On February 6, the Shanghai copper main 2603 contract opened lower and extended losses during the morning session, decisively breaking below the psychologically significant 100,000 yuan per tonne level. The contract opened at 99,540 yuan per tonne, down 2,960 yuan. By 09:25 Beijing time, the price had fallen further to 98,190 yuan per tonne, marking a decline of over 4%. This sharp drop in copper prices was influenced by weak overseas macroeconomic data and a decline in market risk appetite, coupled with weaker downstream demand ahead of the Chinese New Year and a global accumulation of inventory. The struggle between short-term "weak fundamentals" and long-term "strong expectations" in the copper market has intensified. What lies ahead? This analysis delves into the latest data and industry trends.
A combination of negative macroeconomic factors and pressure from precious metals contributed to copper's weak opening. Disappointing U.S. employment data has raised concerns about recession risks. The ADP employment report for January, released on the evening of February 5, showed an increase of only 22,000 jobs, significantly lower than the market expectation of 48,000 and the lowest level since early 2021. This data suggests the U.S. labor market is stuck in a pattern of low hiring and low layoffs, indicating weak business expansion intentions and potentially restrained consumer spending. Although the official non-farm payrolls report was delayed due to a partial government shutdown, the weak ADP data has cast a shadow over the labor market. Expectations for Federal Reserve interest rate cuts have increased again, pushing the U.S. dollar index above 108 and putting pressure on dollar-denominated commodity prices.
A pullback in risk appetite, with precious metals leading the decline, has also weighed on industrial metals. Overnight, the three major U.S. stock indices closed lower, with Microsoft shares falling 5%. The S&P 500 Software & Services Index dropped 4.6%, declining for the seventh consecutive session. While rising risk aversion typically boosts gold prices, COMEX gold futures fell sharply by 1.8% in a single day, and silver plunged 3%, influenced by profit-taking and technical selling pressure. This sudden slump in precious metals triggered a chain reaction in the commodity markets, pulling down industrial metals like copper and aluminum. Market analysts note that the correlation between copper prices and gold/silver has strengthened recently, with concentrated unwinding of cross-commodity arbitrage positions by speculative funds amplifying copper price volatility.
Weak industrial fundamentals are prominent, with inventory accumulation pressures intensifying before the holiday. As the Chinese New Year approaches, domestic copper processing enterprises are entering holiday shutdowns. Operating rates in downstream sectors such as wire and cable, copper tubes, and copper strips continue to decline. According to SMM research, the operating rate for domestic copper rod producers fell to 58% this week, down 12 percentage points from the peak in January. Although some companies engaged in pre-holiday stockpiling, the recent price decline has not significantly stimulated procurement demand. The spot discount has only narrowed slightly, indicating strong wait-and-see sentiment among downstream users.
Global inventories have surpassed 1.02 million tonnes, highlighting a well-supplied market. As of February 5, combined copper inventories across the three major exchanges reached 1.02 million tonnes, a 35% increase compared to the same period last year. LME inventories have risen rapidly to 160,000 tonnes, partly due to a shortage of deliverable brands which pushed the premium up to $150 per tonne, attracting previously hidden stocks to the market. Domestic inventory accumulation has slowed ahead of the holiday, but with the export arbitrage window open, some material has flowed to LME warehouses, easing domestic supply pressure. COMEX inventories remain low at around 50,000 tonnes, but the C-L spread has narrowed significantly, eliminating the export arbitrage opportunity.
Supply and demand expectations are diverging between the short and long term, with long-term logic unchanged but short-term pressure evident. Despite weak near-term demand, the market remains optimistic about copper's long-term prospects. The global energy transition and AI data center construction are expected to significantly boost copper demand. Goldman Sachs forecasts that global data center copper consumption could reach 5 million tonnes by 2030, accounting for 8% of total demand. On the supply side, depletion of old mines, long development cycles for new projects, and rising ESG costs will constrain growth in copper concentrate production. A projected supply deficit by 2025 could support higher long-term price levels.
In the short term, however, inventory builds and seasonal demand weakness are limiting price rebounds. Before the holiday, with domestic downstream production halted and overseas restocking pausing, the copper market is entering a phase of weak supply and demand. Technically, after breaking below the key 100,000 yuan support, the next support level is seen around 98,000 yuan per tonne. Key factors to monitor include the upcoming U.S. non-farm payrolls report, the COMEX copper forward curve for signs of weak nearby demand, and potential Chinese policy measures that could boost post-holiday demand expectations.
The market is expected to be weak with fluctuations in the short term, while medium to long-term investment value remains prominent. The Shanghai copper main contract is forecast to trade between 98,000 and 102,000 yuan per tonne in February. Pre-holiday demand seasonality and macroeconomic uncertainty will likely cap prices, but strong cost support around 95,000 yuan per tonne is expected. Light, tactical trading is advised. For the medium to long term, the outlook for copper's "green demand" and supply constraints remains positive. Investors may consider building long positions during price corrections, focusing on the pace of post-holiday downstream resumption of operations and inventory drawdowns. Some international institutions view copper as a top industrial metal pick for 2025, suggesting opportunities for arbitrage between markets.
In conclusion, after losing the 100,000 yuan level, copper prices may continue weak consolidation in the near term. The market is currently caught between weak macroeconomic expectations and industrial realities versus strong long-term demand and supply fundamentals. Investors should avoid chasing rallies or selling into panics and instead focus on post-holiday demand recovery, U.S. labor market data, and global inventory trends to identify opportunities as the market potentially transitions from weak fundamentals to strong expectations.