Copper prices face short-term pressures from increasing exchange inventories and broader metals market volatility. Nevertheless, long-term demand is expected to remain robust.
China’s energy companies, major copper consumers, have increased their grid expansion capital expenditure by 35% in January compared to the previous year. This suggests grid expansion is proceeding as planned.
The China Nonferrous Metals Industry Association predicts a production growth of 5% for the current year, compared to 10% the previous year. The association has also called for increased government copper reserves.
We are seeing near-term pressure on copper, largely due to rising exchange inventories and broader volatility across the metals complex. LME copper stocks have risen by over 15% since the start of the year, recently hitting 125,000 tonnes, which is weighing on front-month contracts. This suggests that for the coming weeks, strategies like buying puts or establishing bearish spreads for March or April delivery could offer a hedge against further price erosion.
Despite this, we see sustained support from powerful demand drivers, particularly from China. The reported 35% year-on-year increase in grid expansion investment in January is a significant indicator that the country’s energy transition goals are being actively pursued. This structural demand, which is highly copper-intensive, provides a solid floor for prices on a longer timeline.
Looking back, we saw the forecast for slowing Chinese refined copper output growth materialize through 2025, and this trend appears to be continuing. Coupled with ongoing labor negotiations in key South American mines that could constrain global supply, the fundamental picture strengthens later in the year. The call for China to increase its strategic reserves would further tighten the market by taking physical supply off the table.
Given this divergence, a calendar spread seems like a prudent approach for derivative traders over the next few weeks. This could involve selling near-dated futures contracts while simultaneously buying contracts for late 2026, aiming to capitalize on the expected price rise later in the year. This allows a position to be built for the long-term bullish case while navigating the immediate headwinds.
