On September 8, LME copper hit another all-time high, breaking above 14,700 US dollars per tonne. The main contracts of domestic Shanghai copper and international copper futures also both rose by more than 1.2%, hitting new periodic highs of 110,890 RMB per tonne and 99,200 RMB per tonne respectively.

Several futures analysts told Yicai that the direct trigger for copper hitting a new high is the metal "relocation" driven by U.S. tariff expectations, which has made the U.S. market continuously "siphon" global copper resources. The supply of deliverable refined copper in non-U.S. regions has become tight, inventories at exchanges such as LME have been pushed to low levels, and the depletion of the spot pool has pushed up the price of LME copper. In addition, the passive contraction of domestic supply, the game over the Federal Reserve's interest rate hike expectations, and the U.S.-Iran conflict are also factors affecting copper prices in the near term.

While copper prices rose in the futures market, stocks of copper enterprises on the A-share market also performed well on the same day. In this regard, Zhou Xiaolu, Director of Non-ferrous Research at Zijin Tianfeng Futures, believes that the stock prices of copper enterprises and copper futures prices are highly linked, but it is not a simple rise and fall together. A new high in copper prices will directly drive up the profit expectations of copper resource enterprises. However, the market generally trades the profit elasticity of copper enterprises. The stock price response of resource-based copper enterprises will be more direct, while smelting and processing enterprises mainly earn processing fees, and their stock price elasticity is weaker than that of mining enterprises.

What is the situation of the copper industrial chain as copper prices rise? Gu Fenda, chief analyst at Guosen Futures, believes that the current copper industry can be summarized as a different structure of "scarce and expensive copper mines, smelters striving to minimize losses, and downstream players being cautious about high prices and focusing on rigid-demand procurement".

Looking ahead, Fu Xiaoyan, Senior Director of the Nanhua Futures Research Institute, told Yicai that the two core factors affecting copper prices in the coming period will be whether the United States will impose tariffs on refined copper and the Federal Reserve's interest rate resolution. Many respondents believe that copper prices will remain high with wide fluctuations and a gradual upward trend in the short term, but after the official announcement of the U.S. copper tariffs, it is likely that the positive news will be fully priced in, and copper prices will face a significant downside risk.

Global Copper Inventory Imbalance Amid U.S. Tariff Expectations

On September 7th, LME copper hit an intraday high of 14,533 US dollars per tonne, surpassing the previous peak of 14,527.5 US dollars per tonne set on January 29th, with a closing price of 14,494 US dollars per tonne. As of 19:20 Beijing time on September 8th, LME copper continued to rise, hitting a new historical intraday high and breaking through 14,700 US dollars per tonne.

In the domestic futures market, the main contracts of Shanghai Copper and London Metal Exchange (LME) Copper also rose for two consecutive trading days. On September 8, the gains expanded. The main contract of Shanghai Copper futures hit an intraday high of 110,890 RMB per ton and finally closed at 110,620 RMB per ton, breaking through the 110,000 RMB per ton mark for the first time in seven months, with a closing increase of 1.29%; the main contract of LME Copper futures rose to an intraday high of 99,200 RMB per ton, second only to the high of 101,028 RMB per ton on January 30, and finally closed at 98,860 RMB per ton, with a closing increase of 1.47%.

London copper prices hitting a new high is directly related to U.S. tariff barriers. Among the factors affecting copper prices in September, we have raised the weight of tariff policies." Fu Xiaoyan analyzed the logical chain, stating that the market is betting on the U.S. plan to impose higher tariffs on refined copper, and the long-term high premium of COMEX copper futures over LME copper futures has led traders to rush shipments for arbitrage. COMEX copper inventories have accumulated to approximately 767,000 short tons (about 696,000 tons), accounting for nearly 70% of the explicit inventories in global exchanges. Meanwhile, stocks outside the U.S. market have been drained, and inventories at exchanges such as LME have been pushed to low levels, forcing London copper to rise in price to attract the remaining supply.

Zhou Xiaocao also told Yicai Global that the overseas passive spot squeeze is the main driver of the rise in copper prices. Expectations of U.S. tariffs have triggered policy arbitrage, causing the U.S. market to continuously "suck" global copper resources. A large amount of copper has flowed into U.S. COMEX warehouses, leading to a shortage of available refined copper supply in non-U.S. regions. Some cargoes originally bound for China have been diverted to warehouses in Southeast Asia for delivery, further tightening overseas spot supply. LME inventories have dropped significantly, and the proportion of cancelled warrants has always remained above 50%. The number of registered warrants available for delivery on the exchange is extremely low, spot premiums (where spot prices are higher than futures prices) have risen, and the exhaustion of the spot pool has pushed up London copper prices.

At present, the import tariff policy of refined copper in the United States is unresolved. If the implementation of up the ante in stages will further strengthen the narrative of the United States siphoning non-US copper resources." Gu Fengda told reporters that Goldman Sachs calculated that the copper supply gap in the market outside the United States has soared from 60,000 tons to nearly 650,000 tons, and the proportion of LME copper cancelled warehouse receipts has exceeded 60%. The willingness of traders to grab goods and pick up goods has soared, which may brew the pressure of overseas copper resources and futures.

