Copper: Spot Tightness Versus Weakening Macro

Overview

This report is Goldman Sachs' base metals tracker, focusing on the tug-of-war in copper prices between tightening spot fundamentals and weakening macro support. The report covers prices, inventories, supply and demand, arbitrage, forward curves, and speculative positioning across base metals including copper, aluminium, zinc, and nickel, with copper as the cover topic and main focus of the house view.

Core views

Goldman Sachs' core judgment is that the copper market outside the US will remain tight in the short term. Supporting factors include China's copper cathode inventories being at seasonal lows, scrap copper supply facing weaker substitution capacity due to stricter tax enforcement, smelter maintenance suppressing domestic cathode availability, and tariff expectations driving US imports that continue to pull metal away from non-US markets. At the same time, the macro backdrop is no longer fully supportive, with risk appetite affected by Middle East tensions, hawkish Fed repricing, and volatility in AI-related equities.

Analysis framework

The report combines price decomposition, inventory tracking, supply-demand indicators, import arbitrage, forward curves, speculative positioning, and high-frequency industrial metals indicators to assess the outlook for base metals. The copper price decomposition model regresses weekly copper price changes on the China growth factor, the LME 3-month/12-month spread, the trade-weighted US dollar index, and the Goldman Sachs AI data center basket to identify the contributions of macro, spot, and AI narratives to copper prices.

Methodology notes

• Price decompositionWeekly regression decomposition of copper prices

  Use the China growth factor, time spread, US dollar index, and AI data center basket to explain changes in copper prices.

  The model regresses weekly copper price changes from 2024 through the week ending July 17, 2026, and cumulatively shows the contribution of each factor starting from January 2025; residuals and the constant term are grouped into other.

• Macro factorGS Alternate China Growth Factor Ex-Copper

  China growth factor excluding the impact of copper prices.

  This factor is constructed from the first principal component of A-shares and H-shares, as well as the first principal component of China's short-end and long-end interest rates, and is used to measure China macro expectations.

• Spot indicatorImport arbitrage and inventory tracking

  Calculate import incentives through SHFE relative to LME prices, VAT, and import costs, and combine them with visible inventories to judge regional tightness.

  An arbitrage indicator above zero represents an incentive to import copper cathode or related metals into China; inventory indicators cover changes in visible inventories in China, the US, the world, and ex-US markets.

• Substitution effectScrap copper and cathode copper substitution analysis

  Observe whether fabricators switch to refined cathode copper after scrap copper circulation is constrained.

  The report argues that stricter VAT enforcement on scrap copper in China has suppressed domestic scrap circulation and secondary rod production, thereby pushing fabricators toward cathode-based rod products.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• LME Copper

  Core covered asset

  Strengths

  Low China inventories, tightness in markets outside the US, constrained scrap substitution, and US import pull support the spot market.

  Weaknesses

  The macro backdrop is weakening, and risk appetite as well as repricing in the US dollar and rates may pressure prices.

  Comparison

  Copper and zinc have outperformed aluminium and nickel over the past three months; Goldman Sachs' copper forecast is slightly above forward prices.

  Risks

  Escalation of Middle East conflict, concerns about inflation and rate hikes, AI-related equity corrections, and changes in tariff expectations.

• COMEX Copper

  Related copper contract and mapping to US import demand

  Strengths

  US tariff expectations are driving imports and inventory accumulation, supporting relatively stronger US metal absorption.

  Weaknesses

  Speculative long positions remain elevated, which could magnify pullbacks if macro risks worsen.

  Comparison

  COMEX copper price tables show valuations in high percentiles.

  Risks

  Changes in the probability of tariff implementation, crowded positioning, and fluctuations in macro risk appetite.

• LME Aluminium

  Peer base metal asset and reference point for the copper narrative

  Strengths

  Inventories in some regions have declined since May, and aluminium semis exports still have support.

