Copper prices have extended their upward momentum since August 2026, with both domestic and international benchmarks climbing to multi-year highs. This rally is fundamentally supported by a confluence of supply disruptions, tightening inventory conditions, and improving macroeconomic sentiment. The following analysis examines the market through five key dimensions: supply, inventories, demand, industrial chain dynamics, and forward-looking trading strategies.
The recent surge in copper prices represents a quadruple convergence of factors: mine output reductions, export policy restrictions, critically low inventory levels, and a more favorable macro backdrop. Together, these elements have created an unusually tight supply-demand balance that continues to shape market behavior across global exchanges.
Supply Side: Global Mine Tightening Becomes Structural
Overseas mine supply is facing simultaneous pressure from both policy restrictions and operational disruptions, with three major developments reshaping the landscape. The Democratic Republic of Congo formally implemented an export ban on copper and cobalt concentrates on August 6, designed to promote domestic downstream processing. This measure directly removes a vital global raw material supply channel, intensifying market concerns over potential copper feed shortages.
Chile's copper output contracted by 7.7% year-on-year in Q2 2026, marking the weakest second-quarter performance in nearly two decades. The decline stems primarily from aging mine infrastructure, deteriorating ore grades, and operational challenges across key production sites. Meanwhile, industry-wide production guidance cuts have become increasingly common, with 20 major overseas copper producers reducing their 2026 output guidance by a combined 225,000 tonnes, representing approximately 1.76% year-on-year contraction. Supply reduction at the mine level is now widely acknowledged as an industry consensus.
Sulphur and Sulphuric Acid: Medium-Term Cost Constraints
Sulphur scarcity represents an important medium-term catalyst for copper supply tightness, though it is not the primary driver behind the recent rapid price appreciation. Approximately 21% of global refined copper production relies on the SX-EW solvent extraction-electrowinning method, with each tonne of cathode copper requiring roughly 3.5 tonnes of sulphuric acid. Sulphur costs account for over 70% of total sulphuric acid production expenses. Extended Russian export restrictions on sulphur, combined with shipping constraints in the Strait of Hormuz, have collectively pushed sulphuric acid prices higher. Acid shortages are directly impacting SX-EW operations in the DRC, while suspended Chinese acid supplies affect Chilean capacity, leaving smelters facing an "acid unavailable" dilemma. Sulphur functions as a "slow variable" that deepens supply-demand gaps by elevating the cost curve and limiting medium-term output expansion.
Domestic Smelting: Output Reduction Consensus Amid Deeply Negative TC
Chinese smelters are caught in a dual squeeze of insufficient raw material supplies and deeply negative treatment charges, with output reductions transitioning from speculation to reality. The overall industry pattern shows "weakening smelting and softening processing," with the core constraint rooted in mine supply shortages rather than demand-side weakness. Smelters are responding through multiple strategies: securing long-term contracts to reduce spot market dependence, lowering operating rates combined with scheduled maintenance to avoid losses, offsetting some losses through higher by-product sulphuric acid revenues, and adjusting raw material mixes to increase scrap copper usage.
Inventory and Capital Flows: Non-US Regional Spot Tightness
The LME forward curve has developed a deeply backwardated structure with significantly widened cash premiums, indicating tight deliverable supply and creating positive feedback between capital flows and fundamental conditions. LME copper inventories have declined for 42 consecutive trading days, marking the longest continuous drawdown since 2014. Total stocks have fallen to approximately 205,000 tonnes, nearly halving from levels recorded at the start of the year.
Of the remaining LME inventory, nearly 50% is classified as "cancelled warrants," meaning this copper has already been earmarked for removal. Actual circulating supply available for new buyers is therefore extremely limited. LME cash premiums have surged above US$400 per tonne, the highest level since 2021. By contrast, COMEX inventories stand at a substantial 667,200 tonnes, representing nearly 70.8% of total exchange stocks across the three major venues. Tariff expectations continue driving copper flows toward the United States, creating an extreme divergence pattern of "COMEX accumulation alongside LME depletion."
Demand Side: Off-Season vs. Peak Season Expectations
Domestic copper consumption is currently in its traditional off-season, with end-user demand showing structural differentiation across sectors. August air conditioner production schedules indicate approximately 17% year-on-year decline, while real estate sector demand remains weak. Elevated copper prices are also suppressing downstream purchasing activity to some degree. Refined copper rod producers are operating at around 59% capacity utilization, near the lower end of historical ranges for this period.
However, market participants maintain expectations for the "golden September and silver October" peak season, with copper demand from power investment, new energy sectors, and AI data centers demonstrating resilience. The extent to which peak season demand materializes will be critical in validating the upper price range for copper. Should peak season demand disappoint, it could serve as a trigger for price correction.
Industrial Chain Impact: Divergent Profit Distribution
The impact of rising copper prices varies significantly across the industrial chain, creating a distinct pattern of "mines benefiting most, smelters under pressure but partially hedged, and processors bearing passive cost burdens."
Outlook and Trading Strategy
Key Influencing Factors
The long-term core logic rests on multiple pillars: mine supply rigidity (new mine development cycles of approximately 10 years and declining ore grades at Chilean operations), energy transition demand (AI data centers, electric vehicles, power grids), sulphuric acid constraints elevating the wet copper cost curve, and smelting capacity ceilings. Near-term supply factors include DRC ban enforcement levels, Chilean mine recovery progress, plus the restart of Indonesia's Grasberg operation and Cobre Panamá, both of which represent bearish longer-term considerations.
Inventory dynamics center on LME depletion sustainability (bullish) and COMEX-LME arbitrage opportunities (bullish). Demand-side focus remains on domestic peak season consumption realization as a critical validation point. Macro considerations include the Federal Reserve's September meeting and US dollar movements, while policy attention centers on the timing of US refined copper import tariff implementation. Key downside risks include global recession triggering demand collapse, US tariff policy disappointment causing COMEX inventory to flow back to LME, persistently weak end-user demand, and faster-than-expected mine restarts.
Price Direction Assessment
LME copper is expected to trade in a firm-to-rangebound manner in the near term, sitting just shy of historical highs. As long as inventories fail to build continuously and spot tightness persists, the backwardation structure will continue supporting near-month prices. Caution is warranted regarding potential sharp corrections from intervention measures or tariff expectation disappointments. Shanghai copper is also expected to remain firm but rangebound, with gains likely lagging LME due to domestic off-season constraints. The internal-external price differential remains at levels unfavorable to imports, further exacerbating tightness in the domestic spot market. Key technical levels to watch include resistance at 110,000 yuan per tonne and support at 105,000 yuan per tonne.
Trading Strategy Recommendations
For trend-following approaches, the bias remains toward a firm market with rangebound characteristics; pullbacks should be viewed as opportunities for building long positions or securing procurement. Arbitrage strategies warrant continued attention to bull spreads (buying nearby contracts while selling deferred ones) to capture widening calendar spreads. Options-based approaches could involve selling out-of-the-money puts to collect premiums or constructing call spread structures. Hedging recommendations include mines progressively selling forward to lock in profits at elevated levels, smelters purchasing protection on raw material inputs, and downstream consumers procuring as needed or utilizing call options to cap upper cost exposure. Key monitoring points include LME inventory movements and policy developments, particularly US copper import tariff decisions.
The report was prepared on August 18, 2026, and reflects the market conditions and analyst perspectives available at that time.
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