Copper Hits Two-Year High: Supply Gap and Green Demand Converge, What's Next?

Copper Hits Two-Year High: Supply Gap and Green Demand Converge

Recently, international copper prices have climbed to a two-year high, driven by multiple factors, drawing widespread market attention. As the 'Dr. Copper' of the global economy, copper's price movement not only reflects current macroeconomic expectations but also signals a revaluation of metal resources under the renewable energy revolution. This article analyzes the driving logic behind the copper price surge from three dimensions: supply-demand dynamics, inventory changes, and green demand, and provides an outlook for the future.

Supply-Demand Gap: Mine Disruptions and Smelting Bottlenecks Coexist

The strong performance of copper prices first stems from continued tightening on the supply side. According to industry statistics, ore grades in major global copper mining regions (such as Chile and Peru) have declined in recent years, coupled with production cuts at some mines due to community protests and water restrictions, leading to a noticeable slowdown in copper concentrate supply growth. Meanwhile, the pace of global smelting capacity expansion has lagged behind mine recovery, with treatment and refining charges (TC/RC) once falling to historic lows, dampening utilization rates at some smelters. According to Reuters, citing trader sources, the global copper market is expected to see a supply deficit of several hundred thousand tonnes in 2024, one of the largest in the past decade.

Low Inventories: LME and Shanghai Bonded Inventories Continue to Decline

Inventories are direct evidence of supply-demand tightness. According to London Metal Exchange (LME) data, copper inventories have been declining since the start of 2024 and are currently at multi-year lows, with registered warrants also relatively low. Meanwhile, copper inventories monitored by the Shanghai Futures Exchange and bonded warehouse stocks have also been trending downward, reflecting strong demand from China, the largest consumer. Low inventories mean prices are highly sensitive to any supply disruption or demand surprise, amplifying market volatility.

Green Demand: New Energy Industry Becomes a New Growth Engine

Unlike traditional real estate and grid demand, the new energy industry's demand for copper is characterized by 'large scale and rapid growth.' According to the International Energy Agency (IEA), electric vehicles use about four times as much copper as conventional cars, and the copper intensity per unit of renewable energy facilities such as solar and wind is significantly higher than that of coal-fired power. With the acceleration of global energy transition, copper consumption in the new energy sector (including EVs, charging stations, solar, and wind) is expected to exceed 3 million tonnes in 2024, accounting for about 12% of total global demand. This structural shift is transforming copper from a traditional cyclical commodity to a 'green metal,' with a steeper long-term demand curve.

Macro and Financial Attributes: Weaker Dollar and Inflation Expectations

Beyond fundamentals, macroeconomic factors are also supporting copper prices. Since 2024, market expectations of Fed rate cuts have intensified, and the US dollar index has retreated from highs, boosting dollar-denominated copper prices. At the same time, heightened global geopolitical uncertainties have enhanced the appeal of commodities such as gold and copper as hedges against inflation and risk. According to Bloomberg data, copper prices have shown a clear negative correlation with the dollar index over the past year, while CFTC positioning reports indicate that managed money net long positions have increased recently, reflecting renewed speculative bullish sentiment.

Outlook: High-Level Volatility, but Uptrend Remains Intact

Looking ahead, copper prices may face short-term profit-taking and seasonal demand fluctuations, but the medium-to-long-term bullish logic remains solid. On the supply side, the 'hangover' of insufficient capital expenditure in mining will continue to manifest over the coming years, while on the demand side, global green stimulus policies (such as the US Inflation Reduction Act and the EU Green Deal) will continuously release incremental copper demand. According to Goldman Sachs research, copper prices are expected to move higher in 2025 and could challenge historical peaks. However, investors should also be wary of downside risks such as a weaker-than-expected recovery in China's real estate sector and global recession risks.

In summary, copper's two-year high is the result of the convergence of supply-demand gaps and green demand, reflecting a revaluation of metal resources driven by the reshaping of the global energy system. For derivatives market participants, volatility in copper futures and options is expected to remain elevated, and we recommend focusing on opportunities to build positions on dips while using options strategies to manage price pullback risks.