Copper price supported by Chinese demand, tariffs hiatus, easing of geopolitical tensions – Richard Mills

2025-05-09

China is by far the largest copper consumer and is the world’s number one refiner of the metal by a large margin.

Following the announced 90-day suspension of tariffs, the stock market rebounded and with it the price of copper.

The red metal is now trading at $4.62 a pound, 5% higher than the April 8 trough of $4.07. Year to date, the copper price is 7.5% stronger.

There are several reasons for copper’s reversal of fortune.

The first is an easing of geopolitical tensions.

Russian President Vladimir Putin unilaterally called for a three-day ceasefire in Ukraine that took effect on May 8. The development is an improvement over Putin’s rejection of a US-Ukraine ceasefire in March, although Ukraine has not accepted the latest ceasefire and has instead called for a 30-day cessation of hostilities.

The United States and the Houthis in Yemen have also agreed to a ceasefire, brokered by Oman. Aljazeera reported Tuesday that Trump announced the United States is abandoning its daily bombing campaign in Yemen “because the Houthis don’t want to fight anymore.”  The Iran-aligned group has been attacking ships in the Red Sea in support of Palestinians after war broke out in Gaza following Hamas’ attack on Israel in October 2023.

Also in the Middle East, US and Iranian officials are scheduled for a fourth round of nuclear talks in Oman. According to Fox News, Trump will visit Saudi Arabia, Qatar and the United Arab Emirates next week. 

Finally, there has been movement on the issue of trade talks between the US and China. PBS reported Wednesday that China announced a barrage of measures meant to counter the blow to its economy from U.S. President Donald Trump’s trade war, as the two sides prepared for talks later this week.

China’s plans include cutting interest rates and reducing bank reserve requirements to help free up more funding for lending. The government is also expected to increase the amount of money available for factory upgrades, innovation, elder care and other service businesses.

Reuters said The talks are the first opportunity for the two sides to de-escalate tensions after a protracted cat-and-mouse game over tariffs in which neither wanted to be seen as backing down.

The next reason is due to robust Chinese buying.

Bloomberg reports The global copper market is flashing signs of tightness, as strong Chinese buying squeezes scant supplies even in the face of worries about a looming industrial downturn.

A trader at Zijin Mining Investment Shanghai Co., a unit of China’s top copper miner, said demand growth for copper has been running at double-digits this year, a pace which cannot continue. “Demand will slow in the second half along with output,” said Wai Lei, vice head of trading.

For now, traders point to a number of areas of demand strength, including strong orders from State Grid Corp of China and production of copper-intensive goods such as air conditioners and electric vehicles.

Grid spending in the first three months of the year rose by 25%, and investment in new equipment climbed by 60%, Bloomberg reported.

Purchases of home appliances were up 16% during the five-day holiday at the start of May.

Low inventories at metal warehouses is another sign of market tightness. Copper levels in Shanghai Futures Exchange warehouses fell by 136,000 tons in April, for the largest four-week drawdown on record.

The sharp declines were likely a result of Chinese buyers purchasing copper when prices suddenly fell last month.

Supply disruptions are also playing a part. Bloomberg said The threat of US tariffs on copper has spurred a huge rush to ship metal to the US, pushing America’s monthly imports to a record high and drawing stocks away from other parts of the world.

The third reason is supply limitations.

On May 6, UN Trade and Development (UNCTAD) said long-term demand for copper, driven by digital expansion and clean energy, is expected to rise 40% by 2040. This would require more than 10 million tonnes of additional copper, almost half of the 23Mt of copper mined globally in 2024. To accomplish this feat would require an investment of up to $250 billion over the next five years, Global Trade Review reports.

Even if that level of investment is realized, equating to an estimated 80 new mines, producing so much additional copper faces challenges. According to the UNCTAD report, this includes supply limitations, increasing trade tensions, and declining ore grades.

In September of last year McKinsey consultancy said that copper prices would need to increase by 20% to incentivize the quarter-trillion-dollar price tag.

The article notes that Trump’s tariff regime has added to concerns in the sector, chiefly whether there will be tariffs on copper imports and if so how much will they be.

