As March arrives, the copper market has experienced a significant increase in prices, reaching new heights not seen since April 2023. The price of copper in London surged past the psychologically important $9,000 per ton barrier, with peaks at $9,164.5, indicating a volatile but promising market for copper investors and analysts alike.

On the Chinese market front, copper prices also set new recordsAs of March 19, both the Shanghai Copper futures and international copper contracts hit all-time highs, with weekly growth rates outpacing those of goldAt the close on March 21, the Shanghai main copper contract was up 0.85% at ¥73,240 per ton, while the international main copper contract rose 0.87% to ¥65,280 per ton, emphasizing the widespread impacts of these changes across global markets.

Industry experts suggest that the latest surge in copper prices can primarily be attributed to a tight balance between supply and demand

On one side, tightening overseas copper mine supplies, coupled with production cuts announced by Chinese smelting facilities, have sparked concerns about future supply shortagesOn the opposite end, a global manufacturing revival and an accelerating transition to green energy are driving demand for copper, thus compounding its commodity value.

However, this meteoric rise in copper prices has resulted in a complex situation within the copper industry chain, evidencing a clear divide between upstream and downstream enterprisesWhile mining companies are embracing increased prices, processing companies are grappling with higher costs without a corresponding rise in processing fees, creating disparate experiences across the industry.

Why is copper soaring?

Since the beginning of March, copper prices have entered a rapid growth trajectory

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As of March 19, while the Shanghai copper main contract ended with a 0.21% decrease, it notably reached a mid-day peak of ¥73,900 per ton—the highest in two yearsSimilarly, international copper contracts experienced a surge, topping out at a new yearly high of ¥65,920 per tonThis fast-paced upward trajectory has caught the market’s attention, leading many to wonder about the implications for various stakeholders in the industry.

Despite a slight pullback in prices on March 20, where Shanghai copper saw a dip of 0.89%, the overall trend within the week has overshadowed gold price movementsData indicates that the copper contracts grown respectively by 2.33% and 2.23%, compared to gold's lesser increase of 1.8% within the same time frame.

Several analysts assert that the robust price increase is largely influenced by information from sources within the industry

Liu Yunzhen, a copper analyst from Zhuochuang Information, noted the potential for reduced production among China’s copper smelting firms and ongoing maintenance shutdowns in several copper processing operationsMany copper fabrication enterprises are focusing on depleting existing inventories, leading to a significant drop in incoming orders, resulting in a delayed production schedule amidst high copper pricing.

On March 13, the China Nonferrous Metals Industry Association convened a conference in Beijing with leaders from 19 copper smelting companiesThis gathering reached a consensus on raising entry thresholds while strictly controlling capacity expansions, which quickly led to rumors of production cuts within the industry.

In attempts to verify these production cut rumors, several inquiries were made to copper companies

Officials from Luoyang Molybdenum Company confirmed that they were not implementing any production cutsSimilarly, Jiangxi Copper and Northern Copper have both indicated that no definitive production reduction decisions have been made within the industry.

Even though the production cut plans have not officially been enacted, market sentiments have rapidly shiftedIndustry insiders have indicated that if such plans come into effect, there could be a notable reduction in copper supply in the coming months, essentially lending support to current market prices.

Xu Yongqi, Chief Analyst of Metals and New Materials at Huatai Securities, confirmed that the dual pressures of rumored reductions in Chinese smelting production alongside tightening supplies overseas have fueled apprehensions regarding copper availability, which has bolstered price increases.

Notably, since late 2023, overseas mining outputs have faced various disruptions

For instance, the Cobré mine, a property of First Quantum Minerals, was closed at the end of November 2023, with no clear signals of a restart expected before June 2024. In December, Anglo American lowered its 2024 copper production target by between 18,000 to 21,000 tons, hinting at a global supply-demand gap forecasted to reach approximately 177,000 tons in 2024.

On the demand side, copper has firmly established itself as a fundamental metal in global economic development and the transition to green energyReports released in 2024 have highlighted the need to enhance modern industrial systems and accelerate the development of new production capabilities in sectors such as energy and infrastructure, which are anticipated to catalyze the application and demand for copper.

Additionally, Goldman Sachs, in its latest commodity report, has pointed to a cyclical recovery in global manufacturing, foreseeing that demand for bulk metals is likely about to enter an upward phase

Supported by China's carbon reduction policies and a resurgence in manufacturing across Europe, metals like copper and aluminum are expected to face shortfalls in availability due to rising costs.

Divergence in the Copper Industry Chain

As copper prices rise sharply, the risk of fluctuations within the copper industry chain has gradually intensifiedThere is a marked distinction now evident between upstream mining enterprises striving to capitalize on high copper prices by seeking higher quality mineral resources and increasing production, while downstream processing companies are feeling tremendous pressure from rising commodity prices coupled with stagnant processing fees.

For example, Zhongkuang Resources recently announced plans to acquire a copper mining project in Zambia to enhance its mineral resource reserves and overall competitiveness

Similarly, Northern Copper is actively moving forward with developing deep resources at its existing mining site, while Zijin Mining has received governmental approval on the second phase of the Jianglong Copper Mine expansion project, anticipated to operate by the end of 2025, yielding an impressive mining output of 300,000 to 350,000 tons of copper annually.

Downstream, copper processing enterprises are working diligently to manage cost fluctuations arising from price hikes through hedging strategies, long-term fixed price contracts, and strategic inventories to safeguard profitabilityCompanies such as Tebian Electric Apparatus, Jintian Copper, and Fuliwang have begun hedging operations, instituting staff responsibilities to gather market information and convening regular meetings to evaluate market conditions and discuss specific hedging strategiesOther firms like Jinbei Electric and Hualing Cable have expressed to investors their expectations regarding rising copper prices and reassurance regarding sufficient existing raw materials and strategic inventory levels.

For small and medium enterprises, long-term fixed pricing has emerged as a practical risk management alternative

Electrical equipment manufacturers are entering long-term supply agreements with distributors, allowing them to manage price volatility while facilitating more flexible production arrangements.

Future Adjustments in Copper Prices

Looking ahead, most industry insiders predict that the tight supply-demand balance could provide substantial support for copper prices, anticipating a cyclical upward trend, albeit with potential high-level adjustmentsOfficials from Luoyang Molybdenum noted that the rapid growth of the green, low-carbon sector has pushed global copper demand upward, though issues like geopolitical tensions and insufficient investments have conspired against meeting this demand.

On March 18, the Chicago Mercantile Exchange indicated that current copper consumption in China does not reflect strong demand, with inventories accumulating beyond projections and downstream order volumes remaining sluggish

The prevailing high prices are possibly subject to speculative bubbles that need sequential demand validation, or else a correction may occur given such high levels.

Xu Yongqi reiterated that while prices are expected to remain elevated in the short run, careful observation is warranted regarding how potential supply shortages and downstream demand might interact in the medium to long term, underlining that adjustments at high levels are likely.

Liu Yunzhen cautioned that market sentiment is currently somewhat erratic, and stakeholders may be plagued by uncertainty about fluctuating news reports, leading to more cautious approachesHowever, underlying the likely implementation of production cuts, there is an evolving trend toward a more balanced supply-demand dynamic, raising expectations that significant price corrections are unlikely in the near term.

Various brokerage firms suggest that copper is likely to emerge as one of the most reliable base metals in 2024. Analyses by Goldman Sachs have underscored a structural supply deficiency that is failing to satisfy demand, necessitating a steep increase in copper pricing to achieve equilibrium