Copper prices have shown signs of fatigue after surging to record highs, but Morgan Stanley views the recent weakness as a temporary correction and sees the pullback as a potential buying opportunity.
The investment bank notes that robust import demand from the United States and China has tightened the copper supply-demand landscape, driving down London Metal Exchange (LME) copper inventories while pushing the spot-to-three-month futures spread to its highest level since 2021.
Morgan Stanley points out that elevated copper prices have begun to dampen consumption appetite in key markets. With the deep backwardation in LME spot prices effectively closing the spot import arbitrage window, US copper import momentum has slowed. Meanwhile, China's import arbitrage window has also shifted toward an export orientation.
Data reveals that China's implied refined copper imports fell 12.5% year-on-year in July, a sharp reversal from the 3.8% growth seen in the second quarter. The Yangshan copper premium has also retreated during this period.
The bank further highlights that the rebuilding of LME inventories serves as another signal of loosening market conditions at the margin. Over the three trading sessions through August 19, LME registered warehouse inventories surged by 64,000 tonnes, marking the largest weekly inflow since 2020. This build was primarily driven by traders exploiting the price structure between elevated nearby-month contracts and discounted far-month contracts for arbitrage plays.
Despite these headwinds, Morgan Stanley expects China's demand softness to be short-lived, asserting that once copper prices stabilize or correct lower, purchasing activity will return to normal course.
The bank identifies the US copper tariff decision as a key catalyst for the second half of the year, noting that its impact on prices will hinge heavily on whether tariffs are delayed, implemented immediately, excluded, or deferred.
Morgan Stanley maintains its fourth-quarter LME copper price target of $14,250 per tonne. However, it also acknowledges that prices could break above this level if the macroeconomic environment improves or if tariff delays trigger a fresh wave of rush buying destined for the US.
Looking further ahead, the bank adopts a more cautious stance on 2027, when US import demand is likely to weaken and new mine supply comes online, potentially creating a more balanced copper market landscape.
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