The recent surge in copper prices is not indicative of a severe supply shortage, according to market analysis.
Price volatility was observed following a US threat of additional 100% tariffs on China, leading to a significant drop of approximately $500 per ton on Friday.
Thu Lan Nguyen, head of FX and commodity research at Commerzbank AG, noted in a report that a renewed escalation of the trade conflict would significantly impact both economies and, therefore, two of the most important markets for copper.
While a more conciliatory tone emerged from the US over the weekend, the market remained sensitive to potential tariff escalations.
Market Sensitivity to Trade Tensions
Copper prices saw a partial recovery on Monday after President Trump posted on Truth Social, stating, Don’t worry about China, it will all be fine!
Don’t worry about China, it will all be fine!
However, this optimism was short-lived as the three-month copper contract on the London Metal Exchange (LME) declined by over 2% on Tuesday.
This followed a 16% price drop experienced in April of this year during a previous US-China trade dispute escalation, where prices fell from around $9,600 per ton to a yearly low of approximately $8,100.
Nguyen suggests that while a trade agreement between the two economic giants is plausible, it is by no means guaranteed.
On Monday, the copper market exhibited signs of increased tightening, which coincided with a price recovery.
According to Commerzbank, the spot price closed at a $224 per ton premium over the three-month LME future, reaching its second-highest level since data collection began in 1994, indicating a scarcity of readily available physical copper.
💡 This premium in spot prices over futures can signal current demand outpacing immediate supply availability.
Analysis of Imports and Production Trends
LME inventories have recently shown a slight decrease after an upward trend since mid-June.
Nguyen further commented: From our perspective, whether the price increase is fundamentally justified thus remains questionable.
Chinese trade data provided limited new information. Copper ore imports, though down month-on-month, remained strong at nearly 2.6 million tons, exceeding the monthly average for the year.
Source: Commerzbank Research
“Thus, there is (as yet) no indication of an acute shortage of raw material,” Nguyen added.
The reduction in copper ore imports since April’s peak may not signify a shortage but could represent a strategic decision by China to moderate the expansion of its metal production capacity.
The Chinese government is actively addressing overcapacity, particularly within its commodities sector.
Supporting this, the Ministry of Industry and Information Technology announced at the end of September that the production of the top ten non-ferrous metals, including copper, is projected to grow by only 1.5% on average this year and next.
This marks a significant decrease from the approximately 5% growth observed in the previous two years.
Nguyen explained:
This would mean that copper production in China, the most important producer country, will continue to grow, albeit not as dynamically as in the last two years, when it recorded an annual increase of slightly over 5%.
Source: Commerzbank Research
📊 This controlled growth in production aims to balance market supply and demand more effectively.
Anticipated Decline in Demand
Concurrently, a decrease in demand is anticipated, primarily driven by the ongoing US-China trade conflict.
China’s refined copper trade data appears to corroborate this trend.
For the first nine months of the year, imports have fallen by roughly 2% year-on-year, while exports have recently seen a 13% increase year-on-year (September data is pending).
The significant rise in exports during June and July could be a reaction to US copper tariffs.
Commerzbank suggests that Chinese exporters may have leveraged the substantial price surge on COMEX, fueled by increased US demand before tariff implementation.
⚡ Understanding these export dynamics is crucial for assessing true Chinese domestic demand.
Nguyen concluded:
All in all, our view remains that the current supply situation in the copper market is by no means as dire as the dramatic price increase for the metal might suggest.
Understanding the interplay between trade policy, production adjustments, and demand trends is key to navigating the copper market.
Main Highlights
Copper prices experienced volatility due to US-China trade tensions and tariff threats.
Despite price surges, analysis suggests the copper market supply situation is not as critical as price movements might imply.
Chinese government policies are aimed at controlling overcapacity in metal production, leading to moderated growth forecasts.
Anticipated declines in demand are linked to the broader impact of the trade conflict.
Market indicators such as LME inventory levels and spot price premiums offer insights into immediate supply-demand dynamics.
Fundfa Insight: The copper market’s reaction to geopolitical factors like trade disputes highlights its sensitivity, yet underlying production and demand trends suggest current price fluctuations may not signal fundamental scarcity. Careful analysis of economic policies and trade flows is essential for a realistic market assessment.
