% (showing remarkable stability)

The smaller decline in SHFE precious metals compared to COMEX contracts indicates stronger physical demand in Chinese markets, potentially reflecting different investor sentiment or greater retail buying interest.

Specialty Materials and New Energy Metals

Lithium carbonate decreased 0.38%, continuing pressure on battery material prices that began in late 2024. This decline occurs despite growing electric vehicle production, suggesting supply growth continues to outpace even robust demand expansion.

Silicon metal fell a modest 0.19%, showing minimal impact compared to other metals. The relatively small decline reflects silicon's specialized applications and different supply-demand dynamics compared to mainstream base metals.

Polysilicon stood out with a 0.97% gain, bucking the overall downward trend in metals and energy transition minerals. This exceptional performance likely reflects specific supply constraints in the solar manufacturing sector combined with strong renewable energy installation targets in key markets.

Alumina rose 0.63%, demonstrating strength in raw material pricing despite weakness in finished aluminum. This divergence creates margin pressure for aluminum smelters, potentially leading to production curtailments if sustained.

The contrasting performance of these specialty materials highlights the importance of understanding specific supply chains and end-use markets when investing in the metals sector. While broader economic forces affect all commodities, product-specific factors can create significant divergences.

What's the Impact on Regional Spot Markets?

Regional spot markets provide critical insights into physical metal demand beyond the futures markets. These markets reflect immediate supply-demand conditions and often provide early signals of changing market dynamics.

Copper Spot Market Dynamics

Guangdong spot premiums decreased by 30 yuan/mt from the previous trading day, reflecting weaker buying interest as prices declined. This reduction in premiums indicates that physical buyers remain hesitant despite lower absolute prices, suggesting concerns about near-term demand.

SX-EW copper discounts widened to 110 yuan/mt, down 50 yuan/mt from the prior session. This expanding discount for solvent extraction-electrowinning copper highlights quality differentials during market weakness, with buyers showing stronger preference for higher-grade material.

Price levels for standard copper cathodes reflected the broader market decline, with Guangdong #1 copper cathode averaging 79,805 yuan/mt, down 745 yuan/mt from the previous session. This significant absolute price reduction represents a meaningful cost reduction for copper-intensive manufacturers.

Inventory trends show six consecutive days of rising stockpiles in Guangdong, primarily due to increased arrivals. This consistent inventory build indicates that supply continues to outpace demand in China's key industrial region, creating downward pressure on both futures and spot prices.

Zinc Regional Market Conditions

Shanghai zinc markets showed improved transaction volumes as downstream buyers sought advantage of lower prices. This behavior indicates that certain price-sensitive consumers view current levels as attractive buying opportunities despite ongoing market weakness.

Ningbo zinc traders actively provided quotes with stable premium changes, suggesting less volatile conditions in this regional market compared to Shanghai. The stability in premiums indicates that local supply-demand balances remain relatively unchanged despite futures market volatility.

Market sentiment among zinc consumers has shifted somewhat, with buyers becoming more active at lower price points. This increased buying interest at depressed prices suggests that certain consumers perceive current levels as representing good value, potentially establishing a price floor if sustained.

How Are Global Economic Factors Influencing Metal Markets?

Metal markets operate within the broader global economic context, with monetary policy, currency movements, and trade relations playing crucial roles in determining price direction. Recent developments across these areas have created significant headwinds for metal prices.

Currency and Monetary Policy Impacts

US dollar strength has emerged as a significant factor, with the index rising 0.08% to 97.07 on July 7, 2025. This continuing dollar appreciation puts pressure on dollar-denominated commodities by making them more expensive for international buyers using other currencies.

Chinese monetary operations saw the People's Bank of China conduct 106.5 billion yuan in reverse repos with a net withdrawal of 225 billion yuan from the banking system. This liquidity reduction represents a shift toward slightly tighter monetary conditions, potentially constraining industrial activity and metal demand.

The RMB exchange rate was set at a central parity rate of 7.1506 yuan per US dollar, reflecting ongoing currency pressure that impacts the competitiveness of Chinese exports and the purchasing power of Chinese metal consumers in international markets.

Japanese economic indicators showed concerning trends, with real wages recording their largest decline in nearly two years. This deterioration in purchasing power in the world's third-largest economy has implications for metal-intensive consumer goods demand and industrial production.

