CITIC SECURITIES has released a research report stating that the copper sector has underperformed since the start of the year due to demand headwinds and liquidity shocks. However, since the second quarter, rapid destocking of domestic copper inventories has highlighted a significant recovery in demand, while supply disruptions have intensified again, significantly strengthening the fundamental narrative for copper. The firm anticipates that copper prices could stabilize above $13,000 per ton in the second quarter of 2026. Following recent adjustments, valuations for copper sector stocks have reached relatively low levels, enhancing the sector's investment appeal. CITIC SECURITIES is optimistic that the copper sector will return to a primary market allocation focus in Q2 2026. The main points of the report are as follows:
Concerns over demand, combined with liquidity shocks, led to poor performance in the copper sector since the beginning of the year. As of April 14, 2026, the CITIC Copper Index had fallen 0.3% year-to-date, ranking at the bottom among non-ferrous metal sub-sectors. The primary reasons for the weakness in copper stocks are identified as: 1) A significant price surge since late December 2025 weakened downstream procurement, with SMM data showing domestic copper social inventories peaking at over 600,000 tons in March 2026, a five-year high; 2) A liquidity crisis triggered by Middle East conflicts suppressed copper prices, causing a maximum drawdown of 13% from the January highs by March.
As these factors have gradually eased, copper prices have steadily recovered since April. By April 13, LME copper prices had climbed back above $13,000 per ton. Rapid inventory destocking since mid-March demonstrates demand resilience. According to SMM data, as of April 13, 2026, domestic social inventories of electrolytic copper fell to 352,000 tons, marking the fourth consecutive week of declines exceeding 10%. This represents a drop of 294,000 tons from the recent peak, a decrease of 46%, with the destocking pace significantly faster than in previous years. Shanghai Futures Exchange cathode copper inventories have fallen nearly 40% from their peak, indicating substantial improvement in downstream demand and growing acceptance of current copper prices within the supply chain. The Yangshan copper premium, an indicator of China's import demand, reached $76 per ton on April 14, up $56 from its late-January low. On the demand side, customs data show that China's cumulative copper wire and cable exports from January to February 2026 totaled 243,500 tons, a year-on-year increase of 35%, indicating sustained strong demand from overseas power infrastructure sectors. Market concerns about demand weakness triggered by high copper prices are expected to dissipate.
Supply disruptions are intensifying again, maintaining a tight supply outlook for the full year. In April 2026, Ivanhoe Mines revised its 2026 production guidance for the Kamoa-Kakula copper mine downward to 290,000-330,000 tons, a reduction of 90,000 tons from previous estimates. Its 2027 guidance was cut to 380,000-420,000 tons, a reduction of 150,000 tons. Since the outbreak of Middle East conflicts, uncertainty in copper concentrate supply has increased, reflected in rising costs due to higher fuel and sulfuric acid prices, alongside concerns over potential production cuts stemming from sulfuric acid shortages. CITIC SECURITIES had previously forecast a modest 0.2% increase in global copper mine supply to 22.96 million tons for 2026, but frequent recent supply disruptions may make this target difficult to achieve. The tight copper supply situation is expected to worsen in 2026.
With the fundamental narrative for copper regaining prominence, the copper sector is poised to return as a primary allocation focus within the non-ferrous metals complex. Since 2025, copper prices surged on narratives including supply disruptions, AI-related demand, and US stockpiling. Recent demand headwinds and liquidity shocks had diluted these positive factors, leading to sector underperformance. The firm expects that with steady domestic demand recovery and renewed supply-side disruptions, copper prices will stabilize above $13,000/ton in Q2 2026. Following first-quarter declines, the CITIC copper sector's forward P/E ratio for 2026 is only 12.8x, the lowest among non-ferrous metal sub-sectors, significantly enhancing the attractiveness of stock allocations.
Risk factors include a sharp decline in copper prices; weaker-than-expected downstream demand due to high prices; risks of copper demand substitution; and liquidity shocks resulting from an escalation of Middle East conflicts.
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