In addition, Zhou Xiaopeng believes that the passive contraction of domestic supply and the game of macroeconomic expectations are also the reasons for the rise in copper prices: on the one hand, the TC (treatment Charge) for copper concentrates has all the way dropped by more than 200 US dollars per dry ton, and at the same time, the price of sulfuric acid by-products has fallen, expanding the smelting loss. Coupled with the problem of recycled anode notes, many domestic refineries have been forced to cut production. The production reduction is expected to continue until the fourth quarter, limiting the supply of refined copper in China, and the domestic futures market has also formed a strong backwardation structure; on the other hand, the statements of Federal Reserve officials have been inconsistent, and the market has been来回 gaming between the expectations of "interest rate hikes" and "interest rate cuts". If the market digests the hawkish remarks and then returns to the expectation of interest rate cuts, it will further provide upward momentum for copper prices.

It is not just September that has seen this round of copper price rally, which actually started in late June and early July. According to Wind data, during the period from July 1 to 19:20 on September 8, the main contracts of LME copper, Shanghai copper and international copper futures all rose by more than 8%.

In Zhou Xiaolou's view, the drivers of the copper price's rise since July are not entirely the same as those in September. The market's upward trend was more jointly initiated by mine-side supply disruptions, the start of overseas inventory transfers, and the recovery of macro expectations, and the backwardation characteristics have not yet fully erupted; LME cancelled warrants and cash premiums have not yet reached extreme levels, and the passive production reduction of domestic smelters has not been fully reflected. More, it is driven by expectations first.

That is to say, "July saw the market rally kick off amid expectations and supply disruptions; August and September witnessed the cash squeeze, driven by the depletion of deliverable inventories on exchanges, become the primary driver pushing prices to new highs. It should be noted that the total physical supply of global copper was not extremely short, but the liquid inventories available for exchange delivery were drained, resulting in a tight cash market." Zhou Xiaohao said.

Industrial Chain Divergence: Miners Benefit, Smelters Under Pressure, Downstream Cautious of High Prices

As copper prices rise, the stock prices of copper enterprises in the A-share market have also shown a strong performance.

On September 8th, the non-ferrous metals (Shenwan) sector in the A-share market rose by 1.3%. Among the sector, copper enterprise stocks led the gains. Jingyi Co., Ltd. (002295.SZ) hit the daily limit, North China Copper Industry (000737.SZ) and Electrical Alloy (300697.SZ) rose more than 9%, while Jiangxi Copper (600362.SH), Western Mining (601168.SH) and Yunnan Copper (000878.SZ) rose more than 5%.

On the 8th, the collective strength of the A-share copper chain was directly related to the rise in copper prices, but there are different levels of flexibility in different parts of the copper industry chain," Gu Fengda analyzed. Mining-side resource stocks benefit the most directly. With rising copper prices, some enterprises with their own mines receive premiums based on resource self-sufficiency rates and cost curves, resulting in greater stock price flexibility than pure smelting enterprises. Processing and alloy stocks mainly benefit from inventory revaluation, product price hikes, and order expectations. A rise in copper prices improves profit margin expectations but is constrained by the transmission of raw material costs, leading to short-term flexibility and high volatility. Overall, current copper stocks are priced on three factors: "copper price breakthrough + reassessment of tariff resources + long-term copper demand from AI power grids." The market is shifting from cyclical price hikes to the prosperity of strategic mineral resources. For chasing highs, investors still need to look at individual stocks' resource self-sufficiency, production guidance, and hedging exposure.

In Zhou Xiaoo's view, the current rise in copper prices is largely driven by inventory redistribution, passive short squeezing and policy expectations, rather than a full-blown outbreak of end-user demand. Therefore, the rise in stock prices of copper enterprises reflects the performance expectations brought about by the upward trend in copper prices. However, if the subsequent official announcement of U.S. tariffs takes effect, leading to a "buy the rumor, sell the news" scenario and a rapid pullback in copper prices, stocks of copper enterprises will also face downward pressure.

What are the different impacts of the current high copper price on the upstream, midstream and downstream segments of the copper industry chain?

