Copper prices are expected to maintain a firm tone, supported by persistently tight physical market availability.
Where to Begin
On the futures market, the main Shanghai copper contract for July 20, 2026, opened at 103,100 yuan per tonne and closed at 103,790 yuan, marking a 0.23% increase from the previous session's close. The overnight session saw the contract open at 104,490 yuan and settle at 104,480 yuan, a gain of 0.69% from the afternoon close.
The Current Physical Market
According to SMM data, spot premiums for Grade 1 electrolytic copper over the August 2026 contract ranged from 390 to 480 yuan per tonne, averaging 435 yuan, which is 35 yuan higher than the previous day. The August contract itself experienced a volatile session, closing at 104,180 yuan. The spot market in Shanghai remains tight, with social inventories falling sharply by 10,400 tonnes week-on-week to 66,100 tonnes. The price gap between Shanghai and Guangdong has widened, prompting some material transfers, but the limited volume of incoming supply is insufficient to significantly ease the current tightness. Spot premiums are anticipated to persist.
Key Market Developments
On the macro and geopolitical front, major Chinese banks, including Industrial and Commercial Bank of China, Agricultural Bank of China, Bank of China, China Construction Bank, China Merchants Bank, Postal Savings Bank of China, and Bank of Communications, adjusted their RMB deposit rates on May 20. Rates for demand deposits and various term deposits were lowered by 5 to 25 basis points.
On the supply side, South32's production report for the fourth quarter of its 2026 fiscal year showed a decline in copper output, primarily due to continued adverse weather impacting operations at its Sierra Gorda project in Chile. Attributable payable copper production from the project for the quarter was 16,000 tonnes, down from 17,700 tonnes a year earlier. Despite the quarterly dip, full-year production exceeded guidance. The production target for fiscal year 2027 remains unchanged, and a mill expansion project has been approved to increase processing capacity.
Regarding smelting and imports, China's imports of scrap copper in June 2026 totaled 210,931.41 tonnes, rising 10.43% month-on-month and 15.11% year-on-year. Significant increases were noted from Thailand and Japan. Inventories on the Shanghai Futures Exchange continued to decline, dropping 20.31% week-on-week to 79,909 tonnes—an eleven-month low—reflecting tight supply against seasonal demand weakness. London Metal Exchange copper inventories also fell to a more than four-month low of 296,625 tonnes, with a high cancellation rate. Conversely, COMEX copper inventories hit a new record high. The global tight physical balance remains a core support for prices, amid ongoing inventory shifts influenced by potential U.S. tariff policies.
Consumption Trends
Downstream copper consumption is currently in a seasonal lull. Demand across traditional sectors like power, home appliances, and construction cables is weak, with end-users only maintaining minimal procurement and showing low acceptance of high prices and premiums. While grid infrastructure orders provide some support, retail and real estate-related cable demand is insufficient. Appliance production has contracted. Overseas demand is also in its off-season, dampening import appetite for scrap and refined copper. No significant demand turnaround is expected in the near term, with only sporadic buying likely during price dips.
Inventory and Warrant Data
LME warrants decreased by 1,350 tonnes to 295,275 tonnes. SHFE warrants fell by 4,561 tonnes to 35,091 tonnes. Domestic spot inventories of electrolytic copper stood at 107,300 tonnes as of July 20, down 16,100 tonnes from the prior week.
Market Strategy
Copper: Cautiously Bullish
Copper prices are supported by cooling U.S. inflation, Middle East geopolitical risks, and extremely low domestic inventories. The market faces a tug-of-war between tight mine supply (with deeply negative treatment charges), scarce refined metal, a widening scrap price gap, and weak seasonal downstream demand. Key focuses for the coming week include Federal Reserve policy expectations and developments in the Strait of Hormuz. While upcoming import arrivals may slightly ease domestic tightness, low inventories and a backwardated forward curve are expected to support spot premiums. Downstream consumers are advised to procure based on immediate needs and avoid chasing prices or building inventory, potentially using the scrap price spread for hedging. Traders should consider reducing spot holdings to mitigate risks from potential supply loosening upon import arrivals. Attention is also required on U.S. tariff decisions; if no tariffs are imposed on refined copper, prices could face short-term pressure. Barring such an event, Shanghai copper is expected to trade between 102,000 and 105,300 yuan per tonne.
Arbitrage: Pause
Options: Sell Puts
Key Risks
A faster-than-expected decline in domestic demand leading to significant inventory accumulation.
Liquidity stress risks in overseas markets.
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