In February, Trump ordered an investigation into the copper market, which many believe is to determine the level of tariffs. In March, US copper prices jumped to record highs as importers front-loaded shipments to get ahead of potential tariffs. China’s copper stockpiles dwindled rapidly as a result.

Researchers at the University of Michigan and Cornell University found that copper can’t be mined fast enough to keep up with current US policy guidelines to make the transition from fossil-fueled power and transportation to electric vehicles and renewable energies.

“We show in the paper that the amount of copper needed is essentially impossible for mining companies to produce,” said Adam Simon, co-author of the paper, published by the International Energy Forum (IEF).

Copper price to remain elevated due to increasing demand for electricity and supply challenges — Richard Mills

A recent graphic by Visual Capitalist cites data from Benchmark Mineral Intelligence showing that meeting global battery demand by 2030 would require 293 new mines or plants.

In the table below, notice that, of all the metals, copper requires the most additional tonnage, an increase of 3,664,000 tons, or 61 mines.

Visual Capitalist notes, and we wholeheartedly agree, that it is no easy task to build new copper mines, or any mines, for that matter:

After discovery and exploration, mineral projects must go through a lengthy process of research, permitting, and funding before becoming operational.

In the United States and Canada, building a copper mine from discovery to production can take upwards of 30 years.

Other jurisdictions such as Ghana, the DRC and Laos build mines faster, but even in the top copper-producing countries, there are problems.

Chile and Peru are grappling with strikes and protests, along with declining ore grades. Seventh-ranked Russia faces an expected decline due to the ongoing war in Ukraine.

Some of the world’s largest mining companies, market analysis firms and bank are warning that this year, a massive shortfall will emerge for copper, which is now the world’s most critical metal due to its essential role in the green economy.

The deficit will be so large, The Financial Post stated, that it could hold back global growth, stoke inflation by raising manufacturing costs, and throw global climate goals off course.

Two reasons identified by Sprott why supply is not keeping up with demand; developing a new copper mine is lengthy and expensive, often taking over a decade from exploration to production; and the mining sector has seen long periods of underinvestment, when low copper prices meant reduced exploration budgets and fewer discoveries.

There has also been an overdependence on mergers and acquisitions. It’s much easier for a copper mining company to increase its reserves by purchasing a smaller company (and its reserves), than dedicating capital to greenfield exploration, which is expensive and risky.

Capital for the development of copper mines peaked at $26.13 billion in 2013. Since then, it has almost halved and remained low, with only $14.42 billion spent in 2022, according to Sprott.

Despite the funding gap, several commentators have mentioned the dawn of a new copper super cycle focused on the global energy transition, compared to the previous commodity super cycle that was driven by China’s industrialization and urbanization.

Five reasons why we are entering the next copper super cycle — Richard Mills

Morningstar reports that Global efforts towards decarbonisation are a structural growth engine for many raw materials or metals, and copper is one of the key metals for the energy transition.

For example, wind and solar are among the most popular forms of renewable energy today. The graph below shows the amount of copper required to generate energy from offshore wind (wind turbines in the sea), onshore wind (wind turbines on land) and solar photovoltaics compared to fossil fuels such as coal and natural gas.

Conclusion

Looking into the copper crystal ball, Goldman Sachs recently raised its near-term copper price forecast to $9,150-$9,330 a tonne ($4.15-$4.23/lb) from $8,370-$8,620 ($3.79-$3.90/lb) previously.

The influential bank cited a de-escalation of global trade tensions and resilient demand from China as the reason for the price upgrade. Goldman also said that high US copper imports this quarter are expected to deplete non-US inventories. This drawdown will tighten the London Metal Exchange’s forward spreads and discourage new speculative short positions, keeping prices elevated. (Mining.com)

Goldman agrees with Zijin Mining Investment Shanghai that there will be a significant slowdown in global copper demand in the second half of the year, especially if the US tariffs copper imports.

However in the longer term, Goldman predicts that the copper market will move into deficit in 2026, “driven by strong demand from electrification-related sectors and limited growth in mining.”

This should push prices from an expected low of $9,000/tonne [$4.08/lb] in October 2025 to more than $10,500/tonne [$4.76/lb] by the end of 2026, the bank wrote.

Richard (Rick) Mills
aheadoftheherd.com

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