According to Gu Fengda's observation, on the upstream copper mine side, the spot TC (treatment charge) for copper concentrate processing fell to -201.66 US dollars per dry metric ton on September 4, hitting a low since September 2007. The inventory of copper concentrate at major domestic ports stood at 764,000 tons, a month-on-month decrease of 7.4%. Chile's Codelco saw its own copper production drop by 11% year-on-year in the first half of the year. The aging of major global mines and disruptions such as at Grasberg have limited the increase in copper concentrate supply. Looking at midstream copper smelting, constrained by the deeply negative TC, some Chinese copper smelters are incurring marginal losses. Although sulfuric acid and by-products can offset part of the losses from long-term copper concentrate processing fees, China's refined copper output may be forced to experience an unprecedented year-on-year decline in the third quarter. Downstream, buyers are deterred by high prices but have no choice but to continue stocking up on rigid demand. When copper futures prices break above 110,000 RMB per ton and the spot premium rises sharply, new orders for refined copper rods and cables are weak. However, downstream enterprises pick up goods based on long-term orders and rigid demand, so demand has not disappeared. There is rigid restocking in the power grid, AI, and new energy sectors. Terminal players adopt a cautious attitude: they avoid chasing highs, restock on price dips, and rely on long-term orders for support. If copper prices plummet sharply, it will instead trigger a round of restocking demand.

At present, there is indeed a clear sense of fear of high prices in the downstream market, with overall procurement focused on rigid demand and significant industry differentiation; after copper prices hit new highs, upstream and midstream enterprises in the copper industry chain have mostly been depositing additional margins." Zhou Xiaoshuo told reporters that in terms of current market consumption, structural bright spots still come from power grid and new energy-related orders, while traditional terminal demand for real estate and home appliances remains weak.

Faced with high copper prices, how should domestic smelting enterprises respond? Fu Xiaoyan stated that domestic smelting enterprises have alleviated the tight supply situation through two aspects: first, adjusting maintenance cycles, with centralized maintenance starting in May. Data shows that the monthly operating rate of smelters using copper concentrate as raw material dropped from 93.8% in March to 85.3% in July, hitting a yearly low; second, diversifying raw materials. Smelting enterprises have increased the use of blister copper, anode plates and waste copper. Data shows that the monthly operating rate of smelters using waste copper and anode plates as raw materials rose from 59.8% in February to 72.3% in June, reaching a yearly high.

How will the market trend unfold in the future?

What is the subsequent trend of copper prices expected to be?

Fu Xiaoyan believes that the price of copper will be affected by two core factors in the coming period: First, September 28 is the deadline for the U.S. president to decide whether to impose additional tariffs on refined copper. Therefore, the tariff game has entered a white-hot stage in September. If tariffs are increased, the虹吸 effect will continue and non-U.S. dollar currencies will face tighter conditions; if not imposed, it may lead to the回流 of some inventories and a revaluation of copper prices. Second, attention should be paid to the Federal Reserve's interest rate decision. Fed Chairman Waller has a hawkish stance, and market expectations for interest rate hikes have somewhat heated up.

Looking ahead, "copper prices will still remain high with wide fluctuations and their center of gravity will slowly move upward, but compared with mid-August, the implied volatility of copper options has risen, and the slope of near-term options is still right-skewed; the put option volatility spread of copper options has turned from negative to positive, indicating that the demand for price declines has begun to be priced in, and the market is loosening its one-sided fear of rising prices to bidirectional pricing." Fu Xiaoyan said.

Zhou Xiaopiao believes that copper prices will remain strong before the official announcement of U.S. tariffs, with the spot premium and the backward spread structure (the price of near-month contracts is higher than that of far-month contracts) rising in tandem with the price. However, the upward process will be quite volatile. The market's mentality of taking profits is persistent, it is difficult to predict the upside room, and there is a risk of a sharp correction at any time.

The biggest variable in the later stage remains the US copper tariff policy. Once the tariff announcement is implemented, it is likely to lead to a 'buy the rumor, sell the fact' scenario, and there is a significant downside risk to copper prices; in addition, after the National Day, the market will trade the US midterm elections in advance. It is necessary to focus on tracking domestic inventories and the small-probability risk of COMEX inventories flowing to LME to impact the market." Zhou Xiaolu said.

In terms of operation, "it is not recommended to blindly go long near historical highs at present." Zhou Xiaolu believes that intervening on dips during intraday pullbacks can be a viable strategy, but the risk near the previous high is significantly amplified, and chasing highs should be avoided at all costs. If holding futures long positions, it is recommended to pair them with the purchase of put options to hedge against the risk of an unexpected sharp decline triggered by the implementation of tariffs, providing protection for the position.

Fu Xiaoyan also suggested that at the current juncture, first, take the initiative to deleverage; second, if copper processing enterprises have long hedging positions in futures and are worried about price declines, they can buy put options for protective hedging.

Gu Fengda believes that for trend investors, they should continue to hold strategic long core positions in copper futures, regard them as core asset allocations to hedge against global inflation and supply chain risks. Operationally, they should adopt an oscillation mindset of daring to buy on sharp drops and not chasing on sharp rises, and patiently reduce the average position cost in batches by taking advantage of the correction opportunities caused by macroeconomic data shocks or emotional panic in the market. For industrial clients, the high-volatility environment further highlights the importance of risk management. They should adhere to using futures and options tools for hedging to lock in production and operational profits.

Regardless of the type of participant, one must prioritize strictly controlling the total risk exposure, which is the foundation for survival and profitability in a highly volatile market," Gu Fengda said.

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