At the end of October, the three-month copper price on the LME broke through the 11,200 USD/ton mark, and the futures price of copper in Shanghai broke through the 89,240 RMB/ton mark, both setting historical highs. Besides the positive driving force brought by the phased macro policy expectations, this rise in copper prices could not be separated from the frequent and unexpected disruptions in the copper mine sector, which further intensified the supply contradiction and expectations, as well as the influx of a large amount of speculative capital.

After the market enthusiasm cooled down, in November, copper prices entered a high-level adjustment stage. Considering that the tight pattern of copper mines is difficult to alleviate in the short and medium term, the strategic resource status of copper is gradually improving in the process of energy transition, and the development of emerging countries is driving copper consumption, etc., from the medium and long-term point of view, copper is still a relatively good long-term position.

Copper mines frequently disrupted, exacerbating supply-tight logic.

Long-term structural contradictions: insufficient investment and deteriorating resource endowments

A large copper mine typically takes 8 to 10 years from exploration, feasibility study, construction to production, involving massive investment and high risk. After the "super cycle" of commodities in the mid-2010s, mining companies' capital expenditure turned cautious. Subsequently, the rise of ESG (environment, society, and governance) investing, and the avoidance of fossil fuels by investors in the context of global energy transition, did not fully translate into a preference for base metals, leading to a long-term funding constraint for new copper mine projects.

The average grade of copper ore has declined from around 1% to 2% a few decades ago to less than 0.7% at present, and the easily accessible high-grade copper ore resources are becoming increasingly exhausted. New discoveries of ore bodies are often located in deeper, more remote, or more geologically complex areas, leading to a significant increase in mining costs and further dampening investment enthusiasm.

Copper mine disruptions are frequent, amplifying supply chain vulnerabilities.

This year, several large copper mines have exceeded expectations in terms of production cuts and shutdowns, including the Kamoa-Kakula mine earthquake, El Teniente and Grasberg accidents, etc., which has once again made the increase in copper mine supply this year fail to meet expectations, and the year-on-year growth rate has continued to decline compared to 2024. SMM expects that this year, the global copper concentrate production will be 19.48 million tons of metal, a decrease of 2.2 million tons of metal compared to the same period last year. The unexpected reduction in mine supply has directly led to the deterioration of the global copper concentrate supply and demand balance. Since the third quarter, most institutions have begun to adjust downward the increase in global copper mine production. At the same time, the ICSG has significantly reduced its expectation for the year's global mine production growth rate from 2.3% to 1.4%.

The imbalance between supply and demand in the copper mine has been reflected in the accelerating decline of TC. As of the end of October, Mysteel's 25% clean copper concentrate forward spot TC composite index was -42.5 USD/dry ton, down 144.88% from the September 2023 high of 94.7 USD/dry ton, and also significantly lower than the historical average of 61.54 USD/dry ton from 2015 to 2024.

The copper mine shortage or will further transmit to the domestic smelting end.

For domestic smelters, as long as the long-term contract TC (21.25 US dollars/dry ton this year) and by-products still contribute a certain amount to the smelting profit, the refined copper output has remained at a high level since the beginning of the year. However, the market expects that the long-term contract TC is likely to remain at the zero level in 2026, and even individual negotiations may show a negative value. And Antofagasta locked in 50% of the mine volume for 2026 with China's major smelters at 0 US dollars/dry ton and 0 US cents/pound in June, which has already seen the era of zero TC, and in December this year, the results of the remaining 50% of the mine volume TC negotiations between the two sides will become the focus of market attention. Speculatively, Chinese smelters may also face huge loss pressure in the later period, and it is not impossible to see joint production cuts.

