The impact of US tariff policies gradually emerged, with insufficient rebound momentum for SHFE copper prices

Since April, the most-traded SHFE copper contract prices have shown a trend of initial decline followed by a rebound, with copper prices gradually recovering after hitting a low of 71,000 yuan/mt. Meanwhile, arbitrage trading in the LME copper and COMEX copper markets has weakened, while domestic copper smelters have increased maintenance activities, leading to a rapid drawdown in social copper inventory and providing support for copper prices.

Supply side remains tight.

In December 2024, China's copper concentrate production reached 151,800 mt, up 6.89% YoY and 9.51% MoM. In March 2025, China imported 2.3939 million mt of copper concentrates and ore, up 9.69% MoM and 2.73% YoY. This year, China's copper concentrate production has been at a relatively low level, while imports have remained relatively stable, resulting in an overall decline in copper concentrate supply. In late April, Peru's Antamina mine halted operations entirely due to a sudden accident. The mine produced 426,900 mt of copper ore in 2024, accounting for 1.86% of global copper ore production, which will have a certain impact on global copper ore supply.

In terms of inventory, as of April 18, the copper concentrate inventory at major domestic ports stood at 706,900 mt, at a moderate level, while the processing fee for imported ore continued to decline, falling to -$34.71/mt, a record low. According to data from relevant institutions, from 2021 to 2025, the global copper concentrate capacity additions have accelerated, but in the next three years, the growth rate of global copper concentrate capacity additions will decline rapidly, potentially exacerbating the global copper concentrate supply tightness in the later period.

As of February this year, China's copper scrap production reached 115,800 mt in metal content, up 4.99% MoM and 60.83% YoY. According to March data, China's imports of copper scrap and shredded copper scrap reached 189,700 mt, down 3,631 mt MoM and 13.07% YoY. Among them, imports from the US were 22,500 mt, down 8,900 mt MoM. With the intensifying impact of the "trade war," China's copper scrap imports may decline in the later period, leading to a tight supply-demand structure for copper scrap.

In February, China's blister copper production was 911,500 mt, down 2.96% MoM and up 10.74% YoY. Among them, mine-produced blister copper decreased by 26,500 mt from January to 738,700 mt, while scrap-produced blister copper decreased by 1,300 mt to 172,800 mt. In March, China imported 50,200 mt of copper anode, down 11.05% MoM and 47.8% YoY.

In March, China's copper cathode production was 1.1221 million mt, up 6.04% MoM and 12.27% YoY. Entering April, due to the tight supply of copper concentrates, some smelters began to reduce the feedstock of copper concentrates, but by increasing the feedstock of copper scrap and anode plates, they maintained stable copper cathode production.Additionally, new smelters have commenced operations in east China, while the capacity utilization rate of smelters in south-west China has increased, leading to a slight decline in the total production of copper cathode.

Due to significant losses in the industry, the operating rate of domestic smelters remains relatively low, and import losses have also suppressed the supply of imported copper. Overall, despite an increase in copper cathode production, the overall supply pressure remains relatively small. In terms of subsequent capacity increments, it is projected that China will add 1.17 million mt of new copper refining capacity in 2025, with overseas capacity additions reaching approximately 870,000 mt. Among these, the Kamoa mining area, jointly held by Ivanhoe and Zijin Mining, will contribute the largest overseas capacity increment.

Operating rates in downstream sectors rebound

In 2025, China's fiscal policy will become more proactive. Specifically, the scale of ultra-long-term special treasury bonds is expected to increase from 1 trillion yuan to 2 trillion yuan, while the scale of new special local government bonds is anticipated to rise from 3.9 trillion yuan to 4.5 trillion to 5 trillion yuan. With the continuous strengthening of fiscal policy, it is expected that infrastructure investment in 2025 will continue to fluctuate at highs in recent years, with investment growth rates projected to stabilize at 5% to 10%. Infrastructure investment will remain one of the main driving forces for industrial product demand in 2025.

In December 2024, China's copper semis production reached 2.27 million mt, up 6.2% MoM and 16.53% YoY. The operating rate of enterprises in the copper semis industry stood at 69.02%. Affected by the Chinese New Year holiday, the operating rate of the copper semis industry was low in January and February but gradually rebounded to 67% in March. With the recovery of downstream consumption, the operating rate of downstream processing enterprises in the copper industry continued to rebound. Entering April, copper prices fell sharply, stimulating an increase in downstream orders. It is expected that the operating rate of enterprises in the copper semis industry will continue to rise, but attention should be paid to the impact of US tariff policies on China's copper consumption. Additionally, the YoY data for overall power grid and NEV production both showed slight increases, providing further bullish support for copper cathode demand.

Bulls take the initiative in forward contracts

In April, the growth rate of COMEX copper inventories accelerated, approaching 130,000 short tons as of April 23. Domestically, as of April 24, social copper inventories stood at 181,700 mt, achieving eight consecutive weeks of weekly destocking, down 195,300 mt from the year's high and 223,000 mt lower than the 404,700 mt recorded in the same period last year. In April, the decline in LME copper inventories slowed down, hovering around 210,000 mt, with the ratio of cancelled warrants dropping from a high of 50% to 37%.

As of April 18, both non-commercial long and short positions in COMEX Grade 1 copper decreased from the previous week, with net long positions falling by 4,764 lots to 19,477 lots. Meanwhile, both long and short positions in LME copper investment funds increased, with net long positions rising by 1,479 lots to 29,842 lots.The domestic futures market exhibits a contango structure, with bulls taking the initiative in the deferred contracts, indicating that major funds are optimistic about future prices.

From the perspective of the supply-demand balance table, with the arrival of the peak consumption season, downstream demand is rebounding while upstream supply is pulling back. The supply-demand structure is gradually improving, and the probability of a supply-demand gap emerging in Q2 is rising. Against this backdrop, market optimism is heating up, providing certain bullish support for prices.

From a macro perspective, based on the economic data released by the US in March, indicators such as the ISM Manufacturing PMI, CPI, and PPI have shown robust performance. The impact of US tariff policies is expected to be reflected in April's data, and subsequent attention should be paid to the progress of negotiations between the US and other countries.

On the supply side, the tight supply situation of copper raw materials has intensified, with processing fees for imported copper concentrates continuing to decline, and tariff policies affecting the imports of copper scrap. Currently, the extent of production cuts in copper smelting is relatively small, with April mainly focusing on maintenance. By-products such as sulphuric acid and gold can offset some of the losses incurred by smelters.

On the consumption side, as downstream consumption gradually recovers, the operating rates of downstream copper processing enterprises have significantly increased. The shortage of secondary copper raw materials has also stimulated market consumption of copper cathode. However, the impact of US tariff policies is gradually becoming apparent, making it difficult to be optimistic about the subsequent consumption of copper.

Overall, the fundamental support for copper is moderate, but US tariff policies still plague the market, which will limit the subsequent rebound height of copper prices. It is expected that SHFE copper prices in May may struggle to break new highs, and caution should be exercised against the risk of prices jumping initially and then pulling back. (Author's affiliation: Huawen Futures)