In late September, due to factors such as the suspension of production at the Grasberg mine in Indonesia and other disruptions, copper prices broke through the trading range since May. The futures price of domestic copper and the futures price of LME copper both rose to 80,000 RMB/ton and 10,000 US dollars/ton, respectively, setting new highs for the year. After the copper price touched the high level, the fluctuation significantly intensified. On October 10, due to the expectation of trade friction, the LME copper price fell sharply, with a single-day decline of 3.73%. Subsequently, as the expectation of trade friction cooled down, the copper price recovered some of the losses. From a medium-term and long-term perspective, the problem of supply shortage may continue to consolidate the bottom of copper prices. In the short term, copper prices may be affected by macro factors such as tariffs and experience increased fluctuations.

Copper mine supply still has uncertainties

On the supply side, data shows that the combined output of the world's major copper mining companies in the first half of this year increased by only 1.28% year-on-year, falling short of the expectations at the beginning of the year. The Grasberg mine area, operated by Freeport-McMoRan, began to shut down in September. In the fourth quarter, the output of the Grasberg mine area is expected to plummet by about 2 million tons (accounting for 0.9% of the global copper mine supply), and the output in 2026 is expected to decrease by another 2.7 million tons (accounting for 1.2% of the global copper mine supply). This has caused a significant impact on the global copper mine supply, and it is expected that the growth rate of global copper mine output will still be at a low level in 2026.

Apart from the Grasberg copper mine shutdown incident, this year, the global market has also witnessed several large copper mine supply disruptions. For example, in May, the Kamoa-Kakula copper mine, owned by Ivanhoe Energy, suspended mining operations due to an earthquake; in July, the El Teniente mine, operated by Glencore, also suspended underground operations due to an earthquake. Currently, the global copper mine supply exhibits significant rigidity characteristics and vulnerability, and concerns over copper mine supply shortages are increasingly growing.

Copper concentrate handling fees continue to decline

The tight supply situation at the mine end and the oversupply of refining capacity form a stark contrast. The treatment and refining charge (TC) for copper concentrate has been declining since the beginning of this year and has been in negative territory since April. Despite the current negative TC, refining plants are still able to maintain a certain level of cash flow and profit due to the good returns from by-products such as sulfuric acid, gold, and silver, and there has been no large-scale production reduction so far.

But since September, the price of sulfuric acid has begun to show a trend of falling from a high level. If the prices of by-products such as sulfuric acid continue to fall in the future, and at the same time, TC remains at a low level, the smelter will face a situation of cash flow loss, and there is a possibility of a phased reduction in production at the smelting end. Against the backdrop of a tight supply of raw materials, in September, the domestic refined copper production decreased by 4.31% compared to the previous month, and the production in October is expected to continue to decline.

Demand is hard to fall significantly

On the demand side, data released by the International Copper Study Group (ICSG) showed that in the first seven months of the year, global refined copper consumption increased by 5.94% year-on-year, among which, China's copper consumption growth was strong, reaching 11.45%, offsetting the impact of the slowdown in the growth rate of copper consumption in the EU and the United States, Japan.

In the first half of the year, the high growth rate of China's copper demand was mainly reflected in the following aspects: First, due to the impact of the United States' proposed tariff increase, the market saw a "rush to export" situation. Second, the photovoltaic and wind power industries were affected by policy changes, and companies rushed to complete their work in the first half of the year, which is the policy window period, resulting in a doubling of the installed capacity of photovoltaic and wind power.

Due to the above-mentioned "rushing to export" behavior and the demand distortion caused by the policy window period, the growth rate of copper demand is expected to decline in the second half of the year compared to the first half. However, the overall supply and demand imbalance in the copper market is limited due to the simultaneous tightening of supply, and it is within the market's expectation range. In the absence of an economic recession, it is difficult for demand to decline, and the focus in the future needs to be on the acceptance level of high copper prices by downstream end users.

The US dollar's weak performance supports copper prices.

Macro wise, the Fed has resumed its rate-cutting process in September, which provides a favorable macro environment for copper prices.

