Analysis indicates that the trading logic for the copper sector is gradually transitioning from expectations to reality-based trading. The transmission of tight copper ore supply to the refined copper segment is becoming a tangible reality, while demand from power grids, AI, and US stockpiling provides robust support. Given the previously pessimistic market expectations for Federal Reserve rate hikes, a subsequent window for liquidity expectation repair is highly likely. The copper sector is poised for a combined effect of upward earnings revisions and valuation recovery.
The core view is that the current trading logic for the copper sector is now shifting from anticipation to trading on actual conditions. The supply-demand balance for electrolytic copper in 2025 was not particularly tight, with copper price fluctuations primarily driven by changing expectations. However, following a decline in March 2026, copper prices rebounded rapidly to high levels, while copper stocks remained at relatively low positions. During this process, valuation multiples were the primary factor under pressure, rather than company earnings. Looking at the most direct inventory data, although domestic social inventories of electrolytic copper in early March 2026 were significantly higher compared to 2022-2025, the pace of inventory drawdown after the March price drop exceeded market expectations. As of July 10th, domestic copper social inventories have dropped from a peak of 577,200 tonnes to 165,000 tonnes, a decrease of 71%. The logic of tight supply and demand reflected by this rapid destocking is gradually materializing, signifying the sector's shift towards reality-based trading.
Supply Dynamics: Copper Ore Shortage Intensifies, Likely to Impact Refined Copper
Since the second half of 2025, global copper mine output has been declining. As the world's largest copper producer, Chile's cumulative copper mine output from January to April 2026 fell by approximately 8% year-on-year. The projected global copper mine production increases for 2026-2027 are also quite limited. Due to noticeable marginal tightening in both copper concentrate and scrap copper feedstocks, domestic production of blister copper has already shown a significant decline in recent months. In April-May 2026, China's blister copper output was 970,000/960,000 tonnes, representing year-on-year decreases of 14% and 3% respectively. It is considered highly probable that the copper ore shortage will transmit to the refined copper segment in the latter half of the year.
Demand Drivers: Dual Support from Power Grids & AI, Stockpiling Demand Props Up Prices
Regarding power grids, State Grid investment completions from January to May 2026 reached 230.9 billion yuan, a 13% year-on-year increase. Considering the previously announced 4 trillion yuan investment plan, grid investment is expected to support strong growth in copper demand for power applications. All four core modules of AI data centers require copper as a transmission medium. In 2025, data center copper usage accounted for only about 2% of global copper demand. With the explosive growth in computing power demand, projections suggest global data center copper consumption could reach 1.4 million tonnes by 2030, potentially contributing a surge in incremental demand. Additionally, since 2025, the US market's siphon effect on global copper inventories has become a significant demand-side support. Currently, US President Trump is within a 90-day window to sign an executive order on copper tariffs, with the Section 232 copper tariff decision nearing implementation. Considering the US's own copper usage gap, stockpiling demand in the second half of 2026 may persist.
Liquidity Expectations Gradually Turn, Sector Poised for Double Boost
Previous market expectations of 2-3 Federal Reserve rate hikes in 2026-2027 were clearly overly pessimistic. Recent expectations for the magnitude of hikes have been gradually revised. In recent months, US inflation has been primarily driven by the energy component, and signs of weakness have emerged in the job market. Considering that current Fed interest rates are still at high levels not seen since the 1990s, the actual room for further hikes may also be limited. With copper sector valuations already at low levels, when the subsequent window for liquidity expectation repair arrives, copper prices could deliver performance exceeding expectations. The copper sector is expected to experience the combined positive effect of upward earnings revisions and valuation recovery.
Key Risk Factors
Potential risks include a larger-than-expected supply release, weaker-than-expected downstream demand, a more hawkish-than-anticipated Federal Reserve, geopolitical risks, inaccuracies in production statistics, and changes in underlying assumptions affecting projections.
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