Last week witnessed a comprehensive and robust upswing in nonferrous metals, with silver and copper accelerating to record-breaking highs, while gold, tin, and aluminum also refreshed their recent peak levels. A confluence of factors—including insufficient capital expenditures, constrained resource supply, strong AI demand prospects, expanding fiscal deficits, and a declining interest rate cycle—overlapped with threats from US tariffs on certain critical minerals. This has led to an uneven distribution of physical commodities between the US and non-US regions, causing localized liquidity shortages in goods and prompting capital inflows for long positions. A new expression, using long positions in finite resources to hedge against a weakening US dollar's credibility, is sweeping the globe and initiating a novel paradigm for resource pricing; the feast of nonferrous metals is in full swing. The primary views of China Securities Co., Ltd. are as follows:
Industrial Metals: Last week, price changes for SHFE copper, aluminum, lead, zinc, and tin were +5.9%, +1.0%, +4.0%, +0.5%, and -1.3%, respectively. Industrial metal prices are determined jointly by their "financial attributes" and "commodity attributes." From a financial perspective, the Federal Reserve has initiated an interest rate cutting cycle. From a commodity perspective, global copper and aluminum inventories are at relatively low levels, China's economic recovery is anticipated, and coupled with the pull from the new energy sector, demand growth for copper and aluminum is expected to improve.
The Feast of Nonferrous Metals: (1) SMM's latest forecast estimates only a 26,000-ton increase in copper concentrate production for 2025. At the beginning of the year, market consensus expected a 400,000 to 500,000-ton increment in copper concentrate production for 2025. However, frequent production accidents occurred throughout the year. World-class large copper mines such as El Teniente, QB2, Kamoa-Kakula, and Grasberg experienced output far below expectations due to geological disasters, mining traffic accidents, casualties, tailings pond modifications, and declining copper grades, resulting in a rather limited increase in copper concentrate production this year. (2) The long-term contract TC for copper smelting in 2026 was set at zero. Representatives of Chinese copper smelters and Antofagasta finalized the 2026 copper concentrate long-term contract processing fee benchmark at $0/ton, compared to the 2025 long-term TC of $21.25/ton. Faced with the predicament of copper mine supply being less than smelting capacity in 2026, avoiding a negative long-term TC is considered fortunate. If sulfuric acid prices do not ease, it will be difficult to see smelting output reductions. (3) Refined copper consumption has recorded consecutive year-on-year negative growth. From January to November, domestic apparent refined copper demand (output + net imports - inventory change) was 12.25 + 2.47 - 0.06 = 14.66 million tons, a year-on-year increase of 660,000 tons, with a cumulative growth rate of 4.8%. However, the year-on-year consumption figures for September to November were -2.4%, -4.6%, and -10.6%, respectively. This year's pattern of high growth early on followed by lower growth in various downstream sectors, such as power grids, home appliances, and new energy vehicles, has dragged down the cumulative growth rate of copper consumption. More critically, the steeply rising copper price is difficult for downstream users to accept, and the negative feedback from high prices is becoming evident.
Outlook: Calm equity markets will eventually converge with the fervent commodity markets. Since we highlighted the "structural bull market for copper" at the end of November based on new variables emerging from the CESCO conference, the copper price has surged from 86,000 yuan to break through 100,000 yuan within a month. The primary drivers have been the combination of relocating physical metal to the US and heightened sentiment in precious metals. Compared to the red-hot copper futures market, equities appear relatively calm. This is partly due to uncertainty about the duration of the structural bull market created by the physical relocation of metal, and partly due to a lack of consensus on the fundamental price level for copper. The expectation of copper tariffs remains unresolved, and the locked-in 2026 long-term spot contracts have not yet been delivered, suggesting the metal relocation logic will persist. Furthermore, equities have not yet fully priced in a copper price of 85,000 yuan, indicating excessive conservatism that provides a margin of safety for holding positions. It is advisable to hold patiently and wait for opportunities to add positions during any pullbacks in commodity prices.
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