Copper Fundamentals Improving? Supply Tightness + US and China Demand Support

Overview

Morgan Stanley's latest report indicates that despite copper prices approaching historical highs, the continuous disruption in the supply sector, the recovery of Chinese demand, and expectations regarding US tariffs have collectively improved the fundamentals of the copper market. The report emphasizes that there is strong upward momentum for copper prices in the short term, especially against the backdrop of tight supply and supportive demand from both China and the US. However, uncertainty surrounding US tariff policies remains a major risk factor.

Core views

The fundamentals of the copper market are improving, primarily reflected in two aspects: first, continuous disruptions on the supply side are intensifying, leading to insufficient mineral supply and constrained refined copper production; second, strong copper demand from both China and the US, particularly the rise in China's refined copper imports and the expectation of potential copper tariffs in the US, has increased bullish sentiment for copper prices. On the supply side, major incidents at Grasberg, Kamoa-Kakula, and other locations in 2025 caused approximately 1.5 million tons of supply disruptions. This year, production cuts by companies such as Freeport and Ivanhoe continue to impact the market, with an estimated total supply disruption of 4.5 million tons for the full year. Additionally, Chinese refined copper production declined in April, while import volumes increased, indicating growing domestic supply pressure. On the demand side, copper imports into the US have continued to rise, and the COMLEX-LME spread has widened, reflecting enhanced market expectations for rising copper prices. Market demand from both China and the US has become a crucial force supporting copper prices, especially as China maintains certain procurement efforts despite weak downstream demand.

Analysis framework

The report adopts a supply-demand analysis framework. It first analyzes supply-side disruption factors, including mine accidents, capacity reductions, and supply chain issues; it then evaluates demand-side drivers, particularly changes in copper demand in China and the US. By comparing historical data and current trends, the report assesses market expectations for copper prices. Furthermore, the report considers macroeconomic and policy factors, such as the uncertainty of US tariff policies, which is viewed as a key variable affecting market trends. Through this series of analyses, the conclusion is drawn that the fundamentals of the copper market are improving.

Methodology notes

• Supply-Demand FrameworkSupply-demand framework

  Supply-Demand Framework

  This framework judges market trends by analyzing changes in the supply and demand sides of commodities and is applicable to copper price analysis.

• Industry/Industrial Analysis FrameworkUpstream-Midstream-Downstream Transmission in Industrial Chain

  Upstream-Midstream-Downstream Transmission in Industrial Chain

  This method focuses on how changes in various stages of the copper industrial chain affect each other, such as how changes in mine supply affect refinery capacity and subsequently downstream demand.

• Cycle and Prosperity FrameworkInventory cycle (Kitchin)

  Inventory Cycle (Kitchin)

  By observing changes in copper inventory levels, market supply and demand conditions and price trends are determined.

Key data

• Total Copper Mine Supply Disruptions in 20251.5 million tonsPrimarily caused by incidents at Grasberg and Kamoa-Kakula
• Estimated Copper Mine Supply Disruptions in 20264.5 million tonsAs of YTD 2026, total annual supply disruptions are expected to reach this level
• Chinese Refined Copper Imports (2026 YTD)2.6 million tonsYear-over-year growth of approximately 7 million tons, equivalent to 2.6% of global demand
• COMEX-LME SpreadWideningReflects enhanced market expectations for rising copper prices; flows to the US
• Chinese Refined Copper Production (April)Down 4.6%Month-over-month decline, indicating domestic supply pressure

Impact & implications

Copper prices are currently at historical highs, and the continuous disruptions in supply combined with support from the demand side have improved market fundamentals. In the short term, upward momentum for copper prices is strong, with market sentiment leaning towards optimism before US tariff policies become clear. However, if the US does not implement tariff policies, it could lead to reduced demand, exposing copper prices to downside risks. Additionally, the decline in Chinese refined copper production and the increase in import demand may also affect the market supply-demand balance. Therefore, investors should closely monitor US tariff decisions and changes in China's downstream demand.

Risks

• Uncertainty surrounding US copper tariff policies
• Potential relief in supply if Chinese refined copper production recovers
• Negative impact of global recession concerns on demand

What to watch

• Latest progress and decision timing of US tariff policies
• Further changes in Chinese refined copper production and import volumes
• Fluctuations in the COMEX-LME spread
• Changes in global copper inventory levels