According to China Nonferrous Metals News, copper prices both domestically and internationally have surged significantly since late September. Three primary factors have driven this rally: first, supply shortage concerns spreading from copper mines to refined copper markets; second, expectations of increased investment and consumption demand spurred by a new round of global monetary easing and fiscal expansion policies; and third, rising copper demand for AI-driven computing center construction. Thus, the copper price surge reflects a synergistic convergence of favorable supply-demand dynamics and macroeconomic factors. Given that the supply shortage at the mining end is unlikely to reverse in the near to medium term, coupled with heightened prospects of refined copper production cuts, copper prices are poised to rise rather than fall, with a strong likelihood of reaching new historical highs.

Supply Shortage Transfers from Mining to Refined Copper

Copper mine supply issues remain a focal point for the copper industry. Despite continuous additions of new production capacity, factors such as declining ore grades, labor strikes, political instability in copper-producing nations, and the high cost and long cycle of exploration have resulted in actual copper mine output increases falling short of expectations, with some regions even experiencing production declines. Data released by the U.S. Geological Survey (USGS) shows that since 1991, the average grade of global copper ore has decreased by 30%.

Since the start of 2024, copper prices have continued to climb, with the primary driver being expectations of copper ore shortages. In 2023, overseas mines charged Chinese smelters processing fees as high as $88 per ton for long-term copper ore contracts. This year, that fee has dropped to $21.3 per ton. For spot copper ore, processing fees for imported bulk copper concentrate have fallen into negative territory. This means mines are no longer paying smelters processing fees; instead, smelters are paying them.

The tight copper ore supply pattern is unlikely to reverse over the next 1-2 years. In the second half of 2024, events and factors impacting copper ore production intensified, including successive production disruptions at major mines in Indonesia, the Democratic Republic of the Congo (DRC), and Chile. Notably, Indonesia's Grasberg mine halted operations after a mudslide killed seven workers, contributing to this year's shift to a copper ore supply deficit. Industry estimates project a copper ore supply deficit of 700,000 to 750,000 metric tons for 2025, with the shortfall expected to widen further in 2026.

Current indications suggest this copper shortage is now impacting refined copper production. From January to August, global refined copper output maintained robust growth. Data from the International Copper Study Group (ICSG) shows a 3.9% increase in global refined copper production, reaching 19.073 million metric tons, with China contributing significantly to this output. Research data from Antaike indicates that from January to September, 24 sampled Chinese enterprises cumulatively produced 9.298 million tons of cathode copper, a year-on-year increase of 12.11%. In September alone, cathode copper output reached 1.0544 million tons, up 13.53% year-on-year. However, these 24 enterprises saw a month-on-month decline of 4.4% in cathode copper production, marking the first decrease this year outside of the Spring Festival month.

Raw material shortages have forced copper smelters to cut production. Extreme scarcity of upstream copper concentrate, coupled with sustained expansion of midstream smelting capacity, has triggered a historic plunge in copper smelting processing fees, completely disrupting the traditional profit model of the copper smelting industry. Based on spot copper concentrate processing fees, copper smelters have now sustained losses for over half a year.

Chinese copper smelters managed to increase production from January to August primarily due to three factors: First, the processing fee for long-term copper concentrate contracts stood at $21.5 per ton, keeping smelters above the break-even point, though profits remained below 300 yuan per ton; Second, revenue from byproducts like gold and sulfuric acid offset losses from negative copper processing fees. Third, some smelters utilized scrap copper, anode copper, and other copper-containing materials as cold feedstock for production.

In September, a significant portion of the production cuts by Chinese copper smelters stemmed from depleted inventories of cold materials. Industry research indicates that tight supply and elevated prices of cold materials, driven by tax policy reforms on recycled copper, forced enterprises to reduce output due to raw material shortages. Scrap copper inventories continued to decline in the second half of the year. From January to September, China's imports of scrap copper increased by only 1.5% year-on-year.

Demand Growth Explosion: Shortage Difficult to Disprove

From the demand side, although high copper prices have dampened consumption—with some copper processing enterprises even scheduling maintenance—the explosive demand and low inventory levels indicate that copper prices lack the momentum for a significant correction or decline. In terms of spread structure, SHFE copper futures exhibit a mild backwardation, signaling that supply remains tight in the short term. Longer-term contracts underperformed near-term ones, driven by market expectations of copper ore supply recovery—a scenario that appears unlikely to materialize. Spot premiums show copper shipments from South America to Europe continue climbing. In early October, Chile's national copper.

As an integrated internet platform providing benchmark prices, on November 6, the benchmark price of copper on SunSirs was 85,431.67 RMB/ton, a decrease of 2.47% compared with the beginning of the month (87,595.00RMB/ton).Application of SunSirs Benchmark Pricing：

Traders can price spot and contract transactions based on the pricing principle of agreed markup and pricing formula (Transaction price=SunSirs price + Markup).

If you have any inquiries or purchasing needs, please feel free to contact SunSirs with support@sunsirs.com.