Galaxy Securities released a research report stating that China's advancement in building a copper resource reserve system aims to enhance the resilience and security of the domestic copper supply chain. Amidst global changes unseen in a century, major powers are competing to secure key mineral resources and build independent supply chain systems to ensure their own resource supply security. This will lead to an expansion of the global copper deficit, and copper prices are expected to rise due to a "security premium." In the short term, copper prices have been negatively impacted by misjudged expectations regarding Federal Reserve policy, creating potential for a rebound. A recovery in downstream demand is strengthening fundamental support. Currently, some core copper mining stocks in the A-share market show high valuation safety margins for 2026, making their investment value prominent. The outlook for further copper price increases remains positive.
Regarding recent developments, on February 3, the China Nonferrous Metals Industry Association stated that improving the copper resource reserve system involves both expanding the scale of national strategic copper reserves and exploring a commercial reserve mechanism. This includes trialing commercial reserves at key state-owned enterprises through measures like fiscal interest subsidies. Furthermore, besides reserving refined copper, studying the inclusion of copper concentrate, which has large trade volumes and is easily liquidated, into the reserve scope was suggested. High-price stockpiling highlights strategic attributes and anchors supply chain security. Historically, state reserves often intervened when prices were low. A recent example was in July 2020, when the economic downturn caused by the pandemic drove copper prices to a five-year low of 33,200 yuan per ton; the state reserve purchased 300,000 tons of copper to support the market, absorb surplus, and stabilize expectations. The current stockpiling at high copper prices goes beyond merely stabilizing prices. It appears to be a forward-looking strategic move, aligning with the goal set at the 20th National Congress to "ensure the security of important energy and resource industrial and supply chains" and the Third Plenum's directive to "improve the coordinated system for exploration, production, supply, reserve, and sales of strategic mineral resources," aiming to boost domestic copper supply chain resilience and security.
The United States is also advancing its critical mineral reserves, making copper resources a focal point of competition. The US is building a security reserve system for critical minerals, planning an initial $12 billion program to establish a controllable supply chain. Considering its precedent of intervening in Venezuela to control oil, America's copper resources—home to the world's first and third largest copper producers—are also likely targets under its Monroe Doctrine-inspired control objectives. Although recent market attention has waned regarding potential US tariffs on copper, and the COMEX-LME copper price spread has narrowed, raising concerns that US copper inventories might outflow and pressure prices, copper is a critical resource for US manufacturing resurgence, military applications, AI infrastructure, and grid rebuilding. It is highly likely to be solidified as a strategic reserve rather than sold off.
Increased stockpiling by major powers is reshaping supply-demand balance and pushing up copper's "security premium." In the context of global transformation, major power competition is centering on resource security. Increased copper reserves by these nations will reshape the industry's supply-demand equilibrium, reduce market-available supply, and intensify tightness. Supply constraints at the mine level are difficult to change in the short term. The global copper mine deficit is projected to widen further by 2026, with the global refined copper surplus shrinking to 170,000 tons. If China were to purchase 300,000 tons as it did in 2020, coupled with continued inflows into US copper inventories, the global refined copper market could shift into a deficit by 2026, pushing copper prices higher. The competition among major powers to control key minerals and build independent supply chains for their own resource security will lead to an expanded global copper deficit, driving copper prices upward due to the security premium.
Exaggerated hawkish expectations regarding Warsh create potential for copper price recovery. A significant factor in the recent decline of copper prices alongside gold and silver was the nomination of perceived "hawkish" Kevin Warsh as new Fed Chair by Trump. However, the market may have overstated Warsh's hawkish stance. His historical concerns about quantitative easing were primarily post-2008; the current environment is different, and by 2025, Warsh might lean more towards interest rate cuts. Furthermore, by 2026, US banking system reserves are projected below $3 trillion. Given Trump's demands for fiscal expansion and the Treasury issuing bonds, requiring Fed stability in the government bond market, the feasibility of significant balance sheet reduction by the Fed appears low. Markets still expect two Fed rate cuts in 2026. Copper prices have potential for a rebound as the market corrects its initial overestimation of Warsh's hawkishness.
The copper price correction has activated downstream demand, leading to substantial order growth. The significant drop in copper prices has markedly improved downstream acceptance, accelerating procurement by industrial players, improving trading activity, and stimulating demand. A February 2 survey by Mysteel of 31 domestic copper rod enterprises (including refined and recycled copper rod producers, with annual capacity of 6.01 million tons) and 6 traders showed daily copper rod orders reached 43,000 tons, an increase of 29,000 tons from the previous day, up 198% sequentially. Orders for refined copper rod specifically hit 42,000 tons (a record high since the survey began), surging 29,000 tons from the previous day, a sequential increase of 229%. The price decline has triggered inventory replenishment and spot purchasing, leading to smoother price transmission, enhanced end-user acceptance, and a gradual manifestation of demand support, providing a fundamental basis for subsequent stabilization and rise in copper prices.