SunSirs: Supply Shortages Coupled with the Federal Reserve's Interest Rate Cuts Pushed Copper Prices to a 15-Year High

Price trend:

According to data monitored by SunSirs, copper prices rose sharply last week. As of the 12th, the price of copper reached 93,903.33 RMB/ton, a 15-year high, representing a 2.6-fold increase from the low point in June 2016 and a nearly 27.19% increase since the beginning of the year.

The piles of copper in the American warehouses were higher than mountains

Copper stockpiles in US warehouses were piled higher than mountains, while factories elsewhere in the world were facing severe shortages. Copper inventories at US Comex warehouses surged to over 400,000 tons, a 300% increase since the beginning of the year. Meanwhile, in other parts of the world, which consume 90% of global copper, inventories were so tight that some factories had been forced to cut production. This was a redistribution of global resources triggered by unilateral US policies. In February, the US introduced policies that could impose tariffs of up to 50% on imported copper by 2026. Following this policy announcement, traders began a rush to secure supplies, diverting copper originally destined for Asia to the United States.

Macquarie will withdraw 40,000 tons of copper from the LME's Asian warehouse

Swiss commodities trader Mercuria had issued a notice of its intention to withdraw more than 40,000 tons of copper from London Metal Exchange (LME) warehouses in Asia. This withdrawal would reduce the exchange's inventory by more than half and could lead to a severe shortage in the global copper market.

The Federal Reserve announced a 25-basis-point interest rate cut as expected

On December 10th, local time, the Federal Reserve announced a 25-basis-point interest rate cut as expected, marking the third rate cut this year. Furthermore, it resumed purchasing short-term Treasury bonds starting Friday, restarting the expansion of its balance sheet. This had fueled expectations of increased global liquidity, which was positive for copper prices.

Fundamentals

Global supply remained tight

Production at some major mines continues to be disrupted, and the "pull effect" from the US, which was drawing copper inventories into the American market, was exacerbating concerns about supply shortages in non-US markets. Leading market institutions optimistically predicted that LME copper prices would remain above $11,000 per ton in 2026, potentially approaching $12,000 by the end of the year, while Shanghai copper is expected to approach 96,000 yuan. As of December 12, global mines faced numerous challenges, including limited short-term supply growth and low ore grades, making investment and mining more difficult.

Demand side

The global energy transition, the popularization of electric vehicles, and power grid upgrades were accelerating the demand for copper, leading to a broad demand outlook and a further widening of the supply gap. Downstream buyers were largely adopting a wait-and-see approach at current high prices, with limited demand for immediate purchases and weekend restocking, resulting in weak market buying interest.

LME copper inventories fell

According to the chart above, LME copper inventories have decreased slightly recently. As of the 12th, LME copper inventories stood at 158,375 tons, a decrease of 3.75% compared to the beginning of the week.

Market Forecast:

In summary, on the supply side, the copper concentrate processing fee index had allen again. Chile increased its premium on copper spot prices to China, and domestic CSPT members will reduce their copper mine production capacity by 10% next year, exacerbating market concerns about tight copper ore supply. On the demand side, supported by expectations of overseas interest rate cuts and raw material costs, copper prices remain strong. However, the high price of copper in the short term has suppressed downstream purchasing sentiment, leading to a cautious attitude among downstream buyers, who are mainly focusing on replenishing essential stocks. The supply gap in non-US regions continues to widen, and domestic copper inventories continue to decline, coupled with the Federal Reserve's interest rate cuts. However, high prices are limiting downstream purchasing activity.  Therefore, copper prices are expected to have further upside potential, with a generally fluctuating and upward trend.

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