CITIC Securities: Inventory inflection point has reached, and the narrative accelerates, and copper prices are expected to reach 12,000 US dollars

The Zhitong Finance App learned that CITIC Securities released a research report saying that inventory inflection point has been reached since mid-November. Combined with rising interest rate cuts and domestic production cuts, LME copper prices are expected to accelerate towards 12,000 US dollars/ton during the year. Looking ahead to next year, the dual narrative of “US copper hoarding” and “domestic production cuts” is expected to resonate at an accelerated pace. The supply gap is expected to widen by 60%, and 12,000 US dollars will become a fresh starting point for copper prices. The copper plate configuration is fully recommended.

CITIC Securities's main views are as follows:

The inventory inflection point will help the copper price accelerate towards 12,000 US dollars during the year.

In response to recent market discussions about the divergence between “high copper prices and high inventory,” the current high inventory reading is more affected by COMEX's stocking, and LME and domestic inventories are unspeakably high. Considering that COMEX inventory is difficult to return in a state of continuous premium, and that LME inventory is mainly supplied by China and Russia, the limited effective inventory currently in the market is becoming more vulnerable, especially in an environment where global economic expectations are rising and economic and trade risks are increasing. Domestic supply and demand are expected to weaken month-on-month in Q4, but the decline in supply will be even greater, and will push the number of domestic inventory consumption days below the five-year average by the end of the year (<10 days). The rise in copper prices during the period of 1 to 2 months after the Spring Festival holiday of the year is fully verified by historical data. As inventories have reached an inflection point since mid-November, combined with rising expectations of interest rate cuts and domestic production cuts, LME copper prices are expected to accelerate towards 12,000 US dollars/ton during the year.

US Copper stocks continue to be compounded by domestic production cuts, and the supply gap is expected to widen drastically next year.

Global refined copper supply and demand are expected to increase by 1.1%/2.1% respectively in 2026, driving the apparent balance between supply and demand and falling into shortages. The supply gap is expected to widen further by 60% to 450,000 tons after considering hoarding demand. Let's take a look at two drivers in detail:

1) The uncertainty of tariff policy resonates with the high certainty of AI development, and it is expected that US Copper will continue to stock up. At the beginning of August, US import tariffs on refined copper were unexpectedly dropped, but US copper inventories were still rising because tariff concerns were difficult to subside: 2026-2027 may be increased by 15%; second, AI is rapidly developing: if global AIDC capacity is increased by 18 GW next year, it is predicted that copper demand in the infrastructure and derived energy installation, transmission and distribution sectors will increase by nearly 500,000 tons in total. Referring to Trump's first term, the amount of stocks the market held in anticipation of infrastructure expansion and tariffs, the amount that US Copper has stocked since this year (750,000 tons in January-August) is unspeakably excessive, and the hoarding behavior may continue.

2) Domestic production cuts will eventually come to fruition, and demand-side growth is slowing down, but it's hard to say headwinds. Although the copper scrap supply cycle may cause domestic recycled refined copper production to continue to increase (+23% compared to January-September), a rigid shortage of raw materials at the mine end (predicting that global production may fall into four consecutive quarters of decline starting in Q3) and policy determination (CSPT reached a consensus to reduce the copper load by 10% in 2026), the reduction in domestic raw refined copper production will eventually drastically reduce the overall production rate next year, and the slowdown in terminals such as lithium batteries and white batteries will not reverse the overall pattern of improvement in supply and demand.

It is estimated that $12,000 is not only a safe base to guarantee medium- to long-term supply, but also a new starting point for potential upward flexibility.

It is expected that the LME copper price center will move up to more than 12,000 US dollars/ton next year. In terms of cost and inventory, this target price has the characteristics of both offense and defense:

1) Cost dimension: In the past ten years, the unit exploration cost of global copper mines has increased more than 20 times to more than 3,300 US dollars/ton, and the investment intensity of new construction and expansion projects has doubled to more than 15,000 US dollars/ton. Referring to the copper price level at the peak of the previous round of capital expenditure, the current stimulus price may move up to 12,000 US dollars/ton, and the bottom effect is obvious;

2) Inventory dimension: The trend of changes in global apparent inventories since this year is most similar to 2019-2020, and the two stages are highly similar in terms of the monetary policy cycle, the location of the domestic “five-year plan”, and the development stage of downstream emerging fields. Referring to the increase in LME copper prices by more than 50% in 2021, it is recommended that full attention be paid to the flexibility of the increase in copper prices next year.

Risk factors:

The growth rate of upstream supply exceeded expectations; economic growth or terms of trade development between China and the US fell short of expectations; demand during the peak season fell short of expectations; the extent of interest rate cuts by the Federal Reserve fell short of expectations; transaction risks caused by fluctuations in copper prices in overseas markets that exceeded expectations; and the operating risks of enterprises overseas assets.