Trade Policy Developments

US tariff implementation is scheduled to begin July 9, 2025, creating significant uncertainty for international metal flows. The approaching deadline has accelerated diplomatic negotiations, with potential last-minute agreements that could significantly alter the trade landscape.

The announced tariff structure includes a basic 10% tariff on imports from most countries, with additional tariffs of up to 50% on specific products and countries. This complex and substantial tariff regime would significantly disrupt established trade patterns if fully implemented.

Negotiation status remains fluid, with US Treasury Secretary Scott Bessent indicating that "the country is close to finalizing multiple trade agreements, and expects to make several major announcements in the coming days." These potential announcements create both risk and opportunity for metal market participants.

The uncertainty surrounding these trade policy developments has prompted cautious positioning among traders and consumers, contributing to the recent price weakness across metal markets. Resolution of this uncertainty, in either direction, could trigger significant price movements in the coming weeks.

What Should Investors Watch in the Energy Markets?

Energy markets significantly influence metal production costs and broader industrial activity. Recent developments in oil and coal markets have created a complex landscape that metal investors must navigate carefully.

Oil Market Dynamics

Price movements in petroleum markets showed significant declines, with US oil falling 1.37% while Brent oil declined 0.66% following the OPEC+ announcement. These price reductions potentially lower energy costs for metal producers, though the effect varies significantly by metal and production process.

The OPEC+ decision impact continues to reverberate through commodity markets after the organization announced a surprise production increase of 548,000 barrels per day for August 2025. This unexpected supply expansion represents a significant shift in OPEC+ strategy after years of cautious production management.

The production cut phase-out has now reached a cumulative increase of 1.918 million barrels per day since April 2025, substantially increasing global oil supply. This systematic unwinding of previous production restraint suggests OPEC+ anticipates adequate demand to absorb additional volumes.

Special allowances for certain producers add complexity to the supply picture, with the UAE permitted to raise output by an additional 300,000 barrels per day beyond its formal quota. These exceptional arrangements reflect the organization's internal dynamics and the growing production capacity of certain members.

Coal Consumption Outlook

The power sector is expected to show moderate growth in coal consumption for electricity generation, according to projections from the China National Coal Association. This growth comes despite increasing renewable energy capacity, reflecting continuing baseload power requirements.

Industrial usage projections indicate slight declines in coal consumption for steel and building materials industries, consistent with the weakness observed in ferrous metals markets. This reduced industrial coal demand partially offsets power sector growth.

The chemical industry continues to show moderate growth in coal consumption for coal-to-chemicals processes, particularly in regions with abundant coal resources and limited natural gas availability. This specialized application represents a growing segment of coal demand.

Annual projections from the China National Coal Association indicate overall coal consumption is expected to grow by approximately 1.5% for the full year 2025. This modest growth rate reflects the balancing of increasing power demand against efficiency improvements and alternative fuel substitution.

What's the Outlook for Metal Markets in Coming Months?

While forecasting precise price movements remains challenging, certain key indicators and structural factors provide insights into potential market directions. Investors should monitor these signals closely while maintaining awareness of broader macroeconomic developments.

Key Indicators to Monitor

Shipping rates offer valuable insights into global trade dynamics, with the European container shipping futures contract falling 0.91% to 1,875 points on July 7. This decline suggests weakening expectations for near-term shipping demand, potentially indicating reduced physical metal movements.

Inventory levels across major exchanges and bonded warehouses provide critical data on physical market balances. The continued monitoring of regional metal stockpiles, particularly given the six consecutive days of inventory builds in Guangdong copper, will signal whether current price levels are attracting buyers or further destocking is needed.

Production capacity developments, particularly the ongoing release of advanced production capacity in key regions like Shanxi and Inner Mongolia for coal, will determine supply-side pressures. Similar capacity expansions in metal production require close monitoring to anticipate potential oversupply conditions.

Downstream demand indicators from key metal-consuming sectors such as construction, automotive, and electronics will ultimately determine price trajectories. Consumer purchasing behavior in response to price declines provides important signals about price elasticity and potential support levels.

Strategic Considerations for Market Participants

Price floor assessment becomes increasingly important as markets search for equilibrium. Historical support levels, production cost curves, and prior market turning points provide context for evaluating whether current prices represent buying opportunities or remain vulnerable to further declines.

**Restocking

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