New energy + AI wave

Copper's "strategic resource" attribute is further highlighted

With the acceleration of global power-related industry investment, the strategic value of copper in the commodity market and its medium- and long-term supply and demand prospects are increasingly focused on. Many countries have included copper in their list of critical minerals. From electric vehicles, renewable energy and energy storage stations to transmission and distribution networks, and then to the AI computing power infrastructure, copper runs through every key link of the current energy transition and the smart wave. The industry widely expects that this trend will continue to drive global copper demand growth in the future. The International Energy Agency (IEA) predicts that by 2030, the proportion of copper used in the new energy field will exceed 30%. This year, the annual growth rate of copper used in the global "digital infrastructure" exceeds 15%, and the total demand for copper in 2030 may reach 10 million tons. At the same time, the demand in traditional fields continues to support the bottom: China's ultra-high voltage construction, the transformation of old power grids in Europe and the United States (with an average service life of more than 40 years) has pulled the proportion of copper used in the power industry to a stable 45% ~ 48%, and the acceleration of urbanization in emerging markets such as India has led to a growth rate of more than 10% in the demand for copper in construction, forming a demand pattern of "traditional support + emerging outbreak", which consolidates the strategic resource attributes of copper and attracts macro funds to lay out in advance.

Unignorable growth in overseas demand

From a macro perspective, the global economy is transitioning from "stagnation and inflation concerns" to "modest recovery," especially as the process of industrialization and electrification accelerates in emerging markets. The infrastructure construction and manufacturing sectors in these markets are experiencing relatively rapid development, which will bring about a growth in the fundamental demand for copper. This also drives China's exports to maintain a high level of prosperity.

Since the end of 2024, the market has always been concerned about the trend of China's exports. Especially after Trump proposed the "reciprocal tariff" policy at the beginning of April this year, the pessimistic mood reached its peak. However, the actual export performance has continued to exceed expectations, breaking the market's pessimistic expectations time and time again. From January to October, China's exports increased by 5.3% year-on-year (5.2% year-on-year last year), with strong resilience.

Looking at the regional structure of China's exports in the first 10 months, China's exports to ASEAN and the EU accounted for 17.5% and 14.9% of its total exports, respectively, while its exports to Africa and Latin America combined accounted for 13.8%; its exports to the United States accounted for 11.4%, which was significantly lower than the 19.2% at the end of 2018. High-end manufacturing products are where China's competitiveness lies. In October, China's car exports increased by 34.0% year-on-year, its ship exports increased by 68.4% year-on-year, and its exports of integrated circuits increased by 26.9% year-on-year; its lithium battery exports increased by 26.8% year-on-year in the first three quarters.

The growth of China's wire and cable exports directly related to copper has remained high, with the General Administration of Customs showing that in September, the total export volume of China's wire and cable was 252,300 tons, a year-on-year increase of 21.38%. Among them, the export of copper wire and cable was 124,800 tons, a year-on-year increase of 45.38%.

The test of reality:

High prices lead to a reflexive suppression of micro-consumption

Copper prices at high levels have significantly increased the working capital occupation of raw materials for downstream enterprises, especially for small and medium-sized enterprises, which face a dilemma of " purchasing is a loss" or "no money to purchase" due to limited financing channels and weak cash reserve, and are eventually forced to reduce load or exit the market, further contracting the overall demand scale. In addition, the high copper price has led to a widening of the price difference between " primary copper" and " secondary copper", and at the same time, downstream enterprises have been stimulated to explore low-cost alternative materials. The superposition of the two demand diversion effects has further weakened the terminal consumption demand for primary copper, and this alternative trend is particularly obvious in the middle and low-end fields. Therefore, investors should be cautious in addition to the high enthusiasm for speculation.

Looking ahead, the short-term fluctuations and consolidations in copper prices are adjustments and digests of the market's over-rapid rise. However, in the long run, the tight balance of supply and demand, jointly constituted by "structural supply constraints" and "disruptive demand growth," determines that copper's strategic position is unshakable. Any deep correction caused by market sentiment or short-term factors may, in fact, provide better opportunities for medium to long-term positioning.

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