Behind Copper's Record High, the Mid-Term Rally Logic Lies Here!

On December 15, the three-month copper contract on the London Metal Exchange (LME) experienced a roller-coaster session-first hitting a fresh all-time high of $11,952 per tonne, then briefly retreating on concerns over an AI investment bubble, before closing firmly above $11,500. On the same day, a leading investment bank issued a significant forecast, raising its 2026 copper price target from $10,650 to $11,400 per tonne, citing a "reduced likelihood of refined copper tariffs being implemented, with policies leaning more towards ensuring affordability for downstream industries." When a "record high" meets "institutional bullishness," the logic underpinning the "mid-term rally" for copper is far more complex and worthy of deeper analysis than surface-level price volatility suggests.

The most pivotal judgment in the bank's report lies in its interpretation of the potential timing for U.S. copper tariff policies:

Current Status: In August 2025, the U.S. imposed a 50% tariff on scrap copper and copper alloys, but refined copper was "temporarily excluded," remaining under "ongoing review."

Forecast: The probability of a 15% tariff on refined copper being announced in the first half of 2026 is estimated at only 55%, with actual implementation potentially delayed until 2027, and a potential increase to 30% possibly not occurring until 2028.

This shift in expectations has directly triggered two major market reactions:

U.S. "Rush to Stockpile" Refined Copper: To hedge against potential future tariff costs, U.S. buyers accelerated purchases from the LME market, leading to a continuous flow of copper into COMEX warehouses and driving its inventory to a record high (reaching 82,000 tonnes by mid-December). This has created a regional imbalance where the U.S. stockpiles at high prices, tightening supply for non-U.S. regions.

"Passive Inventory Drawdown" in Non-U.S. Markets: Buyers in Europe and Asia face a scarcity of available metal due to the U.S. buying spree. Although total LME inventories have accumulated to around 180,000 tonnes (the highest level since 2025), the actual freely available supply remains tight, supporting high and volatile prices.
"Policy uncertainty has ironically become a price 'insurance'," analysts noted. "As long as the tariff decision remains pending, the price differential between the U.S. and non-U.S. markets will persist, supporting strong copper prices."

The fundamental logic for a mid-term copper price rally lies in the hard reality of "supply growth < demand growth," a contradiction expected to become more pronounced in 2026.

1. Supply Side: Mine Output Faces a "Gap," Smelting Capacity Hampered by Scarce Feed

Limited Mine Supply Growth: Global copper mine supply in 2026 is projected to increase by only 540,000 tonnes (up 2.3% year-on-year), significantly below the 5-year historical average growth rate (4.5%). Major producers like Chile and Peru face challenges from declining ore grades and social protests, slowing the release of new capacity.

Excess Smelting Capacity: Global smelting capacity is set to expand by 1.2 million tonnes between 2025-2026. However, tight raw material (copper concentrate) supply leads to "underutilized capacity," with refined copper production growth projected to be 3 percentage points lower than in 2025.

Recycled Copper Offers Limited Relief: Although recycled copper output is expected to increase by 290,000 tonnes year-on-year, it accounts for only about 15% of global supply, insufficient to fill the gap from mined production.

2. Demand Side: The "New Power System" Takes Center Stage, A 1 Million Tonne Increase Appears Assured
The institution forecasts global copper demand will increase by 1 million tonnes in 2026, with the core driver being the "New Power System":

Grid Investment: The completion of China's "14th Five-Year Plan" ultra-high voltage projects and grid modernization in the U.S. and Europe are expected to drive demand growth of 300,000 tonnes for power transmission.

Electric Vehicles & Energy Storage: With global EV sales expected to surpass 25 million units (up 35% YoY) and copper usage per EV being triple that of an ICE vehicle, coupled with energy storage installation growth of 50% annually, these two sectors are projected to drive 400,000 tonnes of incremental copper demand.

AI Data Centers: A single large-scale data center can use up to 500 tonnes of copper. With global AI computing investment expected to exceed $200 billion in 2026, this sector could drive an additional 300,000 tonnes of demand.
"While demand from traditional sectors like construction and appliances is slowing, the growth from new industries is more than enough to offset it and then some," a senior executive from a leading copper producer commented. "Copper is transitioning from a 'cyclical commodity' to a 'growth stock'."

Beyond the supply-demand tension, inventory dynamics and the macro environment provide a "safety net" for copper prices.

1. Inventories: High Visible Stocks, "Hidden" Inventories in "Short Supply"
While global visible copper inventories have accumulated to around 260,000 tonnes in 2025 (primarily in COMEX), "hidden inventories" (corporate stockpiles) in non-U.S. regions have fallen to 5-year lows. A trader revealed, "Delivery lead times for European clients have now extended from 4 weeks to 8 weeks, indicating actual supply is tighter than the data suggests."

2. Macro: Weaker Dollar + China's Growth Support, a Dual Tailwind

A Pressured U.S. Dollar Index: With the Fed's rate cut in December 2025 and expectations for further easing in 2026, alongside high U.S. fiscal deficits, the Dollar Index has retreated from 107 to below 105, providing support for dollar-denominated copper prices.

China's "Stable Growth" Policy: China's proactive fiscal policy and accommodative monetary policy are expected to boost infrastructure and new energy investment. Domestic copper demand growth in China is forecast at 4.5% for 2026, above the global average.

Synthesizing the three key factors of policy, supply-demand, and macro conditions, the research outlines a clear potential price path:

First Half 2026: With moderated tariff expectations and seasonal demand strength post-Chinese New Year, copper prices could break above $11,400/tonne, challenging the $12,000 level.

Second Half 2026: Prices may correct to a range of $10,500-$11,000/tonne if tariffs are implemented or if AI investment momentum cools.

2027: As global copper mine supply improves with new project ramp-ups, narrowing the supply deficit, prices may retreat to around $10,750/tonne (the institution's original forecast for that year).

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