  Weaknesses

  Goldman Sachs expects aluminium prices to decline in 2027, with consumption contracting both in China and overseas, and the forward curve moving lower with a weaker discount structure.

  Comparison

  Aluminium and nickel have lagged copper and zinc over the past three months.

  Risks

  China import arbitrage shutting, inventories above 2025 levels, inflows of Russian metal, and contracting demand.

• LME Zinc

  Peer base metal asset

  Strengths

  The LME zinc forward curve remains in backwardation, and net long positions have recently risen.

  Weaknesses

  Global visible zinc inventories have increased over the past month.

  Comparison

  Zinc and copper have outperformed aluminium and nickel over the past three months.

  Risks

  Higher zinc production in China offsets weak overseas output, and export arbitrage is shut.

• LME Nickel

  Peer base metal asset

  Strengths

  Nickel surplus narrowed in the first half, and global stainless steel production is above 2025 levels year to date.

  Weaknesses

  Global visible inventories remain above the historical seasonal range, and the forward curve remains in contango.

  Comparison

  Nickel has underperformed copper and zinc over the past three months.

  Risks

  Growth in Indonesian nickel ore production, import arbitrage shutting, and high inventories weighing on prices.

Key data

• LME copper spot price$13,526/tAs of July 17, 2026, Friday closing price.
• LME copper weekly highAbout $13,640/tSupported by signals of spot tightening.
• Visible copper cathode inventories in China167 ktAt the bottom of the seasonal range.
• Share of data center copper demandAbout 1%Current absolute demand is not a large share of total copper demand, but the AI narrative affects expectations for future power, grid, and copper demand.
• China apparent copper demandUp 2.7% YoY from the start of the year through MayThe report chart shows Jan-May YTD growth.
• Chile copper productionDown 9% YoY year to dateOne of the supply-side risks.
• Global scrap copper exportsDown 8% year to dateScrap copper exports have still fallen despite high copper prices.
• Goldman Sachs average LME copper price forecast2026 $13,400/t; 2027 $13,800/t; 2028 $13,700/tThe report says the copper forecast is slightly above forward prices.
• Goldman Sachs average LME aluminium price forecast2026 $3,200/t; 2027 $2,700/t; 2028 $2,600/tThe report expects aluminium prices to decline by 2027.
• Goldman Sachs average LME nickel price forecast2026 $18,500/tNo forecasts were provided for 2027 and 2028.

Impact & implications

For investment and hedging, copper's short-term tension is more about spot support than a strong recovery in demand: low inventories, constrained scrap substitution, and US import pull may limit downside, but macro shocks could amplify price volatility. If AI-related risk appetite continues to fade, or if Middle East conflict raises concerns about inflation and rate hikes, copper prices may come under pressure first; if ex-US inventories continue to fall and US tariff expectations persist, copper spot premia and regional divergence may also continue.

Risks

• Further escalation of Middle East conflict, raising concerns about inflation and rate hikes.
• More hawkish Fed policy expectations, weakening the macro and risk-asset environment.
• Declines in AI-related chip or data center stocks, weakening the narrative of future copper demand.
• Changes in US tariff expectations causing a reversal in copper flows and inventory distribution.
• Changes in China's scrap copper supply, VAT enforcement, or smelter maintenance easing spot tightness.
• Speculative long positioning is elevated, which could amplify volatility during price pullbacks.

What to watch

• Whether visible copper cathode inventories in China remain at seasonal lows.
• Changes in LME cancelled warrants and visible copper inventories outside the US.
• Whether US copper imports and US exchange inventory accumulation continue.
• China scrap copper circulation, secondary rod production, and the intensity of cathode substitution.
• Whether the SHFE-LME copper import arbitrage reopens.
• The marginal impact of AI data center equities and the grid/power demand narrative on copper prices.
• Changes in Middle East conditions, the US dollar index, and Fed rate-hike expectations.
• Percentiles of speculative net long positioning in copper, aluminium, zinc, and nickel.