CITIC SEC research indicates that as Freeport-McMoRan once again delays the restart progress of its Indonesian project and comprehensively lowers its production guidance for 2026-2027, the 2026 production forecasts for major global copper mining companies have officially entered a decline. Furthermore, potential impacts from subsequent extreme weather could lead to an expansion of supply disruptions. It is anticipated that the solid supply-demand fundamentals demonstrated by recent unexpected inventory drawdowns in China, coupled with a weakening of macroeconomic headwinds, will support copper prices to stabilize above $13,000 per tonne in Q2 2026. Driven by the disparity between supply and demand expectations, copper prices are poised to challenge previous highs. The firm is optimistic about the allocation opportunity in the copper sector, where profit resilience and valuation elasticity are expected to converge.
▍ Copper Supply Disruptions Reemerge; Annual Production Forecast Officially Turns Negative. According to a Bloomberg report on May 8, Freeport-McMoRan's Indonesian unit plans for its giant Grasberg copper mine to return to full production by early 2028, a one-year delay from the original schedule. Following this news, LME copper prices closed up 1.6% on May 8, breaking through $13,500 per tonne again. Although Freeport had previously cited end-2027 as the target for full production resumption in statements from November 2025, January 2026, and April 2026—making the reported delay "less than a year"—the Q1 2026 financial reports recently disclosed by major global copper miners, led by Freeport, reveal a significant trend of production downgrades from both qualitative and quantitative perspectives: 1) According to Freeport's Q1 2026 report, a safety incident in early September 2025 caused slurry inflow into one working face (PB1C) of the PT-FI project in Indonesia. The Deep MLZ and Big Gossan sections (accounting for 30% of capacity) resumed production in October 2025. The remaining sections are part of the Grasberg block: PB2 and PB3 resumed in March 2026, PB1S is expected to restart in mid-2027, and PB1C is slated for end-2027. The target for H2 2026 is to restore operations to 65% of normal capacity (compared to an estimate of 85% in January 2026), reaching 80% by mid-2027 and 100% by end-2027. Freeport's Q1 2026 report shows PT-FI copper production guidance for 2026-2027 at 363,000 / 544,000 tonnes (compared to January 2026 guidance of 454,000 / 680,000 tonnes for 2026-2027 and November 2025 guidance of 501,000 tonnes for 2026). This represents a sequential downward revision of 91,000 / 136,000 tonnes, respectively. Concurrently, Freeport's Q1 2026 report indicates copper sales volume guidance for 2026-2027 at 1.406 million / 1.724 million tonnes (compared to January 2026 guidance of 1.542 million / 1.860 million tonnes and November 2025 guidance of 1.565 million / 1.860 million tonnes), a sequential downward revision of 136,000 / 136,000 tonnes, respectively. 2) Based on compiled Q1 2026 financial reports from major global copper miners, their combined Q1 2026 copper production was 3.33 million tonnes, a year-on-year decrease of 2.9%. Their current 2026 copper production guidance stands at 13.78 million tonnes, down 1.5% year-on-year. Compared to Q4 2025 reports (guidance of 14.00 million tonnes, up 0.1% year-on-year), Q3 2025 reports (guidance of 14.16 million tonnes, up 1.5% year-on-year), and Q2 2025 reports (guidance of 14.76 million tonnes, up 3.9% year-on-year), this shows a consecutive declining trend, with the latest expectations indicating production has officially entered a downturn. Considering the global annual copper mine production disruption rate is approximately 5% (CRU data), we may continue to see frequent downward revisions to global copper production guidance in the coming quarters. From a meso perspective, referencing historically extreme El Niño events, major global copper-producing countries in South America, such as Chile and Peru, are susceptible to heavy rains and floods. If this year ultimately develops into a strong El Niño "major year," extreme weather could become a significant variable affecting production disruptions. Additionally, concerns over sulfur and sulfuric acid supply impacting copper-producing nations like the Democratic Republic of Congo and Chile are unlikely to subside.
▍ Unexpected Inventory Drawdown Since Mid-March Highlights Demand Resilience. According to SMM data, as of May 8, 2026, domestic social inventories of refined copper in China fell to 291,000 tonnes, a decline of 355,000 tonnes from the mid-March high, representing a 55% drop. The timing of the inventory drawdown and its pace are the fastest in the past five years, and current inventory levels are below the average for the same period after the Spring Festival holiday over the past five years. This unexpected inventory reduction is attributed to supply contraction and demand resilience: 1) On one hand, there has been a significant supply contraction. According to SMM and General Administration of Customs data, China's refined copper supply (production + net imports) from January to March was flat year-on-year, compared to a 5.1% growth rate during the same period last year, reflecting supply tightening against a backdrop of ore scarcity. SMM forecasts a 0.5% year-on-year decline in domestic supply for April to June (compared to an 11.7% year-on-year increase in the same period last year), indicating the tight supply situation will persist. 2) On the other hand, demand has shown unexpected resilience. According to SMM data, China's apparent refined copper demand from January to March grew 0.1% year-on-year, and SMM predicts a 2.9% year-on-year growth for April to June, significantly better than the firm's forecast for 2026 domestic demand growth based on end-user data (+0.8%). The unexpected resilience on the demand side is closely related to stronger-than-anticipated growth in end sectors like power grids and AI, as well as a weaker-than-expected inhibitory effect from price increases.
▍ Solid Fundamental Foundation and Weakening Macro Headwinds Position Copper Sector to Return as a Primary Allocation Theme in Nonferrous Metals. Since 2025, copper prices have surged significantly driven by narratives around supply disruptions, AI demand, and U.S. stockpiling. However, macroeconomic disturbances since March have diluted these positive factors, leading to subdued sector performance. As of the close on May 8, 2026, the CITIC Copper Index has gained only 2.9% year-to-date, underperforming the CITIC Nonferrous Metals Index by 15.2 percentage points and the CSI 300 Index by 2.3 percentage points. Compared to the weakening profit expectations, the compression in valuations is more pronounced. As of the close on May 8, 2026, the estimated forward price-to-earnings ratio for the copper sector for 2026 (assuming a copper price of $13,000/tonne) is merely 11.4x. The firm believes that based on solid supply-demand logic, foreseeably low inventory levels, and weakening macroeconomic headwinds, copper prices are expected to stabilize above $13,000 per tonne in Q2 2026. Coupled with the further realization of the supply-demand expectation gap, copper prices are likely to challenge previous highs subsequently. Given the combined effect of profit resilience and valuation elasticity, the cost-effectiveness of allocating to the copper sector is becoming increasingly prominent.
▍ Risk Factors: Risk of a sharp decline in copper prices; Downstream demand falling short of expectations; Risks of supply falling short or costs rising significantly due to sustained price increases for sulfuric acid, diesel, etc.; Liquidity shock risk from escalating Middle East conflicts; China-U.S. negotiations falling short of expectations; Supply risks from extreme weather; Operational risks for Chinese companies' overseas copper mines.
▍ Investment Strategy: With Freeport-McMoRan once again delaying its Indonesian project restart and comprehensively lowering 2026-2027 production guidance, the 2026 production forecasts for major global copper miners have officially entered a decline. Potential impacts from subsequent extreme weather could further expand supply disruptions. It is anticipated that the solid supply-demand fundamentals demonstrated by recent unexpected inventory drawdowns in China, coupled with a weakening of macroeconomic headwinds, will support copper prices to stabilize above $13,000 per tonne in Q2 2026. Driven by the disparity between supply and demand expectations, copper prices are poised to challenge previous highs. The firm is optimistic about the allocation opportunity in the copper sector, where profit resilience and valuation elasticity are expected to converge.
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