1-8, the Fed maintained a neutral attitude towards rate cuts and did not start the rate-cutting measures. However, since late August, the employment situation in the United States has continued to show a weakening trend. The minutes of the FOMC meeting in September showed that the risks faced by the US labor market have increased to the point where they support a rate cut. The Fed believes that recently, the growth of the US labor market has shown a more concentrated trend, mainly concentrated in the technology field and high-value-added industries, while the increase in jobs in cyclical-sensitive sectors (such as retail, catering, etc.) has slowed down. In addition, the low activity of recruitment rate and resignation rate also shows that the labor market is continuing to slow down. In the first half of the year, the market was concerned that Trump's import tariff policy might exacerbate the inflationary pressure in the United States, but the US inflation data in July and August showed that inflation has not yet shown a significant upward trend. Against this backdrop, the Fed cut rates by 25 basis points as scheduled in September.

In addition, since the beginning of 2025, the US dollar index has been showing a weakening trend, falling from the high of 110 points and breaking through the psychological level of 100. This weak performance of the US dollar has also provided support for the upward trend of copper prices.

In the first half of this year, the impact of Trump's "reciprocal tariff" policy far exceeded market expectations, and the great uncertainty on the policy level made the short-term safe-haven attribute of the US dollar "fail". From a long-term perspective, the pace of global de-dollarization is accelerating, and the US dollar credit system is facing a historic choice of whether the hegemony will disintegrate and how to reconstruct it. The weakening of the US dollar credit makes it difficult for the US dollar index to rebound significantly.

"TACO trade" logic still exists

In the short term, tariff policies, the path of interest rate cuts by the US Fed, and arbitrage trading between COMEX and LME copper futures may cause disruptions to copper prices.

In terms of tariff policy, the "TACO trade" logic still exists. This is a trading cycle formed under the background of Trump's policies: Trump first introduces policies that exceed market expectations, causing the market to drop in panic; followed by a retreat in his attitude, the policies are then relaxed, and the market bounces back. Since Trump took office in 2025, the "TACO trade" logic has appeared many times, and this time is no exception. Trump's tariff threats are still a bargaining chip for him rather than a final goal. The pace of subsequent tariff negotiations may affect the trend of copper prices.

Regarding the Fed's interest rate cuts, CME Fed Watch data shows that the probability of the Fed continuing to cut rates in October and December this year is relatively high, and there may still be two rate cuts this year. This round of rate cuts is a "pre-emptive" rate cut initiated by the Fed to address the risk of a US economic downturn and the deterioration of the employment market. Historically, copper prices have performed better under "pre-emptive" rate cuts than under "recessionary" rate cuts. For the copper market, the more favorable macro-combo is "US economy weak but not declining" and "the expectation of rate cuts is gradually improving". We need to pay attention to changes in the Fed's rate cut path and the trading logic of the overseas macro market. If the US employment market does not show significant deterioration, the Fed's rate cut path is stable, and in the context of the macro market switching to recovery trading, the copper market is expected to benefit from the liquidity relaxation and demand stimulation brought by the Fed's rate cuts.

In addition, recently, the premium of COMEX copper over LME copper has once again shown an expanding trend. Looking back at the first half of this year, the price difference between COMEX copper and LME copper continued to expand under the expectation of the US imposing import tariffs on copper. On July 31, due to the announcement of the US "232" investigation that the range of products subject to additional tariffs would include copper products (excluding refined copper), the price difference between COMEX copper and LME copper dropped sharply that day. However, after the "232" investigation was implemented, COMEX copper still showed a trend of building up inventory. Recently, the price difference between COMEX copper and LME copper has once again expanded, and potential driving factors may include: First, Trump regards copper as a strategic resource, and the US government has included copper in the list of critical minerals; Second, Trump did not deny the possibility of continuing to impose import tariffs on refined copper in the future, and the market has already priced in the potential US copper import tariffs, with the expected time being 2027. If the price difference between COMEX copper and LME copper continues to expand later, the premium of copper in the US will continue to attract refined copper to flow in, thus exacerbating the supply shortage in non-US regions.

To sum up, in September, the Fed started cutting interest rates, the Grasberg mine was shut down, and copper prices hit a new high of the year under the resonance of financial and commodity attributes. From a medium-term perspective, the good fundamentals of copper support the gradual rise of copper prices, but after the price quickly rose to a high level, the volatility was significantly amplified. In the future, we will focus on the perturbation of macro factors such as tariff policies and the marginal changes in demand.

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