Copper Prices Enter a Period of High Volatility

Recently, despite a surge in other metal prices, copper prices have entered a phase of range-bound trading, showing clear signs of a technical correction. This phenomenon stems from a combination of profit-taking at high price levels and lackluster physical demand.

From a capital flow perspective, with mixed performances in global equity markets mid-week and complex market sentiment, some investors have opted to take profits given copper's elevated prices, halting its upward momentum. The main March 2026 contract on the Shanghai Futures Exchange saw a seesaw session but lacked upward drive, closing up a mere 0.28% at 103,060 yuan per tonne. In the Asian session on January 28, the London Metal Exchange (LME) copper price consolidated after a strong rebound to around $13,155 per tonne, with upward momentum gradually fading. High prices have also dampened demand from key consumers, and the profit-taking activity further pressured prices.

Weak physical consumption is another key reason for the price volatility. Currently in a seasonal demand lull and approaching the year-end holiday period, downstream demand has weakened, with buyers purchasing cautiously. Spot copper prices in China showed slight declines today. Market data indicated that spot copper in major regions traded at a significant discount. As smelters aim to reduce inventory before year-end, holders are actively offering at lower prices, but downstream bargain-hunting purchases remain limited, leading to tepid market activity.

Accumulating inventories in both LME and Shanghai warehouses further confirm the current demand weakness. LME copper stocks have risen to their highest level since May 2025, while Shanghai Futures Exchange inventories have reached a nine-and-a-half-month high. This inventory build-up highlights the soft demand. Price movements remain sticky as end-of-month demand fails to pick up. With fewer market participants to boost buying interest, inquiries are scarce. A standoff between buyers and sellers has led to stagnant spot offers, with purchasers adopting a wait-and-see approach, maintaining weak demand and a spot discount structure, which clearly caps near-term price upside.

Despite short-term correction pressures, a bullish outlook for copper prices persists in the long run, primarily due to ongoing supply constraints and support from new demand expectations.

On the supply side, the global copper concentrate shortage persists. Major producing nations are facing challenges such as declining ore grades and operational issues, impacting output. Production forecasts from major miners have been revised downwards, reinforcing expectations that supply growth will remain limited this year. Tight conditions in the copper concentrate and scrap markets are also expected to constrain refined metal production. Analysts from a leading investment bank project a supply deficit of approximately 407,000 tonnes for 2026, which could draw down inventories and push copper prices toward $14,000 per tonne or higher. Domestically, persistently low spot treatment and refining charges (TC/RCs) for copper concentrate also reflect the tight supply situation.

On the demand side, the artificial intelligence (AI) sector, backed by national policy support, is anticipated to experience explosive growth in 2026, becoming a new engine for copper consumption. AI and data centers, due to their high power requirements, direct copper usage, and rapid expansion, represent a new demand frontier. Estimates suggest Asia could account for 60% of this incremental demand, with North America and Europe also seeing smaller but significant growth driven by digitalization and clean energy transitions. Furthermore, relevant authorities have indicated continued efforts to optimize policies for consumer goods trade-ins, promoting sales of major durable goods like home appliances, which is also expected to stimulate copper demand to some extent.

Potential international trade policy effects continue to underpin prices. Analysts note that recent price increases have been partly driven by "persistent concerns over possible trade tariffs on copper and ongoing mine supply disruptions, both factors supporting higher prices." Tariff-related risks may persist throughout the year, reflected in inventory dynamics in key markets.

Institutional views on copper's price trajectory diverge. One major investment bank suggests that the rally in base metals this year faces headwinds, as price surges and bullish sentiment clash with the reality of weak demand from manufacturers. Their recent survey of the copper market indicated that manufacturer orders have declined by 10-30% as end-users in sectors from consumer electronics to hardware reduce procurement, with even grid-related orders slowing. They argue that high prices are suppressing Chinese demand, while rising inventories add to short-term pressure.

Conversely, strategists from another prominent institution are more optimistic. They believe that following the recent adjustment, a post-holiday recovery in Chinese demand, coupled with anticipated supportive policy measures, should help underpin prices. Expanding domestic demand is a key objective for 2026, and additional stimulus measures are expected to further bolster consumption. Supply constraints remain a cornerstone of their long-term bullish thesis, with the anticipated market deficit in 2026 seen as a driver for higher prices.

In summary, copper prices are currently caught in a tug-of-war between short-term volatility and long-term bullish fundamentals. In the near term, factors such as profit-taking, weak spot demand, and accumulating exchange inventories will continue to cap prices, likely keeping copper within a range for adjustment. Investors may monitor support and resistance levels around key moving averages to gauge short-term direction.

However, from a long-term perspective, the continuation of supply constraints and support from new demand expectations like AI will provide upward momentum for prices. As Chinese demand recovers post-holidays, potential stimulus measures are implemented, and the supply deficit becomes more apparent, copper prices may break out of the current range and embark on a new upward trend. Therefore, while our near-term view remains

one of high-level volatility with a corrective bias, it is crucial to monitor the evolution of long-term bullish factors to identify investment opportunities.

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