Theme of the Day: Copper is getting squeezed

LME copper has broken above its recent symmetrical triangle, bringing the Ma and Jun highs back into focus. A sustained move above $14,118/t could open the way toward the record high at $14,410.50/t. Copper continues to defy weak Chinese macro data as falling inventories and aggressive stockpiling fuel the rally. Chinese copper inventories (or lack of) have fallen to the bottom of their seasonal range, meanwhile cancelled warrants from LME warehouses continue to rise (inventory marked for physical withdrawal). Inventories are declining: Both LME and SHFE copper curves have moved into backwardation, while visible inventories are declining rapidly. Shanghai import premiums have also strengthened despite higher outright prices, indicating continued demand for overseas cathode and limited prompt availability in China. Net available LME stocks now stand at 107,150t, while cancelled warrants stand at 177,025t (61% of total stocks). Copper import premiums into China are trading at 12-month highs of >$100/t, up from a low of $20/t in late Jan, as China competes for copper that is otherwise heading to the US. Mid-year copper production results are coming in under expectations: Severe storms in Chile are threatening to disrupt copper production. the trend over the past year of supply disruptions contributing to tightness in the copper market. Copper mine supply disruptions have been severe in recent months, and we expect supply growth to be slow, due to depletion and grade declines, among other factors. Chile's copper production has fallen 9% YTD (Codelco -18%, Escondida mine -18%, Collahuasi mine -19%). Also, BHP reported that copper production fell 3% YoY and is expected to fall a further 12% over the next year. Antofagasta also reported an 11% decline in copper production, reflecting lower output at Antucoya. Rio Tinto copper output fell 7% as Kennecott shutdown persists, Ivanhoe stunned the market with deep Kamoa-Kakula output cut. The company now expects 2026 copper anode output of 290kt to 330kt, down from 380kt to 420kt, while 2027 production will reach 380kt to 420kt versus a prior projected 500kt to 540kt. China’s raw-material market remains constrained. Concentrate imports lost momentum during the second quarter, while copper scrap imports fell sharply in the first half. Reduced scrap availability limits substitution for refined cathode, while tight concentrate supply restricts the ability of smelters to increase refined production. There is risk of further demand volatility in the near term due to cyclical factors, but we continue to be bullish, given growing global demand and serious supply constraints. AI is also an important future price driver, despite its current impact being small. Expectations of massive future investment in data centres, power grids and electrification continue to underpin an overall bullish sentiment. The squeeze is happening. Expect limited price downside as plummeting inventories and growing ex-US copper market tightness continue to act as a cushion. The COMEX-LME arbitrage for Dec is $715/t, for Mar 2027; it's $930/t. Total Comex copper stocks now stand at over 1.2Mt. The market still believes that tariffs are coming. The US tariff trade remains the key uncertainty. A wider Comex-LME spread continues to attract copper into US warehouses, tightening availability elsewhere. Further tariffs could extend this process, while a delay or exemption could unwind part of the stockpiling trade and see copper flows going into reverse.