China Gold: Mining side disturbances resurface, risk of copper market imbalance rises

The Zhitong Finance App learned that on September 24, CICC released a research report saying that on September 24, Freeport issued an update on Grasberg's operating status. The company lowered its 4Q25 production guidelines to “negligible levels” (copper production for the fourth quarter was originally estimated to be 202,000 tons), while also cutting 35% of the copper production guide for the full year of '26, or 269,500 tons. Prior to the Grasberg accident, mine side growth was expected to be around 600,000 tons in 2026, with a year-on-year growth rate of 2.6%. However, after Freeport announced force majeure, the global copper supply is expected to suffer a loss of 202,000 tons (about 0.9% of global mine-side supply) in 2025, and the gap between supply and demand will widen.

CICC pointed out that the continued failure of copper mine production capacity to meet expectations is essentially an expression of insufficient long-term supply. The lack of copper project flow due to insufficient historical capital expenditure is still quite certain. The decline in the quality of existing mines and the intensification of resource protectionism have also supported the copper mine disturbance rate at a high level since 2016. The release of near-end copper supply is slow, and the far-end copper gap pressure is constantly approaching, and the general logic of the supply narrative has not changed. The mine-side supply growth rate may be difficult to match demand growth in the next few years. Starting in 2027, the gap under the copper mine benchmark situation will begin to widen, and the price mechanism urgently needs to be intervened to stimulate more supply or demand replacement.

CICC's main views are as follows:

Freeport issued an update on Grasberg's operating conditions, drastically lowering copper production expectations for the fourth quarter and the coming year

On September 24, Freeport issued an updated announcement on Grasberg's operating status. The company lowered its 4Q25 production guideline to an “negligible level” (copper production was originally estimated at 202,000 tons in the fourth quarter), while cutting 35% of its annual copper production guide for '26, or 269,500 tons. Looking at mining areas, the company expects the unaffected Big Gossan and Deep MLZ mining areas to resume production in the mid-fourth quarter of 2025 (the two mining areas account for about 30% of Grasberg's production), while the GBC mining area where the accident occurred (accounting for about 70% of production) will resume production one after another from the first half of '26. Among them, PB2 and PB3 will resume production in 1H26, PB1S will resume production in 2H26, while PB1C will need to resume production in '27. The company expects Grasberg as a whole to return to the level of output before the accident in '27.

The 25-26 copper balance sheet may become scarce due to disruptions or the pressure on paper supplies in the coming year

According to CICC's recent roadshow feedback, the market showed some concern about the pressure on paper supply of copper concentrate in 2026. CICC expects that the increase in 2026 will still mainly come from the crawling or expansion of large-scale projects already in operation, including the Oyu Tolgoi underground mine, the Quebrada Blanca crawling, Malmyzh crawling, and the Almalyk Yoshlik deposit. The new projects mainly include Dragon Phase II, Mirador Phase II, Kitumba, and Collahuasi Debottlenecking. Furthermore, production of Antamina and Batu Hijau is expected to pick up, and Cobre Panama will also have an opportunity to resume production within 26 years.

It is worth noting that similar to 2024, the new projects in 2026 are still mainly from Chinese mining companies, and the probability expressed in terms of commissioning time may be high. Prior to the Grasberg accident, mine side growth was expected to be around 600,000 tons in 2026, with a year-on-year growth rate of 2.6%. However, after Freeport announced force majeure, the global copper supply is expected to suffer a loss of 202,000 tons (about 0.9% of global mine-side supply) in 2025, and the gap between supply and demand will widen. In 2026, it may face a loss of 269,500 tons (accounting for about 1.1% of global mine-side supply). The annual mine side growth rate will drop to 330,000 tons, a year-on-year growth rate of 1.4%. This also means that the 2026 global copper balance will probably shift from a slight excess to a shortage.

The same supply disruptions, different market reactions, and the credibility of the supply narrative is gradually improving

When the balance between supply and demand is far from the tipping point, the market tends to view the overall supply of copper ore as a chaotic system. Under the law of majority, accidents occur only by calculating the interference rate (the center of the interference rate for the past ten years was around 5%, corresponding to a reduction of 1.2 million tons per year). Under the safety cushion of the interference rate, it is difficult to push the market to believe the supply narrative due to individual copper mine accidents.

A good example is that on November 28, 2023, the Cobre copper mine with an annual production capacity of 350,000 tons faced closure due to the Supreme Court ruling that the operating contract was unconstitutional, but the market did not measure the shortage of copper. Copper prices continued to fall over the next month due to concerns about demand in China's real estate chain. It wasn't until March of the following year that the CSPT Copper Raw Materials Joint Negotiating Group proposed joint production cuts. In line with the Federal Reserve's easing expectations, copper prices began to rise sharply. The same was the market reaction when volume was reduced due to the Kamoa-Kakula accident in May of this year.

However, when the balance between supply and demand is closer to the tipping point, the market will be more inclined to directly view supply disruptions as a reduction in actual output in the end. According to data released by CRU in September, there is still an uncalculated interference rate of 1.8% in 2025, which is equivalent to 435,000 tons of copper production, but this time, it is difficult for the uncalculated interference rate to become a safety cushion for the Grasberg accident. In other words, in the face of supply disruptions similar to paper volume cuts, it is precisely because the current market acknowledged the transition from “top-line growth” to “bottom-line growth” that triggered the rise in prices. This reflects an increase in the credibility of the supply narrative.

Copper's expected self-realization is slow, and the risk of imbalance in the copper market is still rising

CICC pointed out that the continued failure of copper mine production capacity to meet expectations is essentially an expression of insufficient long-term supply. The lack of copper project flow due to insufficient historical capital expenditure is still quite certain. The decline in the quality of existing mines and the intensification of resource protectionism have also supported the copper mine disturbance rate at a high level since 2016. The release of near-end copper supply is slow, and the far-end copper gap pressure is constantly approaching, and the general logic of the supply narrative has not changed.

CICC believes that it may be difficult to match the growth rate of mine-side supply in the next few years. Starting in 2027, the gap under the copper mine benchmark situation will begin to widen, and the price mechanism urgently needs to be intervened to stimulate more supply or demand replacement. However, from the perspective of inventory, capital expenditure, etc., the global copper market faces an ever-looming gap, and preparations are insufficient. Therefore, the optimistic judgment on copper prices was reiterated, and the target price for Q4 was 11,000 US dollars/ton.

Judging from the inventory, with high-precision copper production this year, copper elements are still being stored upstream and downstream. In addition to US copper reserves, domestic social inventories and Shanghai-Lunn Exchange inventories are still being stored. Negative TC means that copper concentrate probably doesn't have much inventory space. Regarding excess inventory in the US, the COMEX/LME price spread has remained flat even though it has narrowed drastically. This shows that the inventory return that the market previously feared was not enough to occur, and the drag on the global balance sheet is limited.

In terms of raw materials, the supply of copper scrap remains in tight balance. As the copper supply gap approaches, we are seeing a weakening of the response of capital expenditure to prices. In recent years, copper resource endowments have continued to decline, and the exploration and construction cycle for new deposits has been lengthened, leading to a decline in copper storage capacity brought about by unit capital. These factors have led mining companies to be cautious about expansionary capital expenditure and may prefer short-term shareholder returns. Essentially, price incentives are still insufficient.

Judging from demand, the domestic market needs to slow down in the second half of the year, but it still maintains a high single-digit percentage growth rate driven by transformational demand. There will be less pressure to accumulate reserves in the future. Combined with the Federal Reserve changing from fluctuating to pigeons, a smooth wind has already begun in terms of the financial nature of copper prices. It is recommended to keep a close eye on growth data for the next 1-2 quarters. If growth expectations improve, the global manufacturing cycle resonates with the electrification trend, and a “perfect storm” for copper prices may be expected.