Copper prices surged recently. On the surface, the current hot topics in the copper market focus on the following areas: widening LME-COMEX price spread, copper concentrate TC hitting new lows, Peru's energy crisis, repeated delays in Grasberg's production resumption pace, and the substitution effect between copper cathode and copper scrap in China. However, at a deeper level, all these events can be understood under one main theme:The global emphasis on copper resource security continues to rise, and the market is repricing the entire industry.
Since 2025, the US has continuously strengthened the strategic attributes of copper. In the Section 232 copper import investigation, the US explicitly included copper, copper concentrates, copper cathode, copper scrap, and related derivatives within the scope of national security review, and required an assessment of the impact of US copper import dependence on national security and industrial resilience. Subsequent policies also proposed that some high-grade US copper scrap should be prioritized for domestic sales in the US. Against this backdrop, the COMEX premium over LME is no longer simply a futures price spread, but a price signal for the US market to attract globally deliverable copper cathode resources. If the LME-COMEX price spread continues to widen and is sufficient to cover transportation, financing, warehousing, delivery, and policy risks, it will attract some available cargo to shift toward the US. Although this round of market movement differs from 2025, the market is already trading on the widening price spread. Amid widespread market rumors, the COMEX premium already reflects the attractiveness of US resources, but whether this truly translates into changes in physical flows still requires monitoring of US regional LME inventories, COMEX inventories, and the ratio of cancelled warrants. If subsequently US LME inventories decline, the ratio of cancelled warrants rises, and COMEX inventories increase simultaneously, it would suggest that cargo may be shifting from the LME system to the COMEX system. At that point, deliverable resources on LME would decrease, and there would be upside room for the LME near-end backwardation structure.
Once LME shifts from contango to backwardation, the impact will further transmit to the LME-SHFE structure. A stronger LME near-end will compress China's SHFE/LME price ratio, and may even push the LME-SHFE price spread to reverse, potentially passively opening China's export window. On one hand, a stronger LME structure will raise smelters' raw material and LME procurement costs; on the other hand, if China's SHFE/LME price ratio remains weak, it will also force China to repair regional price spreads through exports. In extreme market conditions, close attention should be paid to LME inter-month structures, especially the TOM-NEXT price spread. If TOM-NEXT strengthens rapidly, it usually indicates that near-end deliverable resource pressure is rising, and futures may shift from ordinary spread trading to a squeeze risk pricing phase.
China side, the core logic is to secure raw material supply. Copper concentrate TC dropped to around -$107 to -$103/mt, indicating that the ore side still holds strong bargaining power and smelters' raw material procurement pressure continues to rise. In the short term, elevated sulphuric acid prices can still partially compensate smelter profits, but against the backdrop of China restricting or banning some sulphuric acid exports after May, upside room for domestic acid prices may be limited. If sulphuric acid prices subsequently pull back while TC remains in deeply negative territory, smelters' profit structures will become even more distorted. If this is further compounded by a weakening LME-SHFE structure and deteriorating SHFE/LME price ratio, smelters will simultaneously face pressure from rising raw material costs, TC losses, and declining by-product revenues.
Another key thread in China is copper scrap. Although China's copper cathode social inventory is still destocking due to weakened substitution between copper cathode and copper scrap, the substantial increase in copper scrap inventory is also a reality. Affected by reverse invoicing and the Fair Competition Review Regulations, tax costs for copper scrap processing enterprises have risen. Invoiced copper scrap is scarce and increasingly flows to smelters, reducing the actual available copper scrap for the processing segment, thereby supporting copper cathode consumption. However, this support is not without limits. If copper prices continue to rise, the price difference between copper cathode and copper scrap widens again, and copper scrap inventory pressure continues to accumulate, the incentive for copper scrap to substitute copper cathode again will strengthen. At that point, copper cathode demand may decline notably under the combined effect of "high copper prices suppressing consumption" and "copper scrap substitution recovery," and China's destocking pace may also slow down or even turn into inventory buildup.
The recently discussed Peru energy crisis and Grasberg production resumption delays are more of sentiment triggers under this resource security theme, rather than decisive variables that have already altered the current copper cathode balance — in other words, they are merely pretexts. Peru's energy issues have heightened market attention to the energy stability of South American mines. Regarding Grasberg, PT Freeport Indonesia previously mentioned that full recovery might be delayed to 2028, but Freeport-McMoRan subsequently still stated it maintains the plan to restore full production by the end of 2027, indicating that the actual impact still has expectation gaps. These events have not caused serious damage to the global copper cathode physical balance in the short term, but against the backdrop of deeply negative TC, US-China resource competition, and widening cross-market price spreads, any uncertainty on the ore side will be amplified by the market into a supply security premium.
Going forward, four sets of indicators require close attention. First, the LME-COMEX price spread, US LME inventories, COMEX inventories, and the ratio of cancelled warrants. If the spread widens accompanied by transfers from LME to COMEX, the LME near-end backwardation structure still has upside room; if US inventories stay high, the spread will remain more at the policy and financial pricing level. Second, LME inter-month structures, especially Cash/3M and TOM-NEXT. If TOM-NEXT strengthens abnormally, near-end structural risks should be watched. Third, the price difference between copper cathode and copper scrap and copper scrap inventory in China. If the price difference between copper cathode and copper scrap widens and copper scrap circulation recovers, the support for copper cathode consumption will weaken. Fourth, TC, sulphuric acid prices, and the LME-SHFE SHFE/LME price ratio. If TC continues to deteriorate, acid prices pull back, and the SHFE/LME price ratio weakens, smelters' operational pressure will rise notably.
Overall, the current copper market is undergoing a price reassessment driven by resource security competition, resulting in a COMEX-LME-SHFE price transmission relationship, which is the direct cause of rising copper prices. Under the interference of various indicators, capital and physical cargo flows are about to be reshaped once again. Against this backdrop, securing supply chain and cost safety remains a long and arduous journey.
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