Copper prices on the domestic spot market continued their strong performance on May 12th. The Yangtze River spot price for 1# copper surged by 2,240 yuan per tonne, closing at 106,790 yuan per tonne, with a premium of 210 yuan per tonne. The spot market exhibited high enthusiasm for restocking, with holders showing a strong willingness to maintain high prices. Active trading driven by chasing rallies at higher levels intuitively reflects the current strong bullish sentiment among funds towards the copper market.

In the futures market, the Shanghai Futures Exchange's main copper contract opened higher and rose sharply, maintaining its strength into the afternoon session. The futures price surpassed 108,400 yuan per tonne, hitting a new high in over three months. London copper on the Asian session traded within a range, fluctuating around the moving average but overall maintaining a strong posture. It is currently trading around $13,949 per tonne, just a step away from $14,000, reflecting cautious yet optimistic fund sentiment and a favorable trading atmosphere.

As copper prices approach historical highs, Citigroup released a new research report, ranking copper as the top pick in China's materials sector and predicting mining stocks will follow commodity prices in a "catch-up" rally. Why does Citi place such importance on copper at this juncture? The underlying logic is primarily based on a dual consideration of "stock price underperformance" and "fundamental resilience."

The "divergence" between stock and commodity prices presents a catch-up opportunity. Citi analysts point out that since the Iran conflict, except for lithium stocks, the performance of other mining stocks has generally lagged behind their underlying commodity prices and their U.S.-listed peers. This phenomenon of "weak stocks, strong commodities" reflects the stock market's previous over-pricing of risks related to slowing global demand. Citi believes that as tensions in the Middle East may potentially ease, the lagging stock prices are expected to recover. Based on this, Citi elevated copper to the top of its preference order and added MMG Ltd and China Molybdenum Co., Ltd. to its preferred list, expecting both to outperform the market if the Strait of Hormuz reopens.

Copper's "triple buffer" forms a solid fundamental foundation. Beyond the catch-up logic, copper's own robust fundamentals are the core support for its top ranking. The Citi report suggests that energy transition and AI-related demand, growing military demand, and supply-side constraints together form a "triple buffer" for copper prices against cyclical shocks.

1. Structural demand provides a floor: Energy transition and AI-related demand currently account for about 18% of global copper consumption, contributing nearly all the incremental demand in recent years. Even if traditional cyclical demand declines, the expansion of structural demand substantially reduces the downside risk to total demand. 2. Military demand provides elasticity: Global military-related copper consumption accounts for about 9% of total consumption, and the increasing equipment intensity requirements of modern warfare provide additional upside potential for copper demand. 3. Persistent supply-side constraints: The blockade of the Strait of Hormuz due to Middle East conflicts has cut off about a quarter of global sulfur supply, directly impacting the hydrometallurgical copper process. This could theoretically affect up to about 8% of global mined copper supply, providing firm cost support on the smelting side.

Sector preference reshaped: Copper tops, lithium and aluminum remain in focus. Based on the above logic, Citi provided its latest materials sector preference order: copper > aluminum > lithium > lithium iron phosphate (LFP) cathode > batteries > gold > coal > steel > cement.

It is worth noting that Jiangxi Copper Company Limited was not included in the preferred list due to its smelting business being impacted by rising sulfuric acid prices, resulting in the worst performance. Aluminum Corporation of China Limited was retained on the list due to significant underperformance, with the aluminum sector still viewed favorably in the medium term. Furthermore, Citi retained Ganfeng Lithium Group Co., Ltd., Hunan Yuneng New Energy Battery Material Co., Ltd., and Contemporary Amperex Technology Co., Limited, anticipating that the upward cycle in battery prices will continue into 2026.

In summary, Citi's ranking of copper as the top pick is not only an affirmation of the current strong copper price but also a repricing of copper's "strategic resource" attributes amid the energy transition and geopolitical dynamics. For investors, while monitoring the unilateral trend of copper prices, the catch-up opportunities in related underperforming mining stocks are also worth close attention.