Copper Market Faces Tightening Supply Amid Tariff Concerns and Demand Dynamics
The global copper market is bracing for a period of potential volatility and price fluctuations as analysts weigh factors such as anticipated supply deficits, potential tariffs, and evolving demand patterns in key regions. JP Morgan’s recent note paints a picture of a market poised for tightening, projecting a significant deficit in refined copper by 2026 and forecasting continued elevated copper prices in the near term. However, the outlook is tempered by concerns over potential trade barriers and the trajectory of Chinese demand growth, creating a complex landscape for market participants.
JP Morgan expects the global deficit in refined copper to widen to 160,000 metric tons in 2026, highlighting the increasing imbalance between supply and demand. This projection underscores the ongoing challenges in bringing new copper production online and the sustained demand from various sectors, including renewable energy, electric vehicles, and infrastructure development. The bank continues to forecast copper prices averaging around $11,000 per metric ton next year, suggesting confidence in the metal’s fundamental strength despite potential headwinds.
However, a significant factor clouding the outlook is the possibility of new tariffs on copper imports into the United States. Following former President Donald Trump’s decision to order a national security probe into potential tariffs, JP Morgan anticipates a tariff rate of at least 10% on refined copper and copper product imports to be enacted by late in the third quarter. The bank also acknowledges a "significant risk" of a higher tariff rate of 25%, which would have a more substantial impact on the market.
The anticipation of tariffs is already influencing market dynamics. JP Morgan expects "likely excess inventory builds in the U.S. in the coming months" as companies seek to stock up on copper before the tariffs take effect. This stockpiling could temporarily alleviate supply pressures in the U.S. market but could also "leave the rest of the world shorter of copper," potentially exacerbating the global deficit and contributing to price increases. JP Morgan noted that such a scenario could set the stage for a "bullish push higher" in prices toward $10,400 per metric ton in the second half of 2025.
The potential economic consequences of copper tariffs for U.S. industries have been widely debated. Analysts warn that higher copper costs could increase manufacturing expenses, reduce competitiveness, and potentially lead to job losses in copper-dependent sectors. The impact would be felt across various industries, including construction, electronics, and automotive manufacturing.
While the tariff situation creates uncertainty, the demand side of the equation also presents both opportunities and risks. JP Morgan forecasts China’s demand growth to slow from 4% last year to 2.5% this year, citing this as "the greatest downside risk" to their forecast of tightening copper markets. China is the world’s largest consumer of copper, and any significant slowdown in its demand would have a ripple effect across the global market.
Despite the concerns about China, JP Morgan predicts only a modest deceleration in global copper demand growth, from 3.2% in 2024 to 2.9% in 2025. This suggests that underlying demand fundamentals remain robust, driven by the global transition to a greener economy and increasing infrastructure investments in various regions.
Recent data from the International Copper Study Group (ICSG) provides further insights into the market’s current state. The global refined copper market showed a 22,000 metric ton deficit in December, compared with a 124,000 metric ton deficit in November. While the deficit narrowed in December, it still indicates a supply shortfall, reinforcing the overall narrative of a tightening market.
Citi shares a similar perspective on the tariff issue, anticipating the eventual implementation of a 25% copper-specific tariff by the fourth quarter of 2025 following Trump’s executive order. This consensus among analysts suggests that the market is increasingly factoring in the likelihood of tariffs, and their potential impact is being closely monitored.
In recent trading activity, London copper prices rose, supported by a weaker dollar and improving manufacturing activity in China. This positive price movement underscores the sensitivity of the copper market to macroeconomic factors and demand signals from key consuming regions.
The copper market’s future hinges on a complex interplay of factors, including supply constraints, tariff policies, and demand dynamics. While the potential for tariffs and slower Chinese demand growth pose downside risks, the underlying trends of increasing electrification and infrastructure development continue to support a bullish outlook for copper prices. Market participants will need to closely monitor these developments to navigate the uncertainties and capitalize on the opportunities that arise in this evolving landscape. The anticipation of tariffs is likely to continue shaping trading strategies and inventory management practices, while shifts in demand patterns will influence the overall balance of the market. As the global economy continues to evolve, copper will remain a critical metal, and its market dynamics will be closely watched by investors and industries worldwide. The projected deficit and price fluctuations require stakeholders to be agile and informed in their decision-making processes.
