Copper’s Bullish Setup Strengthens

Theme and Background

This chapter focuses on the strong performance of the copper market in May 2025, analyzing the drivers behind prices approaching the psychological threshold of $10,000 per ton. The report points out that improved macro sentiment (the temporary suspension of US-China tariffs) combined with worsening structural supply-demand imbalances are jointly supporting copper prices, while a sharp drop in exchange inventories and a collapse in smelter profits highlight the extreme tightness in the physical market.

Core Thesis

The author's core investment argument is that the copper market is in a phase of intensifying structural supply-demand imbalances, with electrification demand, supply constraints, and geopolitical policy risks set to push copper prices through resistance levels. The counterintuitive judgment is that despite concerns over global trade, economic growth, and inflation, copper prices remain resilient due to strong fundamentals, and the US copper price premium (11%) is far above the five-year average (0.5%), reflecting the market's pre-pricing of potential tariffs on copper under the Section 232 national security review.

Key Arguments and Data

• Price Performance: In May 2025, LME cash copper rose 4.71%, with a year-to-date gain of 10.35%; COMEX copper futures rose 16.17% year-to-date, with the US copper price at an 11% premium over LME (five-year average only 0.5%, 2024 squeeze peak only 8%).
• Inventory Plunge: Global exchange copper inventories have plummeted 44% since the end of February, covering only 6 days of global demand (long-term average is 12 days). LME and SHFE inventories saw the largest declines.
• Smelter Profit Collapse: Spot treatment charges (TC) have fallen into negative territory, reflecting extreme scarcity of copper concentrate, reinforcing the investment thesis for copper miners.
• Demand Signals: China's Yangshan copper premium rose above $100 per ton (a two-year high), and LME cash backwardation persists, indicating tightness in the global physical market.
• Macro Sentiment: In May, the US and China announced a mutual reduction of tariffs by 115%, bringing average rates to 30% on US imports and 10% on Chinese imports, with a 90-day pause on new measures, boosting risk appetite.

Comparative Data Table:

Indicator	1 Month	3 Months	Year-to-Date	1 Year	3 Years	5 Years
Copper Price (COMEX Futures)	2.58%	3.61%	16.17%	1.64%	0.85%	14.04%
Copper Price (LME Cash)	4.71%	2.25%	10.35%	-3.68%	0.36%	12.27%
Copper Miners (Nasdaq Sprott Copper Miners Index)	7.76%	6.33%	1.83%	-19.35%	3.46%	23.69%
Junior Copper Miners (Nasdaq Sprott Junior Copper Miners Index)	6.39%	18.91%	20.47%	4.89%	7.71%	N/A
Commodities (BCOM Index)	-0.93%	-2.69%	1.24%	-2.92%	-8.69%	9.49%
US Stocks (S&P 500 Total Return Index)	6.29%	-0.37%	1.06%	13.52%	14.41%	15.94%

Companies/Assets Involved

• Copper Miners (Nasdaq Sprott Copper Miners Index): Up 7.76% in May, up 1.83% year-to-date, with a 5-year return of 23.69%, significantly outperforming the S&P 500 (15.94%). Bullish.
• Junior Copper Miners (Nasdaq Sprott Junior Copper Miners Index): Up 6.39% in May, up 20.47% year-to-date, outperforming large-cap copper miners. Bullish.
• Copper Physical (LME/COMEX): LME cash has a 5-year return of 12.27%, COMEX futures 14.04%, both outperforming the commodity index (9.49%). Bullish.
• S&P 500 Index: 5-year return of 15.94%, below copper miners (23.69%) but above copper physical. Neutral.

Investment Implications

• Go Long on Copper Miners: The report argues that copper concentrate scarcity (negative TC) and low inventories (only 6 days of demand) will directly benefit upstream copper miners, especially those with US exposure, as Section 232 tariff risks could push up the US copper price premium.
• Focus on Junior Copper Miners: Year-to-date gains (20.47%) far exceed large-cap copper miners (1.83%), reflecting a rebound in risk appetite for exploration and development-stage companies, suitable for high-risk-tolerant investors.
• Beware of Short-Term Correction Risks: Copper prices are near the $10,000/ton resistance level; if tariff negotiations collapse or Chinese demand slows, profit-taking may be triggered. However, long-term structural demand (electrification, data centers) provides a safety cushion.

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Theme and Background

This chapter focuses on the physical supply shocks in the copper market in May 2025 and their impact on prices. The report notes that against the backdrop of a sharp decline in exchange inventories and spot treatment charges (TCs) turning negative, unexpected production disruptions have further exposed the fragility of the global copper supply chain, leaving the market with almost no buffer to absorb such disturbances.

Core Viewpoint

The author's core judgment is that the copper market is entering a long-term bull phase driven by intensifying supply bottlenecks and structurally growing demand. The counterintuitive aspect is that negative TCs (smelters paying miners) , an extreme signal, is not a sign of industry collapse but rather reinforces the value of copper mining companies (rather than smelters)—because scarce copper concentrate makes miners the pricing power in the supply chain.

Key Arguments and Data

1. Amplified Effects of Supply Disruptions

• Ivanhoe Mines suspended production at the Kakula mine (DRC) due to an earthquake, significantly lowering its 2025 production guidance from 520–580 thousand tonnes to 370–420 thousand tonnes.
• Copper mine supply disruptions typically account for 5% of annual production (2024: 3.9%). When inventories are extremely low, the impact of each disruption on price expectations is amplified.

2. Lengthened New Mine Development Cycle

• The average time from discovery to first output is 17 years, more than double the 7 years seen in the 1990s.
• Breakdown: Exploration/approval/financing 12.2 years, waiting after feasibility study 2.6 years, construction to production 2.3 years.

3. Historical Significance of Negative TCs

• Spot TCs have fallen to historic lows and turned negative (see Figure 3), meaning smelters must pay miners to secure raw materials.
• The last time TCs approached zero was during the 2020 pandemic shock, while truly negative values were almost unheard of before 2023.
• Large state-owned Chinese smelters maintain high utilization rates (policy-driven), but small and medium-sized smelters have begun to cut production.

4. Inventory and Price Linkage

• LME copper spot prices have risen 10.35% year-to-date, approaching the psychological threshold of 10,000 USD/tonne.
• The US copper premium stands at 11% (five-year average: only 0.5%), reflecting expectations of Section 232 tariffs.

Comparative Data Table:

Indicator	Current Value	Historical/Comparative Value
New mine development cycle	17 years	1990s: 7 years
Copper mine supply disruption ratio	5% (2024: 3.9%)	—
US copper premium	11%	Five-year average: 0.5%
2025 copper price increase	+10.35%	—

Companies/Assets Involved

• Ivanhoe Mines: The suspension of the Kakula mine led to a significant downward revision in production guidance (-23% to -28%), highlighting the impact of a single mine on global supply. The author is bearish on its short-term production but views the long-term mine value as unchanged.
• Chinese State-Owned Smelters: Maintain high utilization rates, but small and medium-sized smelters are forced to cut production due to negative TCs. The author is bearish on smelting margins but bullish on miners' bargaining power.
• Copper Mining Stocks (Overall): Rose 7.76% in May, with junior copper mining stocks up 6.39%, outperforming the broader market. The author is bullish.

Investment Implications

• Go Long on Copper Miners (Not Copper Futures): Negative TCs make miners the biggest beneficiaries of supply bottlenecks, while smelter profits are squeezed. The author recommends focusing on miners with producing mines, low costs, and no direct exposure to tariff risks.
• Beware of "Trapped Copper" Risk: The US has imported large amounts of copper due to tariff expectations, but unconsumed copper may be locked in warehouses or financing agreements, further reducing global available copper. This could push up LME and Shanghai copper prices, but the short-term impact on copper mining stocks is neutral to positive.
• Breaking Through 10,000 USD/Tonne Is Highly Likely: With the triple factors of supply disruptions, negative TCs, and policy catalysts (Section 232), copper prices may accelerate upward after breaking